The Outlook for 2010: A Critique of Modern Monetary Policy

Despite the sideshow over financial regulation, monetary policy is the most important element of economic growth within the purview of any regulatory entity. Hence, the Federal Reserve still has a preeminent role to play in the recovery (assuming one has started). One has to view the Federal Reserve’s monetary policy actions not as following absolute […]

The Outlook for 2010: Bank Failures and Bank Losses Ahead

After a hopeful holiday we are coming back to reality. Jobless numbers were up again, firms continue to economize on inventory, and while holiday retail sales at discounters rose, high-end stores either slowed or rose slightly from extremely low sales last year. Moreover, on Friday, January 8, bank failures resumed.

The House Solution to Private Firms that are Too-big-to-fail is to make them Public Government Sponsored Enterprises

My commentary this week runs a couple of different directions. First, I placed a letter to the editor in the Financial Times regarding cap and trade policy (http://www.ft.com/cms/s/0/7c973c56e84f-11de-8a02-00144feab49a.html). While many of you may think that the issue is unrelated to financial services, I assure you that many trading firms are looking at the sector and possible rents to be extracted in the U.S. approach as a vital component of their future business operations.

Carbon: The New Financial Frontier

As world leaders meet in Copenhagen this week to debate climate change policy, one constant remains consistent: the devotion to cap and trade as the cornerstone of policy to price carbon emissions. As maintained in my recent Senate testimony, carbon is a poor candidate for cap and trade implementation (http://energy.senate.gov/public/_files/MasonTestimony091509.pdf). Cap and trade is the […]

Prompt Corrective Action for All is Unnecessary and Unworkable

Recently proposed financial industry legislation attempts to graft prompt corrective action thresholds onto financial institutions outside the traditional application to commercial banks. Prompt corrective action, however, means closing institutions before they are economically insolvent. Closing commercial banks in this way is rational because the moral hazard caused by deposit insurance protection makes bank creditors (primarily […]

TBTF is not about Size, it’s about Information

Recent proposals to limit “too-big-to-fail” miss the main cause of the credit crisis. In fact, it is not sheer size that is the problem, it is the lack of information. Like the 911 commission is showing, failures to share intelligence across different agencies, as well as a lack of intelligence, overall, led to the shortcomings […]

Crisis Inevitably Breeds Leviathan

Yesterday, Christopher Dodd, Chair of the Senate Banking Committee, released the Committee’s discussion draft for financial reform. Leaving aside the fact that the Financial Crisis Inquiry Commission has barely begun its task of researching the causes of the crisis, it is hard to find anything worthwhile in this draft or the House variant. Moreover, while […]

Ratings Reform is Easy – Just follow the conflicts of interest

While my commentary last week dealt with corporate governance rating and executive pay issues, the paper Charles Calomiris and I released on Tuesday applies conflicts of interest for all types of ratings, including credit ratings. The framework we lay out revolves simply around thinking of not two, but three parties associated with ratings: the rating […]

What if Regulating Executive Pay Doesn’t Work? A Brief Primer on the Limits to Knowledge in Corporate Governance Research

Below is a brief missive on the topic of this Thursday’s World Growth Panel Discussion, entitled “Corporate Governance Rating Agencies and Conflicts of Interest: Harming Pension Funds, Individual Investors, and Company Employees, Investor Harm and Future Policy Implications.” The flyer for the event is included at the end of this email. After WorldCom, Enron, and […]

Why Would Anyone Believe Bank Earnings Yet?

Earnings season is in full swing, with Goldman Sachs, Citigroup, Banc of America, and JP Morgan out last week and more on the way. The problem is, there is still so much noise left over from the crisis and the myriad government bailout programs that it is difficult to disentangle financial fundamentals from hype. It […]