By Simon Johnson Experienced Wall Street executives and traders concede, in private, that Bank of America is not well run and that Citigroup has long been a recipe for disaster. But they always insist that attempts to re-regulate Wall Street are misguided because risk-management has become more sophisticated – everyone, in this view, has become … Continue reading JP Morgan Debacle Reveals Fatal Flaw In Federal Reserve Thinking
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By Simon Johnson The eurozone financial situation continues to worsen. The latest idea from the eurogroup of finance ministers is apparently to have the European Central Bank make a massive loan to the International Monetary Fund, which would then turn around and lend to countries like Italy. This is a bizarre notion. If the IMF … Continue reading The Huntsman Alternative
By Simon Johnson In a major speech earlier this week to an American Bankers Association conference, Treasury Secretary Tim Geithner laid out his view of what went wrong in the financial sector prior to 2008, how the crisis was handled 2008-10, and what is now needed with regard to implementation of reforms. As chair of … Continue reading The Banking Emperor Has No Clothes
By Simon Johnson Back when it really mattered – last spring, during the Dodd-Frank financial reform debate – Senator Ted Kaufman of Delaware emphasized repeatedly on the Senate floor that the proposed “resolution authority” was an illusion. His point was that extending the established Federal Deposit Insurance Corporation (FDIC) powers for “resolving” (jargon for “closing … Continue reading The Myth Of The Resolution Authority
By Simon Johnson. Testimony submitted to the Congressional Oversight Panel, “Hearing on the TARP’s Impact on Financial Stability,” Friday, March 4, 2011. I. Summary 1) The financial crisis is not over, in the sense that its impact persists and even continues to spread. Employment remains more than 5 percent below its pre-crisis peak, millions of … Continue reading “A Healthy Financial System Cannot Be Built On The Expectation Of Bailouts”
By Simon Johnson The Federal Reserve was created in 1913 to help limit the impact of financial panics. It took a while for the Fed to achieve that goal, but after World War II – with a great deal of help from other parts of the federal government – the Fed hit its stride. Today … Continue reading After The Recession: What Next For the Fed?
By Simon Johnson In modern American life, Treasury Secretary Tim Geithner stands out as amazingly resilient and remarkably lucky – despite presiding over or being deeply involved in a series of political debacles, he has gone from strength to strength. After at least eight improbably bounce backs, he might seem unassailable. But his latest mistake … Continue reading Tim Geithner’s Ninth Political Life
By James Kwak Patrick McGeehan at the New York Times recently wrote about a New York Fed study finding that studying economics makes you a Republican. The headline conclusion is that the more economics classes you take, the more likely you are to be a Republican. Majoring in economics or business is also more likely … Continue reading The Perils of Studying Economics
By Simon Johnson We live in an age of unprecedented bailouts. The Greek package of support from the eurozone this weekend marks a high tide for the principle that complete, unconditional, and fundamentally dangerous protection must be extended to creditors whenever something “big” gets into trouble. The Greek bailout appears on the scene just as … Continue reading Greek Bailout, Lehman Deceit, And Tim Geithner
The administration may be distancing itself from the Volcker Rules, but the same is not true of all Senators. (Why did President Obama go to the trouble of endorsing Mr. Volcker’s approach to limiting risk and size in the banking system, if his key implementers – led by Treasury Secretary Tim Geithner – were going … Continue reading The Brown Amendment: Do the Volcker Rules Live?
By Simon Johnson Did big banks break the law during our recent global debt-fuelled boom? The usual answer is: no – they just took advantage of loopholes and captured regulators. The world’s biggest banks are widely supposed to be too sophisticated to be tripped up by the legal system. But is this really true? The … Continue reading Enron and Merrill, Greece and Goldman
By James Kwak Gerald Corrigan, a Goldman Sachs executive and a former president of the New York Fed, had a curious defense of the Greece-Goldman interest rate swaps. Here are some direct quotations from the Bloomberg story: “[The swaps] did produce a rather small, but nevertheless not insignificant reduction, in Greece’s debt-to-GDP ratio,” Gerald Corrigan, chairman … Continue reading Everyone Was Doing It
I testified yesterday to the Senate Banking Committee hearing on the “Volcker Rules” (full pdf version; summary). My view is that while the principles behind these proposed rules are exactly on target – limiting the size of our largest banks and preventing any financial institution backed by the government, implicitly or explicitly, from taking big … Continue reading Goldman Sachs And The Republicans
The flurry of interest this week around ways to tax Big Banks is important, because officials in the US are – for the first time – recognizing that reckless risk-taking in our banking system is dangerous and undesirable. But the possibility of a tax on bonuses or on “excess profits” that are large relative to … Continue reading The Obama Financial Tax Is A Start, Not The End
Increasingly, leading bankers repeat versions of the argument made recently by E. Gerald Corrigan in his Dolan Lecture at Fairfield University. Corrigan, former President of the New York Fed and a senior executive at Goldman Sachs for more than a decade, makes three main points. “Large Integrated Financial Groups” – at or around their current … Continue reading Gerry Corrigan’s Case For Large Integrated Financial Groups