Greg Ip

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

Archive for the ‘Wall Street’ Category

The Financial Crisis Inquiry Commission: That 1930s show

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Jan 7th 2010 | WASHINGTON, DC 
From The Economist print edition

A Depression-era crusade against Wall Street has a 2010 revival

Getty Images
Getty Images
Pecora in his pomp

[Greg Ip] THE battle against the financial crisis may be ending, but the war over why it happened has barely begun. The most ambitious effort yet to settle the story begins next week with the first hearing of the Financial Crisis Inquiry Commission.

Congress gave the ten-member bipartisan commission a sprawling mandate: to investigate at least 22 potential causes, from excess global savings to short-selling, and to explain why specific firms collapsed or needed bail-outs. The report, due by December 15th, is not supposed to contain recommendations but probably will.

Though modelled on the body that investigated the attacks of September 11th 2001, the spiritual father of this venture is the Pecora Commission. Read the rest of this entry »

Assessing financial innovation

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14:36 GMT +00:00

From Free Exchange. The original post is linked here.

 

AS A believer in free markets I’m inclined to believe that whatever innovation our kinetic and energetic innovators come up with is, until proven otherwise, welfare enhancing. Even if it becomes the subject of an investment mania that ends in tears. For all the money lost in its bursting, the internet bubble almost certainly accelerated by many years the development, diffusion, and adoption of many useful consumer technologies which are benefitting us today.

But the case for the welfare enhancing benefits of financial innovation is tougher to prove. Read the rest of this entry »

Written by gregip

March 3, 2009 at 9:40 pm

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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