Notebook per
Financial reforms in 12 minutes
Citation (APA): Cochrane, J. (2015). Financial reforms in 12 minutes [Kindle Android version]. Retrieved from Amazon.com
Parte introduttiva
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la soluzione adottata: sospendre le regole del fallimento x introdurre un soggetto straordinario che salvi i tbtf inconvenienti: 1 discrezionalità 2 politicizzazione alternativa: se accettiamo di sospendere le regole di mercato in caso di crisi sistemica allora meglio i capital requirement a priori critica al c.r.: meno disponibilità di credito... ma consideriamo i danni della crisi e il minor credito viene ridimensionato
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Financial Reform in 12 Minutes John H. Cochrane1
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Is too big to fail over? No. Are we ready for the next crisis? Absolutely not.
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The Dodd-Frank
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dramatic expansion of the same regulatory structure that failed before.
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Dodd-Frank
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“discretionary, judgmental, and micro-managing”
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large financial institutions are too complex to go through bankruptcy.
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the lap of appointed officials who will figure out over a weekend who gets how many billions of dollars.
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LA SOLUZIONE DI UN FALLIMENTO SPECIALE
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If it is so complex that bankruptcy can’t fixed, to write down ahead of time who gets what, how in the world are these poor folks going to figure it out on the spot?
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X DUBBI
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triumph of discretion over rules.
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Politically powerful creditors will scream that they too are too “systemic”
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much as Goldman Sachs threatened
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well-connected creditors will be bailed out.
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The pretense that regulators can and will spot trouble brewing and stop banks from taking risks, as they abundantly failed to do in 2008, and again when faced with European sovereign defaults, is a triumph of hope over experience.
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triumph of hope over experience.
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x TRIONFO DELLA SPERANZA SULL ESPERIENZA
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The “macroprudential” idea that the Fed can spot “bubbles” forming,
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triumph of pipe dreaming.
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Like all previous crises, the next crisis will not conveniently repeat the last one,
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What out there today looks today like subprime mortgages did in 2004? Sovereign debt is a good possibility.
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A realization that sclerotic growth is settling in as the new normal,
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Detroit could be LTCM, California, Illinois, and Greece could be Bear Stearns, and Italy could be Lehman Brothers.
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x
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We are utterly unprepared for a crisis of sovereign debt itself.
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Run-prone assets are dangerous. So, why not just ban run-prone assets?
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IPOTESI
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We could require that all run-prone
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.......
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must be backed 100% by short-term treasuries; ideally in separate or at least ring-fenced institutions.
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Mortgage-backed securities can be held, without government guarantee, via long-only, floating-value mutual funds in your and my 401( k) accounts, by pension funds and by endowments. Banks, and everyone else, must then finance risky investments primarily by equity, with perhaps some long-term debt.
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x ATTIVITÀ RISCHIOSE
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bank answer is
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borrowing will be more expensive.”
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If we want to subsidize borrowing, we can do it transparently, on budget, rather than by subsidizing or even tolerating run-prone debt.
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How do we get there? Much– much– higher capital requirements are a good first step.
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two practical problems:
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First,
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Risk weights can be gamed,
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Second, what’s the minimum?
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what’s the minimum? 20%? 50%? 100%?
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“the more the better,”
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I think a simple tax is the answer
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think a simple tax is the answer
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on debt,
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Then, we won’t have to argue about risk weights and precise capital ratios, we won’t have to intensively regulate bank assets, we won’t tempt regulatory arbitrage, we won’t ask the Fed to decide whether houses in Palo Alto are a “bubble,” we will not hear the periodic call “we must recapitalize the banks” (at taxpayer expense), and, most of all, we can escape the chokehold on competition and innovation posed by our current expanding regulatory mess, together with the capture, cronyism, and politicization to which it is swiftly leading.
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I BENEFICI
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rather than dreaming that regulators can produce a world without booms and busts. We need to regulate financial institutions’ liabilities, not micro-manage their assets,
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We need to regulate financial institutions’ liabilities, not micro-manage their assets,
