Banking's Past, Present, and Future
I cannot let this day end without acknowledging the 145th anniversary of the failure of Overend, Gurney, and Company, which set off one of the 19th century’s more spectacular financial crises. Writing the day after the failure, the Times of London argued that the firm could,”…rightly claim to be the greatest instrument of credit in … Read more
Speaking to the Economic Club of New York House Speaker John Boehner (R-OH) said: It’s true that allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt limit without simultaneously taking dramatic steps to reduce spending and to reform the budget process. Wrong. Defaulting would be irresponsible. It … Read more
In a very entertaining piece in this weekend’s Wall Street Journal, Joe Queenen gripes about how economists measure inflation. He starts by lamenting the high cost of everything from gas, to bagels, to coffee. “You can imagine my surprise,” he continues, “when the latest economic data came out and we were told that inflation wasn’t … Read more
Representative Barney Frank (D-MA) has introduced a measure that would change the membership of the Federal Open Market Committee (FOMC), the group within the Federal Reserve that sets short-term interest rates by intervening in the federal funds market. The FOMC currently consists of the seven members of the Board of Governors of the Federal Reserve … Read more
The Wall Street Journal has demonstrated nostalgia for the gold standard by publishing two pro-gold standard opinion pieces this week. Both are long on nostalgia and short on analytical content. On Tuesday, long-time gold enthusiast Lewis Lehrman made his pitch, arguing that a return to the gold standard was necessary to restore fiscal balance. I … Read more
John Taylor’s op-ed in today’s Wall Street Journal bashes the White House budget proposals of February 14 and April 13 and lauds the House Republican budget proposal of April 5. I understand–or am coming to understand–that when writing for a non-specialist audience, a certain amount of simplification is necessary: I’m guessing that the Journal has … Read more
The Interim Report of the UK Independent Commission on Banking was released yesterday. In his opening remarks, Commission’s chairman Sir John Vickers enunciated three key points. First, banks need to hold more capital. According the Commission, the Basel III proposal of 7%–possibly more for especially large and important banks–is a step in the right direction. … Read more
I am devastated. Writing in the Financial Times today, Alan Greenspan, argues that the Dodd-Frank Wall Street Reform and Consumer Protection Act will have–indeed is already having–unintended consequences. He cites five specific cases. 1) Making credit ratings agencies legally liable for their opinions about risk made them unwilling to give Ford Motor Credit a rating … Read more
Earthquakes, tsunamis, and nuclear accidents are low probability-high cost events. So are financial crises. There is nothing we can do to prevent earthquakes and tsunamis. Sure, with improving technology, we are sometimes able to get a bit of advance warning. And we can design structures that are more resistant to natural disasters. For the most … Read more
The tragedy unfolding in Japan at the moment is of unfathomable proportions. Natural disasters, nuclear disasters, and a great deal of worry that the worst is not yet passed. This is, of course, not the first time Japan has been rocked by a devastating natural disaster. The Great Kanto Earthquake, a severe quake of 7.9 … Read more