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Worth Reading, Mostly Economics, for April 23, 2010

  • BDL (2005): "Motivated by public policy debates about bank consolidation and conflicting theoretical predictions about the relationship between bank concentration, bank competition and banking system fragility, this paper studies the impact of national bank concentration, bank regulations, and national institutions on the likelihood of a country suffering a systemic banking crisis. Using data on 69 countries from 1980 to 1997, we find that crises are less likely in economies with more concentrated banking systems even after controlling for differences in commercial bank regulatory policies, national institutions affecting competition, macroeconomic conditions, and shocks to the economy. Furthermore, the data indicate that regulatory policies and institutions that thwart competition are associated with greater banking system fragility."
  • GW: "Allen, and Politico in general, don’t actually seem to care at all about politics -- the real stuff of politics. The publication betrays not a hint of interest in the meanings or effects of policy. It has no grounding whatsoever in the structural realities that shape the daily blathering: economic life outside of Washington, the historical background of current events. Politico seems to wake up every morning with no memory of the day before..."
  • JS: "Closure is the universal tendency toward confirmation bias plus a sufficiently large array of multimedia conservative outlets to constitute a complete media counterculture, plus an overbroad ideological justification for treating mainstream output as intrinsically suspect.... I think many of the responses from the right, even where they disagree on various points, bear out the broad intuition that this is a real phenomenon and a problem. Nobody’s saying: “What on earth could he be talking about?"... Still, just as a brief refresher, recall that over the past two years, the movement’s flagship publications and most prominent pundits have found it urgent to discuss: Bill Ayers’ potential authorship of Obama’s memoir, the looming threat of death panels, the president’s crypto-Islamic background and allegiances, his attempt to create a “private army” via the health care bill, his desire to see America come to ruin, the imagined racism of Sonia Sotomayor…"
  • PK: "From a TIME magazine article in 1933 at introduction of FDIC and deposit insurance: 'Through the great banking houses of Manhattan last week ran wild-eyed alarm. Big bankers stared at one another in anger and astonishment. A bill just passed by both houses of Congress would rivet upon their institutions what they considered a monstrous system of guaranteeing bank deposits. Such a system, they felt, would not only rob them of their pride of profession but would reduce all U. S. banking to its lowest level. They saw their deposits which they had spent a lifetime to build up and protect with their good names confiscated by the Government to pay for the mistakes and dishonesty of every small town bankster.' Read more: http://www.time.com/time/magazine/article/0,9171,745617,00.html#ixzz0lqeB5Ghm"
  • DeLong: "4. Derivatives should be regulated with a light hand, because they are a small and specialized corner of financial markets and are simply not large enough to pose any systemic threat. 5. The Federal Reserve has adequate powers to stem financial crisis and keep it from becoming a threat to the economy, and is also not worried about derivatives. As I see it, Rubin was correct on (1), (2), and (3). He was correct on (4) when he was in office--when derivatives were too small to pose any systemic threat to financial stability. But that changed in the 2000s. And Rubin was completely, utterly, and totally wrong about (5) (as was I)." van Norden: "The topic is catching on....Leonhart at the NYT notes it, as does James Kwak at The Baseline Scenario. Brad DeLong has his dates wrong. (4) and (5) were not shown to be wrong in the 2000s. They were shown to be wrong on September 23rd, 1998 (and Rubin served until mid-1999.)"
  • JC&SG: "Republicans in the Senate decided to base their opposition to financial reform using a message developed by GOP pollster Frank Luntz, arguing that reform amounts to bailouts for Wall Street banks... the weakest argument available to Republicans... 8 to 11 points weaker than the other messages against reform and 35 to 40 points worse than arguments in favor of it... as framed by Luntz and parroted by Senate Minority Leader Mitch McConnell – that reform provides for an institutionalized taxpayer bailout for Wall Street – falls completely flat... the Luntz message fails to win support even among the Republican base. Republicans would have been better off supporting President Obama’s financial reforms and working with him on economic growth strategies."
  • EoC: "The thing that annoys me most about Republicans' new-found opposition to the $50bn orderly liquidation fund is that they are, without question, doing Wall Street's bidding on this. Killing a "pre-funded" resolution fund — which would be used to help pay for resolutions under the new resolution authority — is the Street's #1 issue in financial reform. That might seem a bit strange at first, until you realize that the majority of the $50 billion would come directly out of the major dealer banks' profits over the next few years. (Never underestimate the Street's ability to be short-sighted.) This issue has been at the top of the Street's wish list since last summer, when Barney Frank started suggesting that the House bill might include a pre-funded resolution fund."
  • HF: "The calendar has once again rolled around to the date on which we commemorate Charles Krauthammer’s pronouncement that: 'Hans Blix had five months to find weapons. He found nothing. We’ve had five weeks. Come back to me in five months. If we haven’t found any, we will have a credibility problem.' You’ve had seven years now, Charlie. How’s it looking? Hoping for a result sometime in year eight?"
  • ASB: "We may now be approaching... financial regulatory reform.... Armies of lobbyists and their politician allies are still fighting to weaken the bill.... So here are two bellwether issues.... The first is the fate of the proposed Consumer Financial Protection Agency.... First, how much independence will the new agency have?... Second... to what extent does the legislation create an agency focused on... protecting consumers?... Last... watch how many institutions and financial products get exempted.... The second bellwether... is... derivatives... the CFMA... placed most derivatives beyond the reach of regulators. What a mistake!... As the debate progresses, watch those exceptions like a hawk. How many derivatives will be allowed to remain customized and traded "over the counter"?... Under heavy pressure, the House bill allowed too many exceptions. But the bill passed yesterday by the Senate Agriculture Committee suggests the Senate may take a much tougher stand."
  • RR: "1. Require that trading of all derivatives be done on open exchanges where parties have to disclose what they’re buying and selling and have enough capital to pay up if their bets go wrong.... 2. Resurrect the Glass-Steagall Act in its entirety so commercial banks are separated from investment banks.... 3. Cap the size of big banks at $100 billion in assets..."
  • AS: "Friedersdorf is right: Conservatives -- and liberals for that matter -- demand "baroque gestures of solidarity" from their candidates regardless of race. The difference... is the nature of such gestures, which is what made Blow so angry in the first place.... What is Friedersdorf's priority? A conservative movement not seen as widely hostile to people of color because it isn't, or a conservative movement that doesn't have to deal with being seen as widely hostile? The above statement suggests the latter.... As for the "Real Americans" conceit, Friedersdorf argues that "the right’s 'real Americans' nonsense isn’t about race" since it's also applied to presumably white liberal academic elites on the coasts, etc. This isn't an either or... the definition has a racial dimension as well as a cultural one -- and that neither are ultimately very inclusive of people who don't happen to be white, Christian, and heterosexual."
  • JC: "Yesterday I commented on the miraculous nature of the sudden revival of financial reform. One other key element in this upsurge is the intellectual disarray on the right. Conservatives do not know what to say or think about this. A few of them are calling for breaking up the big banks. A few more are following the Frank Luntz line that regulation is a big favor to Wall Street. But mostly they're saying... nothing.... [T]he issue... threatens the self-image they've developed over the last year as opponents of the government-business nexus. Second, it's difficult to work out a free market response. If you let Wall Street invest however it likes, it will eventually precipitate a financial crisis, with massive government intervention being the only option.... Or else you can break up the big banks.... Either way, government has to get involved at some step..."

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