EconoMonitor

Ed Dolan's Econ Blog

Roubini Topic Archive: Finance and Banking

  • Russian Crisis Hits Latvia, but (So Far) Not as Badly as Feared

    From the beginning, it was clear that the economic crisis in Russia would pose multiple problems for Latvia and its Baltic neighbors. Until recently, many businesspeople in Latvia had seen close trade, transportation, and financial linkages as strengths that allowed their country to serve as Russia’s economic portal to the EU. Since the middle of […]

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  • The Myth of Affordable Energy — Interview with Ed Dolan

    Posted by James Stafford: We were fortunate enough to speak with the well known economist Ed Dolan on various energy and economic issues. In the interview Ed talks about the following: • Why cheap energy is not vital to economic growth • Why high oil prices aren’t necessarily a bad thing • Why the U.S. […]

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  • The UBS-Adoboli Scandal Shows the Problem of Negatively Skewed Risk is Still With Us

    In my banking courses, I point to negatively skewed trading strategies as a key cause of the crash of 2008. The recent loss of more than $2 billion attributed to rogue trades by Kweku Adoboli at Swiss banking giant UBS shows that the problem of negatively skewed risk is still with us. It is an […]

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  • Are Financial Regulators Flying Blind? Would Better “Risk Topography” Help?

    Data on the capital and liquidity of banks are the navigation aids that regulators depend on to avoid another financial crash. Improvements to these indicators, adopted last year by the Basel Committee on Bank Supervision, are among the most heralded regulatory reforms since the 2008 crisis. But what if the instruments are faulty, even in their upgraded form? If so, regulators are flying blind, and our chances of avoiding another crash are slim. What can be done?

    A recent paper by three prominent financial economists suggests one possible answer: a sort of Manhattan project that would map out a “risk topography” of the financial system. The authors are Markus K. Brunnermeier of Princeton, Gary Gorton of Yale, and Arvind Krishnamurthy of Northwestern. All three are also affiliated with the National Bureau of Economics Research. (I will refer to the team in what follows as BG&K.)

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  • Is Financial Reform Working, or Will it Make Things Worse?

    The 2008 financial crash gave rise to a world-wide call for a review of regulations. In the United States, the EU, and international forums like the Basel Committee on Bank Supervision, the conclusion was reached that regulators had allowed banks and other financial institutions to take risks well in excess of those justified by the public interest. Legislatures were brought into the act where needed to change the regulatory framework. Everyone vowed to fix things.

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  • The Case Against the Mortgage Interest Tax Deduction

    As the US economy struggles to recover from recession and cope with a budget crisis, all past policies must be put on the table for review and revision. Even the sacred cows. Even the mortgage interest deduction.

    A new report from the OECD, which deserves more attention than it has been getting, explains the role badly-designed housing policies played in triggering the recent economic crisis. As the report shows, housing policy varies greatly among developed economies. There are some areas where the United States scores well. For example, it has a relatively liberal regime of building and land use permits. As a result, the supply of housing responds more to rising prices than in other OECD countries. Also, with the exception of some urban areas like New York and San Francisco, the US rental housing market has a healthier balance between the rights of landlords and tenants. However, in the area of tax treatment of owner-occupied housing, the United States comes off poorly.

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  • Could an Obscure Loophole Cause the Euro to Go the Way of the Ruble?

    Could an obscure loophole known as emergency liquidity assistance (ELA) lead to the collapse of the euro area, much as the post-Soviet ruble area collapsed in 1991-1993? Some people seem to think so. The Irish Independent says that the use of ELA by the Irish central bank amounts to “printing its own money.” Tracy Alloway, writing on ft.com/alphaville, emphasizes the secret, hush-hush nature of ELA operations. One blogger goes so far as to speak of hyperinflation. Is there really something fishy going on? And what does ELA have to do with the ruble?

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  • Could QE2 Cause the Fed to Go Broke?

    The Fed’s new program of quantitative easing, QE2, once again raises an old question: Can central banks go broke? Conventional analysis, aptly summarized by Willem Buiter in a 2008 report, says no, or at least, hardly ever. However, when we look closely, the conventional analysis is not altogether reassuring. Although the Fed most assuredly is not going to go broke, preventing that from happening could raise difficult political issues and perhaps even threaten the Fed’s independence.

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