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September 21, 2009

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Ranger

Perhaps he has exhausted his phoniness on that topic.

Or Wall Street reminded him where a lot of the money for his campaign came from.

P.S. I doubt he can exhausted his phoniness on any issue.

sylvia

"executives who want to run a hedge fund and be paid accordingly can quit and go do so, without implicit government support or FDIC insurance."

I agree with that as well. Otherwise we are going to get biannual banking collapses in the future.

sbw

Ranger: I doubt he can exhaust his phoniness on any issue.

Bingo.

bishop

Well this is the problem, we took the model that has managed Mexico periodic busts and later Asia's currency collapses and brought it home first through the LTCM bailout; Geithner was a party to that, then TARP, and the stimulus

jimmyk

So rather than try to reduce government's role in the financial system, a role which contributed significantly to the crisis, we are going to institute more more micro-management by the government? This sounds like Obamalogic as applied to health care. It is also how the federal government has invaded more and more of the economy: provide tax dollars, and then use that as an excuse for permanent intervention. Education is the prime example.

It seems possible to limit the restrictions on bank risk-taking to safeguarding FDIC-insured accounts, and otherwise let banks succeed or fail in the market. Otherwise money will leave the banks for less regulated institutions anyway.

JohnW

I'm curious how any regulation scheme would have prevented the sub-prime meltdown when Fannie Mae and Freddie Mac thought they were A-OK. How can regulators decide what is too risky when you have the biggest players in the game making politically-motivated risk assessments? If Fannie Mae and Freddie Mac say it looks good, and are themselves committed to those products to the hilt, who is anyone else to argue?

The Democrats and the Media are a destructive force from the disconnect from reality that their media power gives them.  Reality oriented, heh.

JohnW, Bush and the Republicans introduced legislation addressing the problem; it was torpedoed by Democrats and their 'politically-motivated risk assessments'.
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SWarren
History is no guide to a path to recovery, he said. “The trouble is, we really have no road maps. The only model is the Great Depression itself.” That “was ended by a very large spending program known as World War II and we don’t really want to repeat that.”

So is he admitting that FDR's make-work programs did not end the depression?

Strawman Cometh

He's been reading LUN

Fool them once, what a shame; fool them twice, who's to blame?

If the Democrats had just forgotten the only lesson they didn't learn from the Great Depression.
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bishop

No, he hasn't otherwise why recreate the Reconstruction Finance Corporation

SWarren

Strawman,

The Forgotten Man is one of the greatest books ever written! My husband and I are reading it right now.

Charlie (Colorado)

As often with these folks, they've got the germ of an idea and the completely wrong idea about using it.

I suspect it's probably correct that there are perverse incentives in the comp structure. We tend to reward people for short-term results, but then accounting rules, and the whole structure of measurement of company performance tends to look at quarterly and year-over-year results. It's not just in banks, either: I watched it happen with Northern Telecom (RIP), where they brought in a CEO whose job was explicitly to raise the stock price. His comp was structured around that, with stock options and bonuses. The first thing he did was cut all research and development with a payoff after the end of his contract.

His contract ran out, he cashed out, and NT soon found themselves with no new products.

This is caled, technically, a "greedy strategy", and has the problem that it can become trapped by local maxima: you find a nearby "high point" that isn't as good as a more global exploration could find.

The problem here is that regulation tends not only to follow greedy strategies, but to maximize things other than the ones that would help. Like "social justice" and, inevitably, to regulatory capture.

bgates

Mr. Obama, in an interview with Bloomberg News, questioned the case for limiting financial-sector pay: “Why is it,” he asked, “that we’re going to cap executive compensation for Wall Street bankers but not Silicon Valley entrepreneurs or N.F.L. football players?”

That reads more like Obama questioning the case for not having government control over "the rich", doesn't it?

Strawman Cometh

“Why is it,” he asked, “that we’re going to cap executive compensation for Wall Street bankers but not Silicon Valley entrepreneurs or N.F.L. football players?”
Because the WS bankers crashed the economy and are now on the gov't payroll via TARP?

Strawman Cometh

“If we can introduce effective climate change policies, particularly the cost of carbon emissions,” that “would be a reason to invest.”
A “good” agreement at the forthcoming international climate change summit in Denmark “wouldn’t just be good for the planet, it would be good for the recovery,” Krugman said.

Oh yeah, let's introduce a huge tax on cheap energy, that'll fix it.

Ignatz

Is there no power the feds don't possess?
The interstate commerce clause now covers pay?

Here's an idea; how about we don't bail failing firms out? And if they have violated regulations and or disclosure rules they are held accountable?

"Too big to fail" is incompatible with a free market republic. However if it is going to exist it would be far less intrusive for the Feds to limit the size a bank could reach while making it clear they will be allowed to fail.

boris

"Because the WS bankers crashed the economy and are now on the gov't payroll via TARP?"

Suspect the bankers getting capped aren't the ones who crashed WS.

Making sure that a critical industry is run by dimwits seems ... well dimwitted ...

Try that with Silicon Valley and see what happens.

Jack is Back!

Banks today are not monolithic but rather like giant Octopii with tentacles everywhere - equities, investments, M&A, derivatives, project finance, debt structures, wealth management, insurance, mortgages, commercial paper, et. al. In other words, they are diverse and vertically integrated to a degree never seen before. As a result, they have very thinly spread specialized organizations without proper centralized management. Unlike Jack Welch's GE they do not mind being number 3, 4 or even 9 in a particular market sector. The whiz kid math types that designed the models and so called exotic financial products were under managed simply because no one knew whether their designs were true or false but gave it a go anyway with proper independent risk analysis. In fact, a number of the banks had risk committees headed by the CFO or COO which are the wrong set of management for that task.

I prefer the free market and private management even with the sores.

Andrew_M_Garland

Federal deposit insurance is what makes banks exciting. They can invest in whatever, and they can get deposits without meeting any standards independent of government.

The same people who missed the signs about Bernie Madoff are overseeing the banks.

If they get into trouble, the Govt bails them out long before the FDIC shuts them down.

Remove Govt supplied deposit insurance and make the banks prove that they are investing safely. Poof! banks become boring.

Of course, this doesn't provide entertainment for meddlers like Krugman.

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