Posts Tagged ‘joe nocera’

The Regulator Guys

18 June 2009

The Obama Administration’s new Financial Regulatory Reform plan hit the streets yesterday.  At 85 pages, it’s a lot to digest.  Today’s Washington Post has pretty good coverage, including this excellent summary chartJoe Nocera of the New York Times has some pointed criticisms, the gist of which is that Obama’s reforms, unlike FDR’s, do not go far enough.

Probably the biggest step forward is that the plan calls for giving someone the authority to close and liquidate insolvent financial behemoths like AIG and Citigroup.  Right now, the FDIC can shut down failing banks, but nobody can do the same with financial supermarkets like AIG and Citigroup.  In a similar view, it also empowers the Fed to oversee huge, systemically important financial institutions and require them to hold more reserves and take fewer risks.  Both of these changes seem to go a long way toward resolving that tension between moral hazard and “too big to fail.”

Another step that looks welcome is the establishment of a Consumer Finance Protection Agency, along the lines suggested by the estimable Elizabeth Warren, the Harvard Law Professor who chairs the Congressional Oversight Panel that monitors the TARP bailouts.  In this 2004 interview with Bill Moyers she offers a critical, detailed assessment of credit-card-company abuses and sensible ideas for reform.  Her two-part interview with Jon Stewart this past April is worth watching as well.  Warren has been rumored as the person to lead this new agency.  Had an effective consumer protection agency been in place earlier this decade, we might have avoided the stampede into dubious adjustable-rate mortages and option ARMs.  Not surprisingly, the financial services industry is critical of the idea of such an agency.

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The agony of AIG: Time to educate myself

2 March 2009

“Zombie insurance company” doesn’t exactly roll off the tongue, does it?  We shall work on a suitable epithet.

As usual, Joe Nocera of the NYT offers pith and insight into the AIG mess.

And Yves Smith at Naked Capitalism offers some sophisticated outrage.  I’m a big believer in the concept of the enlightened rant, which may be why NakedCapitalism.com is among my daily visits.

So far, my summary understanding of the AIG mess is something like this:  The company diligently acquired a AAA credit rating and then recklessly exploited it by selling “naked” (unhedged, no offsetting position) credit-default-swaps to anyone and everyone.  Unlike the failing banks, AIG wasn’t directly involved in the subprime securities business, but their problems became AIG’s problems when many of them began defaulting on their obligations — obligations which were insured by . . .  AIG.  So now AIG also has obligations that no honest financial institution can pay.  And because AIG is one of the world’s largest corporations, it accounts for huge chunks of many institutions’ stock and bond/loan portfolios.  “Too big to fail,” blah blah blah.

To be updated with more links . . .

Turning Japanese?

14 February 2009

Yesterday’s NYT continues the paper’s excellent coverage of the financial crisis with Hiroko Tabuchi’s article “In Japan’s Stagnant Decade, Cautionary Tales for America.” Notable quote:

‘“I think they know how big it is, but they don’t want to say how big it is. It’s so big they can’t acknowledge it,” said John H. Makin, an economist at the American Enterprise Institute, referring to administration officials. “The lesson from Japan in the 1990s was that they should have stepped up and nationalized the banks.”’

When someone from the American Enterprise Institute says it’s time to nationalize, then it’s probably time for policymakers to show a little openness to it (e.g., “only as a last resort,” “we’re not ruling out anything”).

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