How Much Will Wall Street Shrink?
September 18, 2009
Today's Journal story on the declining allure of a finance career has some interesting numbers: Although the biggest banks are showing a revived appetite for risk taking and certain exotic instruments such as credit derivatives, many of the vanished jobs aren't expected to be back soon. The White House Council of Economic Advisers expects finance and insurance jobs to decline to 4.1% of the work force in 2016 from 4.8% at the end of last year, a point at which many were already gone. ... Harvard's 2009 graduating class shows the shift in career directions.
This Giant Isn't Sleeping
September 17, 2009
It’s now widely believed that the global recession is coming to an end, but the path out has been far from typical: This time around, China, not the U.S. has led the global recovery. With its $600 billion stimulus package and with banks lending with abandon, China has become the engine of global manufacturing and industrial activity.
The Paradox of the Paradox of Thrift
September 16, 2009
Keynes' paradox of thrift holds that if everyone tries to save at the same time during a recession, then the economy continues to contract due to a fall in demand. This sends incomes lower and gives people less money to sock away, so that total savings actually fall instead of rising. The implication for our times is that a new era of frugality might not be what the economy needs. But in a new IMF paper, Yasser Abdih and Evan Tanner argue that Keynes' paradox might not apply after a financial crisis. In normal times, companies can finance investment through their own savings.
UPDATED: Rockefeller Says "No Way" on Baucus Framework
September 15, 2009
Senator Jay Rockefeller, speaking Tuesday afternoon on a conference call co-sponsored with the Campaign for America's Future: I have sat besides Max Baucus for 22 years on the Finance Committee. ... I'm probably one of his best friend among Democrats. But I cannot agree with him on this bill. ... There is no way in present form I will vote for it.
Obama and the Ghost of Louis Brandeis
September 15, 2009
President Obama’s speech yesterday was disappointing. As a diagnosis of the problems that let us into financial crisis, it was his clearest and best effort so far. He didn’t say it was a rare accident for which no one is to blame; rather he placed the blame squarely on the structure, incentives, and actions of Wall Street. But then he said: Our regulatory reforms will fix that. This is hard to believe. And even the president seems to have his doubts, because he added a plea that--in the meantime--the financial sector should behave better. The audience was composed of our financial elite, but
What You Need to Know About the State of Our Financial System
September 14, 2009
Financial markets have stabilized--people believe that the U.S. and West European governments will not allow big financial institutions to fail. We have effectively nationalized any banking system losses, but we’ll let bank executives enjoy the full benefits of the upside. How much shareholders participate remains to be seen; there will be no effective reining in of insider compensation (my version; Joe Nocera’s view). Small and medium-sized banks, however, will continue to fail as problems in commercial real estate continue to mount.
September 10, 2009
After calling an extraordinary special session, the Roberts Court is now debating whether to reverse decades of cases that allow the government to restrict the campaign spending of corporations. Defending the regulation of corporate speech, Elena Kagan, in her first argument on behalf of the Obama administration, made a strategic concession.
Touching the Third Rail of Housing Policy
September 09, 2009
Ed Glaeser posted in Economix yesterday about the lessons that the housing crash imparts for housing policy--including the seemingly untouchable mortgage interest deduction. Now that home prices seem to be moderating, the piece provides a vivid reminder of how steep the price curve was, before and after the crash.
Low Expectations for the G20 and IMF
September 08, 2009
As we wade through a long line of international economic meetings--G20 ministers of finance last week, G20 heads of government in Pittsburgh coming up, IMF-World Bank governors meeting in Istanbul early October (and all the associated “deputies” meetings, where the real work goes on)--it seems fair to ask: Where is regulatory reform of our financial system heading? Long documents have been produced and official websites have become more organized. Statements of principle have been made. And the melodrama of rival reform proposals has reared its head: continental Europeans for controlling pay
Good Finance Gone Bad
September 08, 2009
As the Lehman anniversary approaches, defenders of the financial sector struggle into position--partly in response to your comments (also here). They offer three main points: We need finance to make the economy work. Financial innovation delivers value, although it’s not perfect (but what is?). Don’t kill the goose that laid the golden egg. Point #1 is correct, but this does not necessarily mean we need finance as currently organized. The financial sector worked fine in the past, with regard to supporting innovation and sustaining growth. Show me the evidence that changes in our financial str