Economy Experts

A New Solution For 'Too Big To Fail'?

Mon, 16 Nov 2009 13:30:00 GMT

Sen. Christopher Dodd's, D-Conn., bill on financial regulatory reform embraces a supposed solution to the "too big to fail" conundrum: contingent convertible bonds, or CoCos, which turn into equity once a bank's capital falls below a certain level. Read a good take on CoCos here (and click on the link therein to read Gillian Tett's discussion in the Financial Times, which might require registration). Is this a better approach than simple, transparent capital requirements for big banks? What advantages or disadvantages haven't been mentioned?

Creating Or 'Saving' More Jobs

Mon, 09 Nov 2009 12:27:00 GMT

Is the Obama administration's stimulus plan helping to create or "save" 650,000 jobs, as the president and his aides say? Is that an appropriate way to measure the stimulus' impact? Should Congress consider a new stimulus to create jobs and spur economic activity?

A BRAC For The Budget

Mon, 02 Nov 2009 13:30:00 GMT

The New York Times reports that a group of 10 senators (none of them Republican) has called for creation of a bipartisan commission on the budget, akin to the Base Realignment and Closure Commission, that would come up with a long-term plan to reduce budget deficits, including a solution to the impending funding shortfalls for Medicare and Social Security. House Speaker Nancy Pelosi, D-Calif., is opposed, and no prominent Republicans have endorsed the idea. Is there any hope for this idea, could it work, and what other approach might be more effective? Without a credible plan to reduce deficits, how soon would it affect economic growth?

Limiting Compensation

Mon, 26 Oct 2009 12:00:46 GMT

What do you think of the Treasury and Federal Reserve actions to limit compensation for executives at large financial companies? The Treasury action would reduce compensation by 90 percent for the highest-paid 25 executives at each of the seven companies that received federal bailout aid, and soon extend this to the top 100 executives. The Fed plans to review compensation as part of its supervision of large banks (a duty it would lose according to Senate reform proposals.) Among other questions, the securities industry is wondering whether the new Fed rules would cover executives for bank-owned subsidiaries.

Is the Treasury plan mostly politics? A powerful incentive to pay back TARP funds and avoid the risk of future bailouts? Will it be possible to attract competent management at those companies? Can the Fed be trusted to curb compensation when it never recognized that as a problem before?

TBTF: What Should Be Done About Bank Size?

Mon, 19 Oct 2009 11:41:27 GMT

Debate is heating up over whether the Obama plan for financial regulation goes far enough to curb institutions that become "too big to fail." Simon Johnson and Charles Calomiris discussed the issue here on NPR, and more attention came after Alan Greenspan made a strong statement on behalf of doing more to limit the size of financial institutions. What should be done through regulation, and is any regulation of "systemic risk" inevitably going to designate some banks as TBTF?

Tax Cuts For Hiring

Tue, 13 Oct 2009 12:30:00 GMT

The New York Times has sparked interest in the idea of a tax credit for job creation, an idea in recent Democratic presidential campaigns (John Kerry and Barack Obama both proposed it) and one that apparently now has some Republican support. According to one version, it might work as a refundable tax credit, with subsidies to money-losing firms or nonprofits. Greg Mankiw summarizes the problem of winnowing out jobs that would have been created anyway. Can this be done efficiently, and should it be done now (or six to eight months from now, the minimum for when it might be enacted)? Are there better tax incentives to spur hiring?

What About Savings?

Mon, 05 Oct 2009 12:30:00 GMT

There has been widespread speculation that the credit crisis and the recession would lead to a long-term shift in household saving. And saving did rise from the very low levels before 2008 and increased more or less steadily through this spring. But as the "green shoots" improvement in the economy took hold, saving has been dropping, and fell to 3 percent in August. Will this continue, and is it an unequivocal good thing? Low saving was alternately credited during the boom and blamed during the bubble. Will saving need to rise to very high levels, as many economists have argued, to erase deficits, and what are the implications for growth if it does (or interest rates, if it doesn't)?

'Systemic Importance' And Moral Hazard

Mon, 28 Sep 2009 12:30:00 GMT

The Obama administration's financial reform plan proposes creating a category of "systemically important," or "Tier 1," financial companies that would be more heavily regulated than other companies, but also eligible for bailouts and other government intervention. Can Obama avoid the moral hazard of such an arrangement (akin to what happened with Fannie Mae and Freddie Mac) simply through strict regulation?

Is The Stimulus Working?

Mon, 21 Sep 2009 13:08:04 GMT

As time goes by and data piles up, the debate is heating up over whether President Obama's $787 billion stimulus bill is responsible for the apparent improvement in the economy. Economists John Cogan, John Taylor and Volker Wieland argued in the negative, based on their reading of income and spending data. The latest, fullest case from the White House came in an August speech by Council of Economic Advisers Chair Christina Romer. Do Cogan and his co-authors have enough data to draw the conclusions they do? How much hard evidence is there that the stimulus is affecting spending and investment?

-- John Maggs, NationalJournal.com

Is Financial Reform More Important Than Health Care Reform?

Mon, 14 Sep 2009 12:30:00 GMT

Does the country risk a renewed financial crisis if the reform process bogs down? How much moral hazard has been created by the rescue, and how soon must it be diminished to avoid excessive risk-taking by financial companies? Has that excess begun already? Would it be a bad mistake for Obama to allow Congress to dominate the legislative process on financial reform, as he did with health care? Or has the financial system healed enough, and are banks and investors chastened enough, to allow a deliberate process for reform that takes longer but yields a more far-reaching law?

Professor Krugman's Opus

Tue, 08 Sep 2009 12:30:00 GMT

What do you think of Paul Krugman's lengthy and provocative argument "How Did Economists Get it So Wrong?" in Sunday's New York Times Magazine? Is his taxonomy of competing schools of macroeconomics a fair one? And his account of which failed and how? Krugman says the crisis points to a muddy future for economic theory and a greater legitimacy for behavioral economics, among other conclusions. Is he right?

Will States Kill Recovery?

Mon, 31 Aug 2009 12:20:00 GMT

In their paper delivered at the Fed's Jackson Hole meeting Aug. 22, Alan Auerbach and William Gale note that fiscal stimulus in the Great Depression and in Japan's Lost Decade was inconsistent at the federal level and further undermined by tax increases and spending cuts at the state and local level. In America, with states expected to cut spending or raise taxes by $350 to $450 billion by the end of 2010 and more thereafter, how potent is the risk of a similar undermining of the Obama stimulus, most of which hasn't yet been spent? Is it a strong argument for a second stimulus, targeted to states?

-- John Maggs, NationalJournal.com

A 'Fed' for Fiscal Policy?

Mon, 24 Aug 2009 12:30:00 GMT

The daunting, perhaps unprecedented, practical and political challenges to budget-making are leading some reformers to wonder what other process could work better. Eric Leeper, in a new paper, notes the disjunction between the process for monetary policy -- arguably independent of politics -- and fiscal policy, which is dominated by politics. He argues that a Fed-like approach might be even more important for budget-making, and leaves us wondering whether the time has come to contemplate such a change. Should we and could we create a Fed for the budget?

The Recovery And The Deficit

Mon, 17 Aug 2009 12:30:00 GMT

Assuming the consensus is right and the U.S. economy has begun or will soon begin an economic recovery, assess the effects of the unprecedented budget deficit on that recovery. Will the deficit be large enough in 2010 to seriously undermine a recovery with higher interest rates? Does it preclude additional stimulus if the recovery flags? What are the prospects for government taking steps to bring debt and deficits down to nonthreatening levels?

The Fed And Its Excess Reserves

Mon, 10 Aug 2009 10:38:00 GMT

Through asset purchases and a new policy of paying interest, the Fed has built up an unprecedented amount of excess reserves, held on behalf of banks. From as little as $2 billion two years ago, the most recent tally was $744 billion. If the banks draw down these reserves quickly, that could lead to excessive inflation. Will the Fed be able to manage the reduction of these reserves as the banks demand them? Will it be forced to pay much higher interest rates? How will this affect monetary policy through its other lending operations?