tag:blogger.com,1999:blog-5713178645208582139.post3241018583708908322..comments2024-03-22T02:37:15.030-05:00Comments on Macro Musings Blog: The Legacy of TARPDavid Beckworthhttp://www.blogger.com/profile/04577612979801459194noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-5713178645208582139.post-86283881186230409032010-10-03T11:32:46.753-05:002010-10-03T11:32:46.753-05:00JKH:
This is off topic, but I have a question you...JKH:<br /><br />This is off topic, but I have a question you are well suited to answer. Prior to this crisis, it was well documented that the federal funds rate was becoming increasingly predictable. Did this development have any bearing on the elasticity of demand for bank reserves?David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-42914360197380071782010-10-01T18:01:14.797-05:002010-10-01T18:01:14.797-05:00Andy Harless makes a good point when he says that ...Andy Harless makes a good point when he says that the current institutions of American capitalism potentially reduce the "socially optimal" amount of risk-taking.<br /><br />American capitalism with its grotesque inequalities of opportunity is a way from optimal compared to some other countries such as maybe Canada and Australia.<br /><br />But really....bailing out the banks is the ecbnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-85833075210760725232010-10-01T13:03:39.448-05:002010-10-01T13:03:39.448-05:00I'm not convinced that moral hazard is a bad t...I'm not convinced that moral hazard is a bad thing. In a world where human capital cannot be diversified, there is an underlying incentive to take less than the socially optimal amount of risk. If moral hazard increases risk taking, it may be a second best optimum. Moreover, it is a good thing if people expect bailouts once a financial crisis has begun, because it will prevent the crisis Andy Harlesshttps://www.blogger.com/profile/17582263872850949568noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-11562673273897202912010-09-30T14:41:41.927-05:002010-09-30T14:41:41.927-05:00David,
I have no great insight into whether or no...David,<br /><br />I have no great insight into whether or not it’s enough, but increasing capital requirements is the key. It's directionally constructive at least.<br /><br />I come from a culture in which the banks are not known for deliberately destructive risk taking. Their behaviour even includes a different kind of push back. The Canadian banks got together about a year ago and went to JKHhttps://www.blogger.com/profile/10275975730082410689noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-12945662380284436492010-09-30T13:07:15.391-05:002010-09-30T13:07:15.391-05:00JKH says: "Will it (Basel III) be sufficient?...JKH says: "Will it (Basel III) be sufficient? Hard to say right now."<br /><br />Which of course is exactly why some of the more perceptive Fed people (such as Gary Stern or Richard Fisher) have argued that the big banks need to be broken up. The history of banking shows that banks are brilliant at beating the regulators. So financial reform requires finding a way to dismantle systemic ecbnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-85650850467347583332010-09-30T12:27:44.976-05:002010-09-30T12:27:44.976-05:00Bill C: Yes, that was my comparison not Johnson...Bill C: Yes, that was my comparison not Johnson's. However, the TBTF issue never got addressed with TARP. The one sure way to have addressed it would have been to let the banks fail. That was the motivation for the comparison.<br /><br />JKH:Okay, maybe so but the abscence of pushback from the banks (at least what I can see) on the new Basel requirements sure seems suspicious. Any thoughts?David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-12379637691101795942010-09-30T11:19:42.487-05:002010-09-30T11:19:42.487-05:00"One thing, though, does seem sure to me: the..."One thing, though, does seem sure to me: the moral hazard problem is now bigger than ever."<br /><br />How can you be so certain that changes in Basel capital requirements, etc. and other regulatory changes (e.g. resolution authority) will not have the effect of net reducing moral hazard? How do you measure that?<br /><br />I wouldn’t be so sure, myself. Moral hazard is roughly the JKHhttps://www.blogger.com/profile/10275975730082410689noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-22053065791216383802010-09-30T11:07:48.895-05:002010-09-30T11:07:48.895-05:00And of course TARP represents only a portion of th...And of course TARP represents only a portion of the support given to the financial system. It does not include the extraordinary actions taken by the Federal Reserve to shore it up, and which are still ongoing in the form of damagingly low interest rates.<br /><br />Simon Johnson has been convincing in his portrayal of the crisis being as much political as economic. The power of the vested ecbnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-72772416663603781252010-09-30T10:07:55.482-05:002010-09-30T10:07:55.482-05:00Hmmm.... Reading Johnson's post, I think the c...Hmmm.... Reading Johnson's post, I think the comparison that he would want would be the present value of costs created by TARP versus a counterfactual with some idealized version that dealt better with incentives/"Too Big To Fail." I don't think he's saying that we would have been better off doing nothing (though that's an interesting question too).Bill Chttps://www.blogger.com/profile/01081319025032071808noreply@blogger.com