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Finance
A Category Archive (67 entries)
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March 20, 2013
Cost-benefit Analysis
David Henderson
I'm glad that co-blogger Bryan Caplan raised the issue of the marriage premium. When I was writing a review of Dwight Lee's and Richard McKenzie's excellent book, Getting Rich in America: 8 Simple Rules for Building a Fortune and a... MORE
January 19, 2013
Alan S. Blinder is one of America's leading economists. One of the few economists who write really well, he is also a master storyteller. In "After the Music Stopped," Mr. Blinder, previously a vice chairman of the Federal Reserve Board... MORE
January 3, 2013
In that order: 1. U.S. and UK regulators are trying to find a workable way to shut down big international banks. If they find a solution it would remove one of the the big barriers to ending Too Big To Fail.... MORE
January 1, 2013
San Jose State University economist Jeffrey Rogers Hummel sent the following capsule review of David A. Moss, When All Else Fails: Government as the Ultimate Risk Manager (Cambridge: Harvard University Press, 2000). Jeff writes: Limited liability remains a subject of... MORE
December 24, 2012
Behavioral Economics and Rationality
David Henderson
Do retirement savings policies--such as tax subsidies or employer-provided pension plans--increase total saving for retirement or simply induce shifting across accounts? We revisit this classic question using 45 million observations on savings for the population of Denmark. We find that... MORE
December 22, 2012
Public Choice Theory
Garett Jones
From Tuesday's Wall Street Journal:Some, like Citigroup Inc. and Bank of America Corp. have embarked on diets of their own. On the whole, though, the financial system is more concentrated than before the crisis. And Santander, the largest Euro-area bank with... MORE
Books: Reviews and Suggested Readings
David Henderson
My review of Luigi Zingales's book, A Capitalism for the People, has been published in the latest issue of Policy Review. One of the best parts of his book is the content on cronyism. In case you think this review... MORE
December 4, 2012
Efficient Markets Hypothesis
Garett Jones
Trick question: None, zero, zilch. By law, Fannie and Freddie can't originate loans--they can only buy or guarantee loans that have already been made by actors in the private sector. This is no small point, but it's a point that... MORE
December 3, 2012
My latest book review for Barron's is here ($, probably). Zandi's Paying the Price adds some value; this post excerpts some positive parts of the review:"Regulatory, legal, and policy uncertainty was holding business back." That's author Mark Zandi, Moody's Analytics chief... MORE
November 21, 2012
When the federal government bought shares in the biggest banks, who benefited most: Shareholders or bondholders? According to co-blogger Luigi Zingales and U Chicago professor Pietro Veronesi, the answer is clear: bondholders. They estimate the total benefit to banks at $131... MORE
November 20, 2012
Monetary Policy
Garett Jones
Bloomberg's Moshinsky and Brunsden report: The shadow banking industry has grown to about $67 trillion, $6 trillion bigger than previously thought...The [Financial Stability Board, FSB], a global financial policy group comprised of regulators and central bankers, found that shadow banking grew... MORE
November 18, 2012
One advantage the United States has that Canada didn't is low interest rates. Interest rates today are much lower than when the Canadian government altered course. The yield on the ten-year Treasury bond in late June 2010, for example, was... MORE
November 10, 2012
Public Choice Theory
Garett Jones
This week I returned from a trip to Shanghai and Nanchang; the latter is in Jiangxi province, and as a GMU aside, the food in Jiangxi was stunning. I was in Nanchang to give some lectures at Jiangxi University of... MORE
October 29, 2012
Behavioral Economics and Rationality
Luigi Zingales
Preet Bharara, Manhattan's U.S. attorney, is a man on a mission. Not satisfied with the historical conviction of former McKinsey managing director Raja Gupta for insider trading, he quickly moved to investigate mortgage fraud. Earlier this month he sued Wells... MORE
October 28, 2012
Economic History
Garett Jones
Today most serious economic observers take it for granted that creative destruction is the norm. The rise of internet firms, the overnight demise of Enron and Arthur Andersen a decade ago, and especially the rapid turnover of the Fortune 500... MORE
October 11, 2012
Macroeconomics
Garett Jones
As always, I enjoyed the hour. Hope you do as well.I suspect it was this post that led to the invitation. I really do believe Fisher's 1933 Econometrica article offers a more complete model of the entire business cycle process... MORE
October 8, 2012
Public Choice Theory
Garett Jones
During the worst days of 2008, something strange happened. During the Eight Days of Terror, the S&P 500 fell by 23% but there were no loud calls for the government to guarantee the value of stocks (Aside: TARP was signed... MORE
September 30, 2012
On Speed Bankruptcy: Of course this would raise capital costs. That is a feature, not a bug. We have seen the results of underpricing credit risk.... MORE
September 26, 2012
Tim seemed to view his job as protecting Citigroup from me, when he should have been worried about protecting the taxpayers from Citi....That's from her new book, profiled in the Financial Times. You already know that countries whose banking sectors... MORE
September 19, 2012
Some people think the world will end this year, some think the US is bound to default or inflate its way out of debt, some suspect the Singularity will end in a John Connor scenario. How can these prophets of... MORE
September 18, 2012
I'm still shocked at the speed with which bipartisan elites coalesced around TARP. A key reason: The proffered alternatives were incredibly painful. No bailouts would have meant bankruptcies much bigger and more complicated than Lehman--and that bankruptcy ostensibly threatened short... MORE
September 12, 2012
I believe in bubbles. They turn up in theory, in the lab, in history. We are a bubbly species, prone to waves of enthusiasm that crash upon the shore.Our financial crisis is often told as a story of a housing... MORE
August 6, 2012
Sometimes, when the person beside me on an airplane finds out that I'm an economist, he/she will ask, "What's going to happen to the economy?" I answer, "I don't know." If the person is somewhat more sophisticated, he will ask... MORE
July 5, 2012
As many readers probably know, there has been a huge scandal recently about the setting of the London InterBank Offer Rate (LIBOR). This is the rate used around the world on literally trillions of dollars in loans, including many mortgages.... MORE
July 1, 2012
My review [scroll down] of Robert Shiller's Finance and the Good Society is out in the latest issue of Regulation. A highlight about the finance portion: On the issue of crises, the main financial crisis in our future is likely... MORE
May 31, 2012
Regulation and Subsidies
Arnold Kling
In an interview, Andrew Lo says, There is one very simple question that you can ask -- which has a definitive answer -- about the small number of individuals who were responsible for managing this group at JP Morgan and... MORE
May 28, 2012
Regulation and Subsidies
Arnold Kling
1. I think that many people are missing an important feature of principles-based regulation, which is the role of audits in producing compliance. I will explain that in the next post on the topic. 2. One principle I want to... MORE
May 24, 2012
Regulation and Subsidies
Arnold Kling
Kyle writes, Kling's line is very simple: 1. Ideal regulatory systems can be modeled as games. 2. Regulators *try* to solve problem by creating regulations. 3. The regulated participants *try* to circumvent regulations by following the letter of the law,... MORE
May 14, 2012
NOTE: This post is NOT financial advice. Rather, it's my relating of some interesting stories that my tax accountant told me. Every March I have my annual meeting with my tax accountant. The meeting lasts 30 minutes. In the first... MORE
April 18, 2012
Robin Hanson reports on a popular article based on a paper by law and economics professors Eric Posner and Glen Weyl in which they advocate a kind of Food and Drug Administration for financial instruments. The paper is titled "An... MORE
February 17, 2012
Economics of Education
David Henderson
On a flight from Rochester, New York to Washington Dulles last Friday, I sat beside a young woman who had recently graduated from Penn State and had just started a new job. We got talking about student debt. She told... MORE
February 7, 2012
Regulators are completing a controversial proposal to shore up the $2.7 trillion money-market fund industry, more than three years after the collapse of Lehman Brothers Holdings Inc. sparked a panic that threatened the savings of millions of investors and forced... MORE
December 29, 2011
On my list of potential topics to blog about in the last few days was Megan McArdle's excellent post in which she advises people to save more. I've gone after her here, here, and here and so I like to... MORE
December 4, 2011
As I noted yesterday, in his Friday talk at the Hoover Institution, Alan Greenspan advocated two policies. The second is to scrap the Dodd-Frank financial regulation law and start over. The law, said Greenspan, "is unimplementable." He went on to... MORE
October 6, 2011
How did Fannie Mae get such political clout? This is one of the best-told stories in the book. McLean and Nocera tell how a well-connected Democrat named Jim Johnson made Fannie Mae almost invulnerable politically. Johnson, who had been Vice... MORE
September 23, 2011
The global sovereign debt crises, and the Greek fiscal crisis, are bad enough on their own. Basel III is just making things worse. If I may summarize past comments, under the purview of Basel III banks in the United States... MORE
June 15, 2011
Incentives Matter Christopher J. Mayer, Edward Morrison, Tomasz Pikorski, and Arpit Gupta of Columbia University (variously Business School and Law School) find that a mortgage modification program that Countrywide Financial agreed to implement as part of a settlement with U.S.... MORE
June 8, 2011
My review of Jeff Friedman's edited book, What Caused the Financial Crisis?, was published in Policy Review last week. Some excerpts from my review: The most important chapter is the first. This 66-page segment is editor Jeff Friedman's overview of... MORE
May 30, 2011
Politics and Economics
David Henderson
Last week, NPR did a great interview with Gretchen Morgenson of the New York Times in which she discusses highlights of her recent book, Reckless Endangerment: How Outsized Ambition, Greed and Corruption Led to Economic Armageddon. It's co-authored with Joshua... MORE
April 29, 2011
Examples of clearcut ad hominems, I've found, are rarer than I thought before I started looking for them. On closer inspection, most ad hominem arguments have a trace of logic or reason, however weak, that accompany them. But William Greider's... MORE
April 15, 2011
In his post yesterday, Arnold stated, "I want to know what his [Greenspan's] great deregulatory accomplishments were." He also sees Brooksley Born as "a typical bureaucratic empire-builder." Greenspan did deregulate something--more on that in a minute--but on the issue Arnold... MORE
March 14, 2011
Macroeconomics
Arnold Kling
Summarizing an IMF conference, Olivier Blanchard lists nine points. I will make extended comments below the fold. Here is a crucial sentence: Monetary policy has to go beyond inflation stability, adding output and financial stability to the list of targets,... MORE
March 7, 2011
Regulation
David Henderson
One might think that the ideal regulations would be those that find the right numbers for these portfolios, not too small and not too large--the Goldilocks of risk. Surprisingly enough, it is not possible. It turns out that no algorithm... MORE
January 22, 2011
I'm in the midst of a refinance of my mortgage, a very straightforward one because our equity in the house is over 80 percent of even a low-ball estimate of value. I was talking to the bank representative early in... MORE
December 29, 2010
Payday lenders like Advance America are pushing hard to lure away customers from traditional banks. The effort is getting a boost from the industry's loan crunch, especially for borrowers with blemished credit, and toughened regulation of fees and interest rates... MORE
December 15, 2010
The latest issue of Regulation magazine carries my joint review of Fault Lines by Raghuram Rajan and Jimmy Stewart is Dead by Larry Kotlikoff. Excerpts from the section on Rajan's Fault Lines: When he sticks to what he knows best--international... MORE
December 8, 2010
Scott Sumner's posted a striking challenge: Name the famous bubble deniers.In economics people notice bubbles bursting, but fail to pay much attention to bubbles not bursting. But I admit I might be wrong, so I'll give my opponents one more... MORE
July 9, 2010
Suppose you see an individual, a bank, or a corporation sitting on a big pile of money. What should you conclude?Theory #1: The actor has nothing good to spend it on. The individual is satiated, at least relative to existing... MORE
January 23, 2010
Indeed, one of the major contributors to bank failures during the Great Depression was the National Banking Act of 1864. That law, according to monetary historian Jeff Hummel, an economist at San Jose State University, banned any branching (interstate or... MORE
December 8, 2009
Last week, I blasted CBS's show 60 Minutes. This week I've come to praise it. 60 Minutes's long segment was with referee Tim Donaghy. I thought it would be a standard story about a guy betting on one side and... MORE
December 7, 2009
I posted last month on one part of Russ Roberts' interview with Charles Calomiris. Some of the commenters highly recommended the whole podcast and I agree. I've listened to it twice all the way through and taken notes. Calomiris often... MORE
November 28, 2009
Ever since I was an assistant professor at the University of Rochester's B-school (now called the Simon School) in the late 1970s, I have believed in the Efficient Markets Hypothesis. The basic idea is that market prices reflect all available... MORE
November 8, 2009
The paper concludes that the probability of default by the GSEs is extremely small. Given this, the expected monetary costs of exposure to GSE insolvency are relatively small -- even given very large levels of outstanding GSE debt and even... MORE
November 1, 2009
Books: Reviews and Suggested Readings
Arnold Kling
Am I too weak to resist financial crisis porn? The latest example of my shameful indulgence is The Greatest Trade Ever, by Gregory Zuckerman. As with Andrew Ross Sorkin's Too Big to Fail, I could not put it down. Even... MORE
August 29, 2009
Bryan writes, Suppose for example that you've got $100,000 in assets. You know with virtual certainty that the market will eventually fall from its present level of 100 down to its fundamental value of 50. The catch: You don't know... MORE
August 28, 2009
How often have you heard the quip, "The market can stay irrational longer than you can stay solvent"? The idea: Even if the market is ridiculously overvalued, you won't make money by shorting it. You'll probably go bankrupt instead of... MORE
May 13, 2009
In today's Wall Street Journal, Todd Zywicki lays out how President Obama attacked holders of Chrysler debt. A key paragraph: The Obama administration's behavior in the Chrysler bankruptcy is a profound challenge to the rule of law. Secured creditors --... MORE
April 8, 2009
Last week, Arnold approvingly quoted Tyler's one-sentence explanation of "systemic risk": If your banks are less risky, often something else is more risky, and vice versa. This morning it just occured to me that this is precisely the opposite of... MORE
April 5, 2009
Central Planning vs. Local Knowledge
David Henderson
It isn't that common any more to find evidence of one of the bailed-out banks making a good decision with its money in the face of government pressure. But the weekend Wall Street Journal reported on such a case. J.P.... MORE
March 25, 2009
My book review of John Taylor's latest book, Getting Off Track, appeared on Forbes.com yesterday. Two excerpts from my review: Throughout 2007 and 2008, Fed Chairman Ben Bernanke and others in policy-making positions assumed that the problem was that the... MORE
March 20, 2009
I just finished watching my DVR of President Obama on NBC's "The Tonight Show with Jay Leno." There were some interesting highlights. Of course, Obama was charming: he does that very well. If I judged him only by looks, tone,... MORE
March 11, 2009
My favorite Wall Street Journal writer, Holman W. Jenkins, Jr., has an excellent piece today on Buffett's views of Mark-to-Market. It seconds what I quoted Less Antman saying last week and what commenter Patrick Sullivan pointed out. Sullivan linked to... MORE
March 4, 2009
Economist Jeff Hummel sent out the following to a large e-mail list. I'm reprinting the whole thing here and appending my comments. Jeff's e-mail: Mark-to-market accounting has received a lot of criticism during the current financial crisis. But a recent... MORE
January 8, 2009
Behavioral Economics and Rationality
David Henderson
Joe Nocera has a nice piece on risk management in last Sunday's New York Times magazine. A great line: "The old adage, 'garbage in, garbage out' certainly applies," Groz said. "When you realize that VaR is using tame historical data... MORE
November 18, 2008
The news that the feds are charging Mark Cuban with "insider trading" raises an interesting issue: what's wrong with insider trading? You might think it's obvious. If so, read the articles on insider trading in the 1st and 2nd editions... MORE
October 28, 2008
"Rescue Plan Faces Delay in Hiring Asset Managers." So reads the headline of a news story in today's Wall Street Journal. The story goes on to say: Treasury won congressional approval for the program on Oct. 3. It said at... MORE
October 24, 2008
First, thank you, Bryan, for your warm welcome. And thank you also to the commenters. Before I get to my first topic, I want to appreciate Bryan back. I'm a big fan of his work. My favorite is his piece... MORE
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