Published Opeds on Financial Reform: March 2010 Archives

Fannie & Freddie - Where's the Outrage?

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by Matthew Richardson

Recently, the government sponsored enterprises, Fannie Mae and Freddie Mac, announced new losses, bringing the total tally to $126 billion. It barely registered as news. There is a chance, not a great chance, but a chance nonetheless, that the support thrown at the banks is not all money down the drain. But the chances are slim to none that either Fannie or Freddie will be able to pay back the funds. It is highly likely that taxpayers will lose well over $2000 billion and it may well pass $300 billion. When the history of the crisis is all written, these institutions will turn out to be the most costly of the financial sector, and this sector includes A.I.G., Citigroup and Bank of America/Merrill Lynch.

Why are the GSEs so costly? Why aren't people up in arms? In a recent op-ed in the NY Post, I offer some possibilities. See the following link:

http://www.nypost.com/p/news/opinion/opedcolumnists/fannie_freddie_the_biggest_bailout_rAyIYVNxCGXc4UrUntXkCK

You can also view my interview on FOX Business Network on the same subject.

Early 2010 Published Op-Eds

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Finance for the People

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Getting Regulatory Reform Right

by Thomas F. Cooley and Ingo Walter

We are now at a critical juncture in the effort to revise the structure of financial regulation in the U.S. Senator Christopher Dodd, Chair of the Senate Banking Committee, after months of seeking a compromise that would generate bipartisan support, has put forward his own version of a reform bill. Predictably, we hear the chorus of the wounded argue that the bill will stifle the competitiveness of U.S. financial institutions, retard financial innovation, send jobs overseas and limit the abundant options consumers and businesses now enjoy. John Boehner, leader of the House Republicans, urged a conference of bankers to stand up to "punk staffers" advising his colleagues. That's amazing, given that the financial services industry has spent something like $1 million per member of Congress lobbying on financial reform issues, which by some estimates amounts to about five active lobbyists per Congressperson. To which we say, take a deep breath and try thinking beyond the end of your nose. What's good for the system is ultimately good for you.

Read the full opinion editorial at Forbes.com

The Paradox of "Too Safe to Fail" Assets

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by Viral V Acharya and Arvind Krishnamurthy

While the House and the Senate Bills empower the regulators to impose greater capital requirements on banks and systemically important institutions, they provide little guidance on how we might have to improve design of capital requirements going forward. In particular, how should we deal with fail-safe assets such as AAA-rated tranches of mortgage-backed securities and liabilities such as overnight secured borrowing ("repos") which were not capitalized, were held in large quantities, and ended up bringing down the entire financial sector through losses and runs? The Financial Times oped at the link below (joint with Arvind Krishnamurthy) argues that the entire risk of these "too safe to fail" transactions is systemic in nature, and hence financial sector has incentives to essentially ignore the risk, unless we reform capital requirements to be higher for these transactions. This is in fact the opposite of how (Basel) capital requirements are currently designed, which is to in fact give higher incentives for such transactions.

Financial Times Market Insight column

Why bankers must bear the risk of "too safe to fail" assets.

March 18, 2010

http://www.ft.com/cms/s/0/9575ec0a-31e6-11df-a8d1-00144feabdc0.html

 

About RegulatingWallStreet.com

The Dodd-Frank Act, signed into law in July 2010, represented the most significant and controversial overhaul of the U.S. financial regulatory system since the Great Depression. Forty NYU Stern faculty, including editors Viral V. Acharya, Thomas F. Cooley, Matthew P. Richardson, and Ingo Walter, provide a definitive analysis of the Act, expose key flaws and propose solutions to inform the rules’ adoption by regulators, in a new book, Regulating Wall Street: The Dodd-Frank Act and the New Architecture of Global Finance (Wiley, November 2010).

About Restoring Financial Stability

Previously, many of these faculty developed 18 independent policy papers offering market-focused solutions to the financial crisis, which were published in a book, Restoring Financial Stability: How to Repair a Failed System (Wiley, March 2009).

About the Authors