Category Archives: financial regulation

It Takes More than Two to Tango: Cry, But Not for Argentina, nor for the Holdouts

U.S. federal courts have ruled that Argentina is prohibited from making payments to fulfill 2005 and 2010 agreements with its creditors to restructure its debt, so long as it is not also paying a few creditors that have all along been holdouts from those agreements.  The judgment is likely to stick, because the judge (Thomas Griesa, in New York) told American banks on June 27 that it would be illegal for them to transfer Argentina’s payments to the 92 per cent of creditors who agreed to be restructured and because the US Supreme Court in June declined to review the lower court rulings.

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“Built to Last” — A Reaction to Obama’s State of the Union Message

Obama’s slogan for the SOTU last night, “An Economy Built to Last,” was a way of referring to one of the accomplishments of his first years: successfully reviving the auto industry, which many had said couldn’t be done without nationalizing it.   References to other accomplishments were stated more quickly, such as national security (withdrawal from Iraq, disposing of Osama bin Laden) or more obliquely, such as health care reform, financial reform, and arresting the freefall of the economy that Obama inherited in January 2009 (via fiscal stimulus and TARP – both of which are not especially popular programs).

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Barack Obama’s Biggest Economic Mistake Has Been…

In the current issue of Foreign Policy, the editors of the FP Survey ask “top experts” for pithy solutions to the world’s economic problems, “twitter style.”  Some of the answers:

THE BIGGEST THREAT TO THE GLOBAL ECONOMY IS …
Anti-market bias. -Bryan Caplan •  Procrastination. -Peter Diamond •  Short-term thinking. -Esther Dyson •  A euro meltdown. -Dean Baker  •  Tax-cut fanatics. -Jeffrey Frankel •  The bond market. -Andy Sumner •

MY OUT-OF-THE-BOX SUGGESTION TO REVIVE THE GLOBAL ECONOMY IS
Wipe out debts. -Daron Acemoglu •  Require candidates for national office to pass ninth-grade tests on arithmetic, history, and geography. -Jeffrey Frankel •  Double down on science. -Tyler Cowen •  A government lottery where winners have mortgages, student loans, or other debt paid off. -Mark Thoma •  We don’t need “out-of-the-box” solutions; we need “head-out-of-the-sand” ones. -Adam Hersh •  Pray. -David Smick

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Politicians Scorn Professors

My preceding blogpost, the Hour of the Technocrats, was inspired by the recent accession of Mario Monti and Lucas Papademos, both professional economists, to the prime ministerships of Italy and Greece, respectively.   Today we turn to the U.S., where the political process seldom views academic credentials benevolently.

In the United States, Senator Richard Shelby scorned President Obama’s 2010 nomination of Peter Diamond, an eminent MIT Professor of Economics, and prevented his confirmation as a governor of the Federal Reserve Board.  The Alabama Senator farfetchedly claimed that the nominee was not qualified, and persisted despite the coincidence that Diamond won the Nobel Prize in Economics soon after his nomination (deservedly).   But, then, Shelby was holding up an astounding 70 of President Obama’s nominations, just to try to get two pork projects in his home state funded.   Diamond finally withdrew in June 2011, because Shelby and other anti-technocratic Senators had blocked the confirmation process for 14 months and were clearly going to continue to do so.   Diamond, like Axel Weber in my preceding blogpost, was comfortable foregoing the limelight. 

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The Easy Question in Financial Regulation

Many questions in the field of financial regulation are hard to answer:    Would the separation of commercial banking and investment banking help prevent crises?   To what extent should individual consumers be protected against foolishly borrowing too much?  Should Credit Default Swaps be regulated out of existence?    What should regulators do about patterns of high executive compensation that is evidently not a reward for performance?  I have views on these questions, just as other observers do.  But in these cases I see the arguments on both sides.

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