Arnold Kling
Arnold Kling earned his Ph.D in economics at MIT. He was an economist on the staff of the Federal Reserve Board. From 1986-1994 he worked at Freddie Mac. He started Homefair.com in 1994 and sold it in 1999. His fourth book, From Poverty to Prosperity, co-authored with Nick Schulz, is due out in April of 2009. He blogs regularly at Econlog.
Recently by Arnold Kling
Sep 29 2009, 12:20PM
Securitization: Don't Miss This Article
I appreciate the attention that Daniel Indiviglio gave to my article on the future of mortgage securitization. However, I want to point out that another article on that topic in the same issue of FinReg21 is at least as worth reading. It is by Gerald Hanweck, Anthony B. Sanders, and Robert Van Order, and they argue for an approach to regulating old-fashioned lenders and securitizers on a level playing field. Among other recommendations, they favor stress tests to establish capital requirements.
Sep 14 2009, 2:43PM
Responding to Obama on Financial Reform
President Obama offers powerful rhetoric but weak proposals. The
financial Humpty-Dumpty of big inter-linked banks, securitized
mortgages, and self-defeating housing and bank capital regulation
policies has had a big fall. The Administration's response amounts to
putting this Humpty-Dumpty back together, taping on some new
regulations, and sticking it back on the wall. That is not the answer.
Sep 9 2009, 9:55PM
What's Wrong with Obama's Health Care Speech
He said,
On the right, there are those who argue that we should end the employer-based system and leave individuals to buy health insurance on their own.If he wanted to be balanced, he could say that on the left, there are those who argue that we should end the employer-based system and leave individuals to get health insurance from government. Instead, I thought he made single payer sound less threatening.
Sep 3 2009, 9:35AM
In-Flight Wi-fi Price Discrimination
Daniel Indiviglio poses the problem of pricing in-flight Wi-Fi. This is part of a class of problems in which fixed costs are high but marginal costs are low. In the economics literature, it is known as the "Disneyland Dilemma," from a classic article by Walter Oi.
Aug 31 2009, 9:20AM
Nostalgia for Healthcare Bipartisanship
Uwe E. Reinhardt points out that in 2003, no one subjected prescription drug coverage to the requirement of a balanced budget when they passed the Medicare Modernization Act. He notes that between 2010 and 2019, Medicare spending on prescription drugs is projected at $1 trillion, "Over 90 percent of that total represents the effect of the M.M.A." He continues:
Aug 26 2009, 9:30AM
Why Medical Technology is Driving Health Care Costs
From the introduction to Taming the Beloved Beast by Daniel Callahan
In a rare instance of consensus, health care economists attribute about 50% of the annual increase of health costs to new technologies or to the intensified use of old ones. That annual increase has fluctuated between 7% and 12% per year for many years now, and there is every expectation that it will persist at around 6-7% for the indefinite future. Medicare's cost increases are projected to be 7.4% a year between 2006 and 2017.
Aug 24 2009, 8:40AM
Health Care Reform Contradictions
James Surowiecki writes,
the public's skittishness about overhauling the system also reflects something else: the deep-seated psychological biases that make people resistant to change.He goes on to list all of the irrational biases that lead people to want the status quo and resist real health care reform. He never mentions labor unions. Yet unions are a major political factor in the status-quo bias that Surowiecki laments.
Aug 22 2009, 10:38AM
Health Reform's Intellectual Failures
I am tempted to talk about the politics of health care reform. But, honestly, I cannot figure out why the Democrats cannot pass a bill. So, some Republican constituents are really vocal in opposition. Is that such a big deal? I cannot fathom what is going on in the minds of the Democratic Senators and Representatives.
Instead, I want to talk about the intellectual failures on health care reform. I doubt that the political problems and the intellectual problems have much overlap, if any.
Instead, I want to talk about the intellectual failures on health care reform. I doubt that the political problems and the intellectual problems have much overlap, if any.
Aug 14 2009, 9:24AM
The Problem with the Health Care Debate
Keith Hennessey engages Barack Obama. I would like to see someone on Obama's side engage Keith Hennessey. Perhaps the health care debate will never be reasonable, for reasons that Uwe Reinhardt gives.
I have a similar, but shorter explanation.
I have a similar, but shorter explanation.
Aug 11 2009, 8:49AM
Lowering the Bar on Obamacare
I want to follow up on my criticism of the GOP tactics on health care reform. My concern is that by exaggerating the negative effects of Obamacare, the Republicans are effectively lowering the bar for Democratic health care reforms to succeed.
Suppose that the main GOP message is, "Health care reform will kill grandma." If health care reform passes, and three years from now grandma is not dead, then the Democrats can say, "We told you so."
Suppose that the main GOP message is, "Health care reform will kill grandma." If health care reform passes, and three years from now grandma is not dead, then the Democrats can say, "We told you so."
Aug 10 2009, 9:14AM
Obamacare, Hypocrisy and the GOP
Robert J. Samuelson
accuses the Obama Administration of reinforcing the status quo on
health care reform. Although Obama argues that the status quo is
unsustainable because of the future path of health care spending, the
proposals in Congress tend to add to the spending problem rather than
solve it.
Samuelson is correct that Obama is being hypocritical.
However, by the same token, the Republican opposition is even more
hypocritical.
Jul 20 2009, 3:12PM
The Debate Over Taxing Health Benefits
As Greg Mankiw points out, taxing health benefits is supported by William Gale and by Jeffrey Frankel, two economists more likely to be found in a Democratic than a Republican administration. They in turn cite Jason Furman, who is also more likely to be found in a Democratic administration.
On the other hand, James Klein and John Sweeney are against taxing health benefits. Klein is a lobbyist for health benefits providers and Sweeney is head of the AFL-CIO. My guess is that Klein and Sweeney can deliver a lot more votes than Gale and Frankel.
On the other hand, James Klein and John Sweeney are against taxing health benefits. Klein is a lobbyist for health benefits providers and Sweeney is head of the AFL-CIO. My guess is that Klein and Sweeney can deliver a lot more votes than Gale and Frankel.
Jul 15 2009, 11:34AM
Investigating the Financial Crisis
Damian Paletta reports,
Washington is buzzing because leadership on Capitol Hill could name as soon as Wednesday the 10 members of the Financial Crisis Inquiry Commission.Am I the only person who has not heard of this?
Jul 13 2009, 9:45AM
The Recovery Will Be Fast
Sudeep Reddy takes note of an important fact about the current recession:
1. Cutbacks in employment (and, I would add, hours worked) are sharp relative to the cutbacks in output.
In addition, I would point out that:
1. Cutbacks in employment (and, I would add, hours worked) are sharp relative to the cutbacks in output.
In addition, I would point out that:
Jul 7 2009, 10:05AM
The Case for Another Stimulus
The unemployment rate is higher than the Administration forecast. From a Keynesian perspective, this suggests that the need for a stimulus is even greater than when President Obama took office.
Jun 26 2009, 12:35PM
The Obama Pattern
The Obama Administration appears to me to be pursuing many goals, poorly. Here are four:
1) The stimulus failed to meet Larry Summers' famous criteria of timely, targeted, or temporary.
1) The stimulus failed to meet Larry Summers' famous criteria of timely, targeted, or temporary.
Jun 24 2009, 1:15PM
Cylically-Adjusted Deficit
The CBO's Douglas Elmendorf writes,
Under CBO's baseline assumptions, the cyclically adjusted budget deficit will rise sharply in 2009, to 9 percent of potential GDP (from 2.6 percent in 2008), but then decrease in 2010 and 2011 to 4.7 percent and 2.2 percent of potential GDP, respectively.This is the right way to distinguish the effect of the recession on the deficit from the effect of policy. As you can see from the CBO's graph, some of the deficit can be blamed on the recession, but most of it cannot (graph after the jump).
Jun 17 2009, 9:23AM
What Was the Financial Crisis?
Mike from Rortybomb writes,
I think of the crisis as primarily a solvency crisis.
There is a fundamental divide over whether the financial crisis was a liquidity crisis or a solvency crisis. Mike is putting himself, along with Gary Gorton, in the liquidity crisis camp. In this view, there was a bank run that took place outside the banking system.Your local shadow bank took in money in the repo market as deposits, and used senior tranches of debt as the collateral. Now what happens when it needs liquidity? There is no market maker of last resort who the system as a whole could turn to. Repeat that again. It exists in the shadows, there is nowhere to turn to for emergency liquidity. There is no regulation/liquidity tradeoff here. This is what is meant by being unregulated - not that there weren't any government agents in sight.
As such it was only a matter of time before a bank run of epic proportions happened.
I think of the crisis as primarily a solvency crisis.
Jun 16 2009, 9:45AM
Brad DeLong is Wrong About the Banks
Brad DeLong writes,
Let's go through it slowly. The commercial banks were regulated. The government guaranteed their deposits. Savers who wanted to not have to worry about making sure that their money wasn't going to vanish and who were inertial in their behavior put their money into commercial banks. Regulators watched the leverage of commercial banks. And commercial banks--with their massive retail savings deposits--have for the most part come through this all right.The last sentence is not meant to be a joke. Yet it is far from reality-based. To the extent that the banks "came through" this, it is with a great deal of assistance from the taxpayers.
Jun 11 2009, 9:02AM
Help Me Understand Leonhardt's Economics
One commenter on my earlier post snarkily referred me to Leonhardt's methodological explanation. It says,
Leonhardt is usually reliable. This looks like hack work.
The stimulus adds $145 billion a year to the 2009-12 deficits. This number includes the additional tax revenue that the C.B.O. estimates will flow from the economic growth caused by the stimulus plan. This additional revenue amounts to about $40 billion a year.Well, yes. Standard Keynesian economics says that additional spending or tax cuts raise economic activity, leading to more tax revenue. But that economic analysis does not just apply to spending and taxes labeled as "stimulus." It applies to all the other fiscal policy measures as well. It's really hard to defend making these adjustments for some fiscal decisions but not for others.
Leonhardt is usually reliable. This looks like hack work.
Jun 10 2009, 4:10PM
Help Me Understand Leonhardt's Math
Derek Thompson refers to an analysis by David Leonhardt (it is David, by the way, not Richard) of the New York Times. Leonhardt writes,
The story of today's deficits starts in January 2001, as President Bill Clinton was leaving office. The Congressional Budget Office estimated then that the government would run an average annual surplus of more than $800 billion a year from 2009 to 2012. Today, the government is expected to run a $1.2 trillion annual deficit in those years... About 7 percent [of the $2 trillion swing] comes from the stimulus bill that Mr. Obama signed in February.If I take 7 percent of $2 trillion, I get $140 billion. The stimulus was $787 billion. I need help with the math.
Jun 10 2009, 8:45AM
Credit Card Laws Won't End Consumer Exploitation
James Kwak discusses the issue of credit cards and consumer exploitation.
From my personal perspective, credit cards are a lot better than twenty years ago, but that's because I pay no annual fee and I get rewards (cash back). This is pure reallocation of money, since all that has happened is that the interchange fees charged to merchants are now going to fund my rewards, and those interchange fees get passed on to consumers as higher prices. More generally, [Georgetown Professor Adam] Levitin says, the innovation has gone into more and more complex combinations of different price terms (teaser rate, long-term rate, ability to change rates, late fee, reward program, etc.) that simply make it harder for consumers to understand what they are paying.My own perspective on credit cards was shaped by a classic article that appeared ten years ago in Fast Company Magazine, on Capital One.
Jun 5 2009, 10:08AM
Blaming Countrywide's Angelo Mozilo
Fans of scapegoating can applaud the SEC's assault on Angelo Mozilo, the former CEO of Countrywide Funding. My guess is that Mozilo, like many mortgage industry executives, was conflicted during the late stages of the housing bubble. On the one hand, they knew that lowering lending standards was imprudent. On the other hand, the loans were performing too well to justify reversing course.
Apr 16 2009, 1:15PM
Incredible Stress Tests
Reading Noam Scheiber and Willem Buiter (I found the links at the WSJ blog) and then reading Nouriel Roubini, I think it is fair to doubt the credibility of the bank stress tests. Roubini writes,
The FDIC and Treasury used assumptions for the macro variables in 2009 and 2010 that are so optimistic that the actual data for 2009 are already worse than the adverse scenario...Put plainly, the results of the stress test--even before they are published--are not worth the paper on which they are written.
Apr 15 2009, 4:36PM
The Man Who Predicted the Financial Crisis
It has taken me considerable effort to unravel the financial crisis. Here is a video of Peter Schiff telling a story that is very close to mine--except that the video is shot in 2006, before the crisis hit. The video breaks the speech into segments, and the segment to which I linked is in the middle of the speech.
People have been mentioning Schiff to me for quite some time in comments on my analysis, saying things like, "You and he are on the same page." That's very flattering, but where was I in 2006? I think this is a must-watch video, because it shows how clearly he saw the crash coming.
Thanks to Michael Holmes for the pointer.
People have been mentioning Schiff to me for quite some time in comments on my analysis, saying things like, "You and he are on the same page." That's very flattering, but where was I in 2006? I think this is a must-watch video, because it shows how clearly he saw the crash coming.
Thanks to Michael Holmes for the pointer.
Apr 14 2009, 11:23AM
The Economic Outlook: Less Bleak?
The Wall Street Journal reports that Ben Bernanke made these mildly optimistic remarks:
Recently we have seen tentative signs that the sharp decline in economic activity may be slowing, for example, in data on home sales, homebuilding, and consumer spending, including sales of new motor vehicles. A leveling out of economic activity is the first step toward recovery.My guess is that the second quarter of 2009 will not look as bad as the previous two quarters. Housing construction can no longer be a source of contraction, because it has already shrunk so much. The auto sector is unlikely to fall further. Used car prices are rising, and that usually indicates that purchases of new autos will pick up at some point.
Apr 13 2009, 10:26AM
Are We Naturally Greedy?
Conor Clarke gets at a really fundamental issue. One's political views depend in part on one's view of human nature.
In my view, people on the left slip too easily into the implicit assumption that the move from business to government somehow cleanses people of their selfishness and irrationality. With this magic cleansing of individual frailty, government will be wise and benevolent, as opposed to the greedy and mistake-prone private sector.
In my view, humans naturally compete for status.
In my view, people on the left slip too easily into the implicit assumption that the move from business to government somehow cleanses people of their selfishness and irrationality. With this magic cleansing of individual frailty, government will be wise and benevolent, as opposed to the greedy and mistake-prone private sector.
In my view, humans naturally compete for status.
Mar 30 2009, 8:47AM
Why Credit Default Swaps are Dangerous
Felix Salmon says that credit default swaps are just like bonds. Charles Davi says they are just like futures and forwards (actually, they are most like options), which are derivatives that provide liquidity. But CDS are different from either of these.
Mar 27 2009, 1:55PM
Why CDS are Not Your Friends
Charles Davi and I agree for the most part. For example, I share his dim view of Hernando de Soto's recent op-ed. However, he linked to an older piece where he criticizes my view of credit default swaps, and I wish to defend that view.
Mar 27 2009, 9:00AM
I actually agree with Paul Krugman
He writes,
I don't think the Obama administration can bring securitization back to life, and I don't believe it should try.Paul writes this sentence at the end of a long column bashing the market. My view is that securitization of mortgages would never have emerged in a free market. Instead, it came from our country's industrial policy supporting housing. Every major advance in mortgage securitization was a regulatory/accounting gimmick, encouraged or created in Washington.
Mar 26 2009, 11:33AM
Did the financial markets really run wild?
The lead paragraph of the top front-page story in the Washington Post this morning.
Treasury Secretary Timothy F. Geithner is proposing a sweeping expansion of federal authority over the financial system, breaking from an era in which the government stood back from financial markets and allowed participants to decide how much risk to take in the pursuit of profit.I am surprised to see this narrative presented as fact. As far as I know, banks have not been allowed to decide how much risk to take. On the contrary, they have been subject to risk-based capital requirements for nearly twenty years. In fact, I would argue that these risk-based capital requirements, which permit banks to hold less capital for securities rated AAA, helped to encourage the boom in mortgage securitization.
Mar 26 2009, 8:49AM
Romancing the state vs. a bake sale for AIG
Conor Clarke writes,
To me, the institutions of the state do not represent a communal way to make collective decisions. They are institutions that over time have evolved to give enormous concentration of power to a remarkably small group of individuals, who rarely exercise that power in a way that represents my preferences. If it were up to me, the charitable deduction would be 100 percent for everyone. That way, if anybody wanted to spend money bailing out AIG, they would have to hold a bake sale.
Decisions about what will make our community better should be made communally -- by pooling revenue and making collective decisions about where and how it should be spent.Let me fix that sentence. It should read, "At the margin, even more decisions about what will make our community better should be made by Congressmen, and fewer decisions should be made by other members of the community."
To me, the institutions of the state do not represent a communal way to make collective decisions. They are institutions that over time have evolved to give enormous concentration of power to a remarkably small group of individuals, who rarely exercise that power in a way that represents my preferences. If it were up to me, the charitable deduction would be 100 percent for everyone. That way, if anybody wanted to spend money bailing out AIG, they would have to hold a bake sale.
Mar 23 2009, 9:27AM
Brad DeLong and the Geithner Kool-Aid
He writes,
He thinks of the "toxic assets" as if they were real, tangible investments, like fruit trees that eventually are likely to bear fruit. However, others of us think of them as gambling debts. Financial institutions wrote put options and collected nice fees, hoping that the options would never be in the money. But a lot of them are at least close to being in the money, and the sellers want to be relieved of the obligation to pay off the debts.
The gambling-debts perspective makes one a bit less enthusiastic about committing taxpayer money to this scheme.
The Geithner Plan is a trillion-dollar operation by which the U.S. acts as the world's largest hedge fund investor, committing its money to funds to buy up risky and distressed but probably fundamentally undervalued assets and, as patient capital, holding them either until maturity or until markets recover so that risk discounts are normal and it can sell them off--in either case at an immense profit.Brad is not just swallowing the Kool-Aid. He's guzzling.
He thinks of the "toxic assets" as if they were real, tangible investments, like fruit trees that eventually are likely to bear fruit. However, others of us think of them as gambling debts. Financial institutions wrote put options and collected nice fees, hoping that the options would never be in the money. But a lot of them are at least close to being in the money, and the sellers want to be relieved of the obligation to pay off the debts.
The gambling-debts perspective makes one a bit less enthusiastic about committing taxpayer money to this scheme.
Mar 11 2009, 8:23AM
Who are you calling a Keynesian?
A rather desultory opening to what is billed as a celeberity death match featuring Brad DeLong and Luigi Zingales on whether we are all Keynesians now. Luigi writes,
I do not think that any economist would dare to say that the current US economic crisis has been caused by underconsumption. With zero personal saving and a large budget deficit the Bush administration has run one of the most aggressive Keynesian policies in history. Not only has adherence to Keynes's principles not averted the current economic disaster, it has greatly contributed to causing it.In my opinion, it is unfair to Keynes to imply that his view of slumps is that they are caused by underconsumption. His primary explanation for a slump was a decline in "animal spirits" in the business sector. Another explanation was an increase in "liquidity preference" among households and investors. Both explanations apply in today's economy, although in modified form.
Mar 6 2009, 3:39PM
Which Sign is the Multiplier?
Bloomberg writes,
More than $1.6 trillion has been erased from U.S. equities since Jan. 20 as mounting bank losses and rising unemployment convinced investors the recession is getting worse.Let us say that 50 percent of the loss in wealth reflects the market's reaction to the stimulus plan. That would be $800 billion. A standard assumption is that the marginal propensity to consume out of wealth is 5 percent. That would mean $40 billion less in spending. Then there is the effect on investment of the drop in Tobin's q (the ratio of the market value of capital, reflected in stock prices, to the cost of capital goods). These effects kick in immediately, while much of the stimulus will not kick in until next year. So is the multiplier for the stimulus positive or negative?
Mar 5 2009, 12:52PM
The Never-ending Banking Crisis
Simon Johnson writes,
Read the whole thing. I think it is one of the best blog posts ever.Boris Fyodorov, the late Russian Minister of Finance who struggled for many years against corruption and the abuse of authority, could be blunt. Confusion helps the powerful, he argued. When there are complicated government bailout schemes, multiple exchange rates, or high inflation, it is very hard to keep track of market prices and to protect the value of firms. The result, if taken to an extreme, is looting: the collapse of banks, industrial firms, and other entities because the insiders take the money (or other valuables) and run.
This is the prospect now faced by the United States.
Mar 5 2009, 9:21AM
The Never-ending Mortgage Crisis
John D. Geanokoplos and Susan P. Koniak write,
The plan announced by the White House will not stop foreclosures because it concentrates on reducing interest payments, not reducing principal for those who owe more than their homes are worth. The plan wastes taxpayer money and won't fix the problem.I predict that in 2015 we will still be reading op-eds with suggested refinements to the housing bailout. That is because the whole concept of bailing out mortgage borrowers is misguided.
Feb 26 2009, 8:27AM
The mortgage subsidy
Freddie Mac and Fannie Mae are limited to purchasing loans of a certain size, called conforming loans. Larger loans are called "jumbo" mortgages. Traditionally, the spread between the interest rates on jumbo loans and conforming loans was about one quarter of one percentage point. Lately, it has been well over one percentage point.
The standard view is that the wide spread demonstrates market failure in the mortgage market. That is, the private sector cannot provide mortgage funds nearly as efficiently as the two government-sponsored enterprises.
I think that the opposite is the case. The failure is on the part of Fannie and Freddie to set mortgage rates that are high enough to cover the likely cost of funding them. People who take out mortgages today can be winners. The losers will be taxpayers, who, if my thinking is correct, will pay a huge price down the road.
The standard view is that the wide spread demonstrates market failure in the mortgage market. That is, the private sector cannot provide mortgage funds nearly as efficiently as the two government-sponsored enterprises.
I think that the opposite is the case. The failure is on the part of Fannie and Freddie to set mortgage rates that are high enough to cover the likely cost of funding them. People who take out mortgages today can be winners. The losers will be taxpayers, who, if my thinking is correct, will pay a huge price down the road.
Feb 20 2009, 3:29PM
Wilkinson, Phelps, and Prescott
One of them still has work to do to win the Nobel Prize. He interviews Phelps and Prescott.
"There's a chance that some of the infrastructure spending will do the job of creating more work for earth-moving equipment and construction workers, Phelps noted. "I said, 'a chance'," he continued. "Now, there's also a chance that the perceived increase in the role of government of this sort will have some unanticipated effects on the animal spirits of entrepreneurs. These projects may stand as a sort of symbol of the weakening of the private sector."
There are alternatives, such as a cut in the employer contribution to the payroll tax, that would not look so much like throwing the private sector under the bus.
Feb 17 2009, 8:57AM
Intellectual Sorting
Richard Florida's cover story in the latest Atlantic is interesting throughout, but this paragraph struck me in particular.
Thirty years ago, educational attainment was spread relatively uniformly throughout the country, but that's no longer the case. Cities like Seattle, San Francisco, Austin, Raleigh, and Boston now have two or three times the concentration of college graduates of Akron or Buffalo. Among people with postgraduate degrees, the disparities are wider still. The geographic sorting of people by ability and educational attainment, on this scale, is unprecedented.
Feb 12 2009, 7:20AM
Does Barro understand Barro?
Clive Crook writes,
So, we describe fiscal policy by saying "____ is financed by a tax increase." So, if the government tries a tax cut, we say, "a tax cut financed by a tax increase." I see that as obviously self-canceling, with a multiplier of zero. Because Barro now implies otherwise, Clive Crook is confused, and so am I.
Thanks, Robert, especially for that last clarification. I have to admit that I haven't been giving much thought to the scenario in which a deficit-financed stimulus has no effect (under Ricardian equivalence) on aggregate demand and yet still has a big multiplier. I will have to think about that one...I have always thought about Barro's Ricardian equivalence as treating any government deficit as if it were financed by taxes. That is, when people see the government borrow money, they anticipate a future taxes, and they adjust their spending exactly as if the taxes were being levied today.
So, we describe fiscal policy by saying "____ is financed by a tax increase." So, if the government tries a tax cut, we say, "a tax cut financed by a tax increase." I see that as obviously self-canceling, with a multiplier of zero. Because Barro now implies otherwise, Clive Crook is confused, and so am I.
Feb 5 2009, 1:20PM
Productivity and costs: two comments
Feb 3 2009, 4:30AM
Who should run the banks?
When I hear a comment like "we should nationalize the banks," I assume that the speaker is the sort who thinks that such a policy will take bank management out of the hands of greedy, mistake-prone people and put banks in the hands of wise, benevolent public servants.
Instead, I think of a government takeover of banks as something that changes the rules and incentive structures under which bank managers operate. With rules and traditions in place, as in the FDIC process for dealing with failed banks, I believe that a government takeover of an insolvent institution can be handled fairly and reasonably efficiently, although never perfectly.
Instead, I think of a government takeover of banks as something that changes the rules and incentive structures under which bank managers operate. With rules and traditions in place, as in the FDIC process for dealing with failed banks, I believe that a government takeover of an insolvent institution can be handled fairly and reasonably efficiently, although never perfectly.
Jan 28 2009, 6:15AM
Profits and Recovery
Many economists think that an economic recovery requires the renewal of lending by banks. Instead, I think that we need to step over the corpses in the financial sector. A revival of business investment will come from profits, not from lending.
My analysis harkens back to the thinking of Hyman Minsky, a heterodox Keynesian economist with a small but devoted following in the financial community.
My analysis harkens back to the thinking of Hyman Minsky, a heterodox Keynesian economist with a small but devoted following in the financial community.
Jan 26 2009, 11:44AM
How economists analyze the stimulus
Two economists on opposite sides of the stimulus debate recently expressed their opinions in terms of algebra. The opponent, Kevin Murphy of the University of Chicago, laid out the basic framework at a panel where he was the second speaker. The proponent, Brad DeLong of Berkeley, reacted by reprinting Murphy's framework and using it to articulate his disagreement with Murphy.
My goal here is to translate their thoughts into English and then add my comments.
Jan 23 2009, 12:35PM
Mortgage Securities and Credit Default Swaps
In his interview with Conor Clarke, Michael Lewis says,
That market is huge as a result. But if people actually had to have the capital, like a real insurer, to back up the contracts they're riding, the market would shrink by -- who knows? Who knows what would be left of it?
He applies that logic to credit default swaps, but not to mortgage securities. Instead, he praises mortgage securities. I think that both credit default swaps and mortgage securities are artifacts of government policies and regulatory anomalies.
Copyright © 2009 by The Atlantic Monthly Group. All rights reserved.