By Per Kurowski

There is no reason to believe the world would be better if financial regulators provided extra incentives to those who, perceived as having a lower default risk, are already favoured by lower interest rates, or punish further those who, perceived as more risky, are already punished by higher interest rates. In fact, the opposite is probably true. Continue reading "Free us from imprudent risk-aversion"

By Michael Pomerleano

I was in Chicago last week to participate in the 12th Annual International Banking Conference sponsored by the Federal Reserve Bank of Chicago and the World Bank. The answer to the question posed — have the rules of the global financial game really changed? — is a resounding no.

This was my first week back in the US after being away for three years, and the conference gave me an opportunity to gauge the state of the debate there. Compared to my two years at the Bank of International Settlements in Basel and my year at the Bank of Israel, the openness of the debate and the quality of the discussions in Chicago were refreshing. However, in the US — the epicentre of the crisis and the country that is supposed to lead the world toward reform and out of the crisis — I expected a far more forceful articulation of remedial measures. Continue reading "Another crash is all too possible"

From the FT:

Martin Wolf: This time will never be different

Mohamed El-Erian: Return of the old ways of thinking threatens recovery

Wolfgang Münchau: A recognition of the deep roots of the crisis

Robert Shiller: In defence of financial innovation

Elsewhere:

Urban Jermann and Vincenzo Quadrini, VOX EU: Paying more attention to financial shocks

Paul Krugman, New York Times: Crowding in

Carlo Bastasin, Peterson Institute: Is It wise or productive for the United States to press germany to abandon Its export-driven economy?

Markus Jäger, VOX EU: Can China be the world’s growth engine?

By Roman Frydman and Michael D. Goldberg

Confidence seems to be returning to markets almost everywhere, but the debates about what caused the worst crisis since the Great Depression show no sign of letting up. Instead, the spotlight has shifted from bankers, financial engineers and regulators to economists and their theories. This is not a moment too soon. These theories continue to shape the debate about fiscal stimulus, financial reform, and, more broadly, the future of capitalism, which means that they remain a danger to all concerned. Continue reading "An economics of magical thinking"

From the FT:

Jean-Claude Trichet: Europe has mapped its monetary exit

Timothy Geithner: Financial stability depends on more capital

Gillian Tett: A matter of retribution

Elsewhere:

Mark Kleinman: Reforming regulatory benefit cost analysis

Viral Acharya:   Systemic risk and deposit insurance premiums

Paul Krugman:  How did economists get it so wrong?

By Masahiro Kawai and Michael Pomerleano

In a previous article in the Economists’ Forum, we expressed skepticism about the capacity of the Financial Stability Board to implement sound international financial stability regulatory architecture. We concluded that the prospects were more promising on the domestic front; this led to a discussion on creating a financial stability regulator at the national level.

The Obama administration has proposed that the Federal Reserve should become the overseer of financial stability in the US. The central bank would gain power to monitor risks across the financial system and sweeping authority to examine any firm that could threaten financial stability. The nation’s biggest and most interconnected firms would be subject to heightened oversight. Continue reading "Bolstering financial stability regulation"

By Roger E. A. Farmer

Confidence is slowly returning to the stock market and the S&P is back to the level it reached when President Obama took office in January. This is enough to prevent a further collapse in spending; the Obama stimulus package may even move us into positive territory for US gross domestic product growth. But these ‘green shoots of recovery’ are not enough to create the jobs needed to restore full employment in the US. Continue reading "The Great Recession and the coming jobless recovery"