Greg Ip

Articles by The Economist’s U.S. Economics Editor

Archive for the ‘bankruptcy’ Category

What if Lehman had not failed?

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The original article is linked here.

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What if?

Sep 10th 2009
From The Economist print edition

If Lehman had not failed, would the crisis have happened anyway?

Illustration by Jac Depczyk
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[Greg Ip] IN AUGUST 2008 Kenneth Rogoff, a Harvard University economist, briefly rocked world stockmarkets when he warned a conference in Singapore: “We’re not just going to see midsized banks go under in the next few months, we’re going to see a whopper, we’re going to see a big one—one of the big investment banks or big banks.” A month later, in the early hours of September 15th, Lehman Brothers filed for bankruptcy. Read the rest of this entry »

Written by gregip

September 10, 2009 at 7:47 am

We’re Borrowing Like Mad. Can the U.S. Pay It Back?

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By Greg Ip
Sunday, January 11, 2009; B01
From The Washington Post Outlook Section

In its battle against the financial crisis, the U.S. government has extended its full faith and credit to an ever-growing swath of the private sector: first homeowners, then banks, now car companies. Soon, President-elect Barack Obama will put the government credit card to work with a massive fiscal boost for the economy. Necessary as these steps are, they raise a worry of their own: Can the United States pay the money back?

The notion seems absurd: Banana republics default, not the world’s biggest, richest economy, right? The United States has unparalleled wealth, a stable legal tradition, responsible macroeconomic policies and a top-notch, triple-A credit rating. U.S. Treasury bonds are routinely called “risk-free,” and the United States has the unique privilege of borrowing in the currency that other countries like to hold as foreign-exchange reserves.

Yes, default is unlikely. But it is no longer unthinkable. Read the rest of this entry »

We need a new regime for handling financial failure – now

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Barack Obama’s BlackBerry

Subject: Wall Street

Dec 30th 2008
From The Economist print edition

 

Another look inside the president-elect’s BlackBerry, soon to be confiscated on security grounds
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“FIRST the good news. While the recession is getting worse, the financial crisis that started it has been contained—for now. The government has had to bail out only one big financial institution in the past six weeks.

The bad news is that the Bush administration and the Fed had nothing resembling a consistent strategy. They crushed Fannie’s and Freddie’s stock holders. They saved Citigroup’s. Ad-hockery is costly: it keeps private capital on the sidelines for fear of being wiped out in the next Sunday night rescue. And the government is now on the hook for perhaps trillions of dollars of guarantees and new capital, in return for which it got no extra power to protect the system and the taxpayer in the future.

What we need, and soon, is a “resolution regime”, governing how the government may take over any big financial institution and sell, nationalise or close it. We do have such a regime for deposit-taking banks, but it’s flawed in two respects. First, huge amounts of money are sloshing around outside the banks. Second, the biggest banks have long since become so thoroughly intertwined with the financial system that they cannot be neatly closed down as our laws once envisioned.

 

Designing such a regime is going to be a lot harder than just saying we need one. How are we going to decide which institutions are so important that they must come under it? And any institution we do agree to cover will be seen as “too big to fail”, obtaining an unfair advantage over its competitors in their cost of borrowing.

Whatever we come up with, voters have a right to be sure that we never get into this kind of mess again. The inability of the Republicans to forestall or fix the crisis was the main reason you won (after your charm and brains, naturally).

At a minimum, we will need much tighter federal oversight of the non-banks, and that is going to be hugely unpopular with Wall Street (though a bit of squealing from them is no bad thing for voters to hear). This ought to be part of a broader overhaul of a financial regulatory system that everyone knows is a mess: we have seven agencies overseeing banking, securities and futures and they still allowed the banks to behave like lunatics and failed to spot Bernie Madoff’s Ponzi scheme. It took four years to pass the last overhaul. We don’t have that much time: the crisis could claim its next victim at any moment. We have to figure out, right now, how we will respond.”

Written by gregip

January 1, 2009 at 10:00 pm

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