Category: Commentary

Waiting For The Big Push: Selling The Consumer Protection Agency For Financial Products

In mid-March, the administration proposed that toxic assets could and would be safely removed from banks balance sheets. We were skeptical, and the the PPIP now seems to have slipped into irrelevance (loans; securities). But the administration still put an impressive effort into persuading independent analysts, and broader public opinion, that they should do something clearly beneficial for banks. This was “all hands on deck,” and it definitely had an impact on the debate, at least for a while.

Now, the administration’s major remaining initiative is its version of a Financial Product Safety Commission – something that would be clearly beneficial for the public. And the skepticism – and outright opposition – comes from the banking sector.

How does the administration’s effort compare, then vs. now? Continue reading “Waiting For The Big Push: Selling The Consumer Protection Agency For Financial Products” →

Who Is Upton Sinclair? (Weekend Comment Competition)

By 1906, it was obvious to many people that the industrialization of food production in the United States had brought with it some unpleasant and even unsafe practices. Consumers were definitely not getting exactly what they thought they were getting.

But efforts to reform the industry – and to protect consumers – were mired in the power of this lobby (with strong political power based on its great economic power), the resilience of laissez-faire ideas, and the intransigence of powerful individuals in the Senate. There were legislative proposals, but the overall reform agenda was not really going anywhere fast.

Then Upton Sinclair published The Jungle. No one could look at meat packing or its products in the same way again, and this directly and immediately helped produce stronger federal legislation regulating the industry.

So who is our Upton Sinclair and when will they write the definitive piece that captures imaginations and changes the terms of the debate? Is it about how consumers were mistreated, politicians captured, or the public treasury ransacked? Will it be a novel or nonfiction?

Or perhaps it is a movie, with all the modern Hollywood marketing techniques and tie-ins?

By Simon Johnson

How to Win Friends and Influence People

An old friend of mine asked me for some advice about how to increase readership for his blog. I was going to write him a long email, but I thought if I put it here other people can chime in as well.

The conventional wisdom about how to make your blog successful is “write great content.” Of course, that’s very self-serving for established bloggers to say, since it implies that they write great content. I think Felix Salmon is more accurate: write a lot of content.

Should you write more, with lower quality, or less, with higher quality? Fortunately, the blogosphere has been around for long enough that we have a simple empirical answer to this question: given the choice, go for quantity over quality. You might not like it — I certainly don’t — but I defy you to name a really good blogger who doesn’t blog frequently. . . .

Mostly, blogging is a lottery on the individual-blog-entry level — and if you want to win the lottery, your best chance of doing so is to maximize the number of lottery tickets you buy.

(Of course, we at The Baseline Scenario don’t follow this rule, but if I had more time I would.) I recommend Felix’s whole post, most of which I agree with. But I’ll add a few thoughts of my own.

Continue reading “How to Win Friends and Influence People” →

Larry Summers’ New Model: Details, Contradictions, And Odd Assumptions

Larry Summers had “lunch with the FT” (p.3 in the Life and Arts section today) – although unfortunately the paper does not report when this happened; a week or two makes quite a difference these days.

Putting this next to his April speech to the IDB, Summers’ view of the way forward has a few problems. Continue reading “Larry Summers’ New Model: Details, Contradictions, And Odd Assumptions” →

The Future of Computing?

Google announced the Google Chrome “Operating System” a few days ago, and the world I used to live in is abuzz with people talking about the earthquake this represents for the computing industry. TechCrunch says, “Google Drops a Nuclear Bomb on Microsoft.” Leo Babauta of Zen Habits has a more thoughtful response, but also subscribes to the “future of computing” theme: “Google is moving everything online, and I really believe this is the future of computing. The desktop model of computing — the Microsoft era — is coming to an end. It’ll take a few years, but it will happen.”

Continue reading “The Future of Computing?” →

Speculators ‘R’ Us: The G8 And Energy Prices

The G8 summit was obviously disappointing, even for those with low expectations. Usually, the substance is lacking but the public relations are well managed. This year even the messaging was messed up – they said some new things on climate change but not what we were told they could say, the food aid/development package was lamer than advertized, etc. So the whole thing looks like an expensive flop.

But actually it was much worse. Continue reading “Speculators ‘R’ Us: The G8 And Energy Prices” →

People Who Think Taxes Will Have to Go Up

David Leonhardt has started a new club, which has already attracted some additional members.

Count me in, in spirit at least (there must be dozens of more prominent people for the Times to bother with). Because, ultimately, I think we Americans are a decent people (or at least a squeamish people), and we will not be able to endure the sight of millions of seniors being thrown onto the streets or deprived of medical care. And so the looming combined shortfall of Medicare, public pensions, private pensions, and individual savings will at some point motivate us to raise taxes on ourselves.

By James Kwak

The Limits of Economics

In honor of Mark Sanford and that other guy from Nevada, the fun-loving crowd over at Planet Money has been talking about the economics of adultery, and even got Simon to comment for them. I’m all in favor of a cute model, but I think this is as much a sign of the over-expansion of economic reason as anything else.

Chana Joffe-Walt’s post asks this question of the typical cheating politician: “Didn’t he know he’ll get caught, put his family through hell, exhaust all of us with the details and jeopardize his career? The costs are so great, how could the affair possibly be worth it?”

Well, that assumes that he was going to get caught, and the odds of being caught in an affair are one of those things that are inherently very difficult to measure (and that cheaters are likely to underestimate, because of selection bias). We can see the numerator, but we can’t see the denominator. It also assumes that trading your political career for a steamy affair is a bad outcome. On some level, don’t you suspect that a lot of male politicians do it because they want to impress women, and that affairs are part of the payoff of politics? And what sane person would really want to be in electoral politics anyway?

More generally, the motivations that drive people to want to have sex with people they are not married to, or otherwise live secret lives other than the one they are supposed to live, seem to me not only too complex for a Chicago-school rational-actor model, but even perhaps too complex for a behavioral model. That is, I suspect that this type of behavior involves multiple actors inside the same person: one person who combines the ambitious, values-touting politician; the typical middle-aged man going through a midlife crisis and hoping for someone to validate his self-image; and, of course, the lout who thinks with something other than his brain. I think combining those sides of the psyche into a single utility model and maximizing it subject to a budget constraint (be it money or time) is basically a fantasy. But economists these days wil stop at nothing.

By James Kwak

Old Whine in New Bottles: Commercial Real Estate Lobbies For Bailout

The commercial real estate industry would like a bailout – see my preview/links to testimony before the JEC today. This is not a surprise – even some of the most libertarian people I meet think the government should help them personally when times are bad. Is there a case treating commercial real estate as special?

The sector is definitely taking a beating, but who is not? This lobby’s most sophisticated advocates are arguing that various Fed facilities can be extended to support commercial real estate financing, i.e., so there is no cost to the government’s budget or your future taxes.

This is illusory. Continue reading “Old Whine in New Bottles: Commercial Real Estate Lobbies For Bailout” →

The Finest of the Flavors

Richard Thaler has a simple argument for plain-vanilla financial products. Mike at Rortybomb deals with some of the predictable objections. This is also similar to Adam Levitin’s position on credit cards, which I wrote about a while back.

I’m in favor, although I don’t think it will be enough to simply make the vanilla offering available; in that case nothing would stop lenders from paying higher commissions to brokers in order to steer customers toward exploding mortgages.

By James Kwak

Bankslaughter, Tort Law, and Optimal Deterrence

Felix Salmon has been helping popularize Paul Collier’s idea of bankslaughter. (No, it’s not what you wish it were.) The idea is that there would be a crime called bankslaughter, or “managing a bank irresponsibly.” If a bank blows up, there could be a criminal investigation to determine if the bank managers behaved recklessly (more on that term later); if so, they would be convicted. The analogy is to manslaughter, which is actually a family of crimes; Collier probably means criminally negligent homicide, or causing death through negligent or reckless (more on those terms later) behavior.

Not surprisingly, the conservatives are not happy about this, even though it seems to conform to the conservative principle that people should bear responsibility for the consequences of their actions. (Or maybe that only applies if you are a pregnant teenager.) Salmon cites John Carney, who calls bankslaughter “the worst idea of the week.”

Continue reading “Bankslaughter, Tort Law, and Optimal Deterrence” →

The G7/G8: Why Bother? (A Viewer’s Guide)

The G7 was originally conceived as a form of steering committee for the world economy (antecedents). Existing formal governance mechanisms, around the IMF and the UN, seemed too cumbersome (and too inclusive) during the 1970s, with the breakdown of fixed exchange rates, assorted oil shocks, and the broader shift of economic initiative towards Western Europe and Japan.

And the G7 had some significant moments, particularly with regard to moving exchange rates in the 1980s. More broadly, behind the scenes, it served as a communication mechanism between the world’s largest economies (“coordination” is a dirty word in G7 policymaking circles). And it was probably a good thing in the 1990s that Russia wanted to join the G7 – hence the G8 once a year, although many of the most important technical meetings are just the G7.

But today, honestly, what’s the point? Continue reading “The G7/G8: Why Bother? (A Viewer’s Guide)” →

Recently Bailed-Out Banks Refuse to Take California IOUs

The Wall Street Journal (via Calculated Risk) reports that a group of large banks has announced that it will not accept IOUs issued by the state of California. The group includes the four horsemen of the financial crisis: Citigroup, Bank of America/Merrill/Countrywide, JPMorgan Chase/Bear Stearns/WaMu, and Wells Fargo/Wachovia.

Write your own ironic commentary.

By James Kwak

The Fed Makes A Bid

Policymakers like to make particular kinds of statements at a “low attention” moment, e.g., right before a holiday weekend. This gets items onto the public record but ensures they do not get too much attention. And if you are asked about these substantive issues down the road, you can always say, “we told you this already, so it’s not now news” – usually this keeps things off the front page.

Released on July 3rd (a federal holiday), and buried inside the Washington Post on Saturday (p.A12): An important speech (from June 26th) by the New York Fed’s controversial President, William C. Dudley. Continue reading “The Fed Makes A Bid” →

The Efficient Market for Cristiano Ronaldo

Cristiano Ronaldo, perhaps the best soccer player in the world and still only 24 years old, was sold by Manchester United to Real Madrid for 94 million euros (that’s just the transfer fee, and has nothing to do with his salary). Ronaldo:

“I think it’s a fair price. If Manchester and Real agreed on the price, there is nothing to add.”

Eugene Fama could not have put it any better. Perhaps Ronaldo has an investment banking career in his future.

Update: tkt points out in the comments that Zinedine Zidane was actually more expensive in real terms. If I recall correctly his transfer fee was over 70 million euros in 2001, so that’s almost certainly right.

By James Kwak