"If money isn't loosened up, this sucker could go down" - George W. Bush warned in September 2008

Tuesday, April 27, 2010

Really great links - The Dodd-Lincoln Frankenstein - China - Krugman - Predatory lending

Craig Pirrong - Bailout fund - "The $50 billion dollar “bailout fund” has drawn the most attention, and the most fire, but it’s small beer compared to other things in the bill.
        Most importantly, as I’ve noted repeatedly, the fundamental source of too big to fail is the inability of the government to commit not to bail out creditors of a failing or failed institution. Increasing the discretion of authorities responsible for resolution reduces ability to commit.
        And the Dodd bill does just that. It gives the FDIC and the Treasury and the Fed tremendous discretionary authority to make creditors whole on the taxpayers’ dime. This discretionary authority is almost completely free from any Congressional check. Moreover, this authority has effectively unlimited access to the public purse.
        To sum up: instead of constraining regulators’ ability to bail out creditors of big financial institutions, the bill expands their discretion; instead of increasing the credibility of commitments not to bail out by limiting access to government funds, the bill undermines credibility by giving the Fed and the executive branch virtually completely discretionary authority to pay as much as they want to the creditors of large financial institutions."

Hans Genberg, Wenlang Zhang - Can China save the world by consuming more? - "Would an increase in Chinese domestic demand meaningfully reduce global imbalances and improve US and European employment prospects? This column says that Chinese policy has a relatively small impact on developed economies' macroeconomic circumstances. It estimates that major reduction in Chinese saving would improve US employment by less than one quarter of a percentage point."

Paul Krugman - Epistemic Closure In Macroeconomics - "Also, a macroeconomist emails:
        With perhaps some exaggeration … editors at four out of five top journals simply refuse even to read papers which feature nominal rigidities! With the promotion criteria of way too many departments being simply counting publications in top five journals anybody can pretty much guess what sort of incentive structure this has created in the profession …

Arnold Kling - Predatory lending - "Finally--and this will get me in big trouble--I have to rant about the notion of a consumer financial protection agency. I know that it's axiomatic that poor people are helpless victims. But in the case of these mortgages, that is a really hard sell. The banks did not take from poor people. They gave to poor people. If you were lucky enough to get one of these exotic mortgages when house prices were still going up, then you got to reap a nice profit on your house. If you were not so lucky, you lost...close to nothing. I'm sorry, but if you borrowed up to 100 percent of the value of the house or more, then all you really lost were your moving expenses.
        What about predatory lending? As I understand it, the idea of predatory lending is to saddle the borrower with an expensive mortgage so that you can foreclose on the property and sell it at a profit. How many times did that happen? Have you read of a single instance in the past three years where the bank made a profit on a foreclosure?
        I am always ready to feel sorry for poor people because of their poverty. But I cannot feel sorry for somebody who was given a basically free option on a house and the option didn't happen to come into the money."

No comments:

Post a Comment

The Money Demand