What Changes are Needed in the US Financial System?
Mark Thoma at Moneywatch writes a made up interview “with William Dudley, President of the Federal Reserve Bank of New York, on the Fed’s failures as a regulator prior to the crisis, and its plans to improve regulation going forward.” (via Economist View)
Thoma seems to talk alot in his interviews.
What I want is for the financial system to generate the same amount of loans as it was doing in 2004-2007 (maybe some fewer mortgage based loans) and do it in a way that minimizes risk. Thoma interview in my view was inadequate because he did not ask how we could restore the system produce the capital that it was gathering and packaging as loanable funds.
Thoma seems to talk alot in his interviews.
What I want is for the financial system to generate the same amount of loans as it was doing in 2004-2007 (maybe some fewer mortgage based loans) and do it in a way that minimizes risk. Thoma interview in my view was inadequate because he did not ask how we could restore the system produce the capital that it was gathering and packaging as loanable funds. To answer the question we need the change that will generate they same amount of capital but a a lower systematic risk to the banking industry and overall economy.
Sure sounds good. A couple of points though:
1) Reduce leverage in financial institutions. This will also reduce the amount of capital available and increase the cost.
2) Regulatory gaps. (AIG) is a case in point. AIG Financial Products, a subsidiary of the AIG parent company, provided guarantees against default on complex collateralized debt obligations, leveraging the AAA rating of the AIG parent company in the process. This activity was conducted with inadequate regulatory oversight, poor risk management and insufficient capital.
This is true. AIG was wrong in retrospect, but has the tremendous incentive of self-preservation. If they couldn’t understand the risks they were taking, I doubt, given the Freddie and Fannie debacles on the same issue (guaranteeing mortgages), that a regulator would have known either.
The cause of the financial crisis actually was one thing: the real estate bubble. There will not be another real estate bubble in our lifetime. The real regulatory benefit is in understanding bubbles and preventing the next one.
When a financial company gets into trouble – let it go bankrupt. Then let the bankrupcy proceeedings sort it out. FDIC insurance premiums should be based on risk levels at the bank. Leverage should be limited just like in my brokerage account.
One simple change would be to remove any rules that prohibit Credit Unions from taking any members they want to. (It is sort of gotten around by some thru organizations right now but lets make it legal). This would give banks more competition. Further push the coop form of business organization over the stock form. Unfortunatly because of greedy execs a lot of mutual insurance companies went to stock over the last 20 years because they said they could not pay their greedy execs enough. Coops and mutual societies are still capitalist but the profits go to the consumer not a stock holder.
FDIC premiums are based on risk smarty pants
It’s funny to me that now people want to talk about breaking up big banks and size limits. This is more a socialist tactic, no? Americans want capitalism with none of the downside risk.
I want 3 things
1 end fractional reserve baking… 100% reserves to loans
2 sound money … not fiat currency …
3 end the centrl bank,
the current system … is kiling the middle class, how? with real infation, not just price inflation …real inflation is the distruction loss of value of the dollar… some 98% by now …
you do these thing we my not end up like zim..bob..owe … you dont well you got what you got ..
if you do not belive thse things you need to educate yourself…the stuff your reading now is just wrong…look at the result…look at the proof…the guys who got us in the mess can not get us out!
this system of FRB and fiat $ has killed your/our future…how in the world do expect to get out of debt by geting into more debt…it has never worked and never will …WTFU!
one last comment the exponitial growth of the debt has killed any chance of reveral of the current system … this system will fail … the pond is now 1/4 full… 2 more doubbling its done…how long …how long.
People are bad …they always been bad…they will for ever be bad…(acting in their own behalf)…and no amount of reg will change that…economics is about humans how they act how they decide … not math not quants … yeah that worked out well huh.
gold weighs what it weighs and always will, a certain amount will always be a weight on earth… so either put your faith in bad people, or put your faith in the honest mass /weight of gold.
Free makets … controlled by physical limits/and driven by savings …not freemarkets uncontrolled by human greed and fiat $ and debt.Look it may not be as fast, but it will not crash either. … speed kills, in all biological systems unresrited growth will kill…dont you think economics is a biological system, it deals with humans it has an ecology.
hard to type in a moving car …
Technically you are correct, but in practice the premiums are still set too low, and do not consider systematic risk.
mcwop,
When a financial company gets into trouble – let it go bankrupt
That is essentially what we do: stockholders get zip, sub debt holders get zip, senior debt holders get ? and depositors get made whole. Pretty much the only difference is that it avoids the chaos and time frame of bankruptcy.
Ahh, we let a few go, but propped up AIG, Citi, and dozens of others. I would have let those go under too.