Monday, March 24, 2008
Thursday, March 20, 2008
How to fix US financial markets
I agree with Barney.
Frank renews call to regulate financial markets
March 20, 2008 11:06 AM
From The Boston Globe
Representative Barney Frank, chairman of the House Financial Services Committee, said the excesses of the subprime mortgage crisis will result in a new era of regulation, similar to those that broke the monopolistic trusts of the early 20th century and restored the financial system following the Great Depression.
Frank, addressing the Greater Boston Chamber of Commerce, said most problem mortgages, which have led to record foreclosures and infected financial markets where mortgage-backed securities are traded, emerged from lightly regulated or unregulated sectors of the financial system, such as mortgage brokers and investment banks. Commercial and savings banks, subject to much stricter oversight, didn't write the risky loans to people unable to pay them back, Frank said.
"We now see a situation that more damage was done by inadequate regulation," Frank said. "What we have is a systemic problem, and that's what we want to address. Sensible regulation is pro-market because it can instill confidence."
Frank, noting Congress must first address the immediate threat of rising home foreclosure, said he expects to take up legislation next year to put in place new regulations, such requiring investment bank to operate under rules similar to commercial banks. Investment banks buy mortgage loans, bundle them into mortgage-backed securities and buy and sell them for profit.
This system, which relieves lenders of the risk and responsibility of collecting loans, has broken the "discipline of the lender-borrower relationship," and which regulation ultimately must restore, Frank said. In other words, he said, "You don't make loans if you don't think people will pay you back."
(By Robert Gavin, Globe staff)
Frank renews call to regulate financial markets
March 20, 2008 11:06 AM
From The Boston Globe
Representative Barney Frank, chairman of the House Financial Services Committee, said the excesses of the subprime mortgage crisis will result in a new era of regulation, similar to those that broke the monopolistic trusts of the early 20th century and restored the financial system following the Great Depression.
Frank, addressing the Greater Boston Chamber of Commerce, said most problem mortgages, which have led to record foreclosures and infected financial markets where mortgage-backed securities are traded, emerged from lightly regulated or unregulated sectors of the financial system, such as mortgage brokers and investment banks. Commercial and savings banks, subject to much stricter oversight, didn't write the risky loans to people unable to pay them back, Frank said.
"We now see a situation that more damage was done by inadequate regulation," Frank said. "What we have is a systemic problem, and that's what we want to address. Sensible regulation is pro-market because it can instill confidence."
Frank, noting Congress must first address the immediate threat of rising home foreclosure, said he expects to take up legislation next year to put in place new regulations, such requiring investment bank to operate under rules similar to commercial banks. Investment banks buy mortgage loans, bundle them into mortgage-backed securities and buy and sell them for profit.
This system, which relieves lenders of the risk and responsibility of collecting loans, has broken the "discipline of the lender-borrower relationship," and which regulation ultimately must restore, Frank said. In other words, he said, "You don't make loans if you don't think people will pay you back."
(By Robert Gavin, Globe staff)
Tuesday, March 04, 2008
Great quote from Joseph Stiglitz on McCain
Q: The economic costs have now come back to undermine the whole post-9/11 security effort. When John McCain says he's not interested in and doesn't understand the economic aspect of things, and only knows about how to keep America safe, what does that say about his leadership capability?
Stiglitz: If he doesn't understand the economy, he doesn't understand security. If we had infinite resources, we might be able to have perfect security. But America, like every other country, has resource constraints. That means you need to be smart -- that is, economic -- about the money we spend. If you weaken the American economy, you won't be able to find the resources you need for security. The two cannot be separated.
Stiglitz: If he doesn't understand the economy, he doesn't understand security. If we had infinite resources, we might be able to have perfect security. But America, like every other country, has resource constraints. That means you need to be smart -- that is, economic -- about the money we spend. If you weaken the American economy, you won't be able to find the resources you need for security. The two cannot be separated.
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