The British Way Is Better

Which is right, the British bailout approach or the American Paulson Plan? Let’s set some context. The U.S. and Britain (as well as Ireland, Germany, Spain, the Netherlands, Belgium and Iceland) now display the recurring patterns of governments using public credit to offset the losses of financial firms in the name of financial and social […]

The RTC or the RFC: Taxpayers as Involuntary Equity Investors

Do we need a “new RTC” as the U.S. Treasury is proposing—or something else? We believe that an alternative framework is needed. Its key elements should be two: recognition of systemic risk embedded in the illiquidity of mortgage-backed securities and capture of the upside of a rescue for taxpayers, not for banks and (former) investment […]

Most Radical Part of the Bailout

The most radical part of the Treasury’s plan for Fannie Mae and Freddie Mac is not investing in the equity of Fannie and Freddie, in order to bail out the holders of their bonds and mortgage-backed securities. It has always been clear that the “implicit government guaranty” of Fannie and Freddie’s obligations was a real […]

Your Guide to the Housing Crisis

With the financial world in turmoil, here’s a handy guide to the bursting of the housing market bubble. Q. The term “bubble” is used frequently in discussing the housing market—did we have a bubble, and what does that really mean? A. Yes, we did. A “bubble” is created when many people believe that an asset’s […]

Regulatory Implications of the Housing and Mortgage Bubble and Bust

Resident fellow Alex J. Pollock testifies before the Joint Economic Committee about the regulatory implications of the housing and mortgage bubble and bust. In light of the recent clamor for increased regulation of mortgage lending, Mr. Pollock reminds Congress that regulatory reform will not prevent all future financial busts, and that the heavily regulated, pre-securitization […]

The Greenspan Gamble

The most notable thing about Treasury Secretary Hank Paulson’s proposed plan for restructuring financial regulation is the expansion of the Federal Reserve into a sort of “Super Fed.” This new Fed would have oversight of all financial markets and firms, including investment banks. It would be responsible for financial market stability and would be expected […]

Why (Financial) History Repeats

Resident fellow Alex J. Pollock explores the parallels between the recent government bailout of the investment bank Bear Stearns and the government’s 1984 rescue of Continental Illinois, the largest commercial bank in Chicago. Both banks were determined to be too intertwined in the financial system to be allowed to fail; consequently, creditors were bailed out, […]

The Greenspan Gamble

The most notable thing about Treasury Secretary Hank Paulson’s proposed plan for restructuring financial regulation is the expansion of the Federal Reserve into a sort of “Super Fed.” This new Fed would have oversight of all financial markets and firms, including investment banks. It would be responsible for financial market stability and would be expected […]