Thursday, November 12, 2015

The Sumner Also Rises (to the task)

We again interrupt our blogging hiatus, to acknowledge some fine work by Bentley University economist Scott Sumner (who is also the Ralph G. Hawtrey Chair of Monetary Policy at the Mercatus Center of George Mason University). This EconLog blog post by Scott is the only recognition of which we are aware (other than our own), of the potentially momentous change in banking regulation under consideration by the Fed. And we thank Scott for graciously crediting us for alerting him to it.
In the longer scholarly article from 2011, Herring and Calomiris report [to be read here] this stunning piece of information:
In response to the mandate within the Gramm-Leach-Bliley Act of 1999 that required the Federal Reserve and the Treasury to study the efficacy of a sub debt requirement, a Federal Reserve Board study reviewing and extending the empirical literature broadly concluded that sub debt could play a useful role as a signal of risk. Despite that conclusion, no action was taken to require a sub debt component in capital requirements; instead the Fed concluded that more research was needed.
So the law that provided the flexibility Bernanke needed to deal with the 2008 banking crisis, also suggested a policy reform that might have prevented the crisis entirely. Maybe Phil Gramm deserves a Nobel Prize in economics.
Apparently that "more research" that was needed has now been concluded, as the Fed is finally adopting the idea:
For immediate release
The Federal Reserve Board on Friday proposed a new rule that would strengthen the ability of the largest domestic and foreign banks operating in the United States to be resolved without extraordinary government support or taxpayer assistance.
The proposed rule would apply to domestic firms identified by the Board as global systemically important banks (GSIBs) and to the U.S. operations of foreign GSIBs. These institutions would be required to meet a new long-term debt requirement and a new "total loss-absorbing capacity," or TLAC, requirement. The requirements will bolster financial stability by improving the ability of banks covered by the rule to withstand financial stress and failure without imposing losses on taxpayers.
To reduce the systemic impact of the failure of a GSIB, an orderly resolution process should allow a GSIB to fail, and its investors to suffer losses, while the critical operations of the firm continue to function. Requiring GSIBs to hold sufficient amounts of long-term debt, which can be converted to equity during resolution, would facilitate this by providing a source of private capital to support the firms' critical operations during resolution.

Yes, this is a bit like closing the barn door after the horses have left, but it's still gratifying to see that after all the time wasted on 1000 page monstrosities like Dodd-Frank, we are finally getting somewhere.
With which, we are well pleased.Especially that line about Phil Gramm that we bolded in the above.

Sunday, November 1, 2015

Team CoCo wins one

We interrupt our blogging hiatus for this news;
The Federal Reserve Board on Friday proposed a new rule that would strengthen the ability of the largest domestic and foreign banks operating in the United States to be resolved without extraordinary government support or taxpayer assistance.
The proposed rule would apply to domestic firms identified by the Board as global systemically important banks (GSIBs) and to the U.S. operations of foreign GSIBs. These institutions would be required to meet a new long-term debt requirement and a new "total loss-absorbing capacity," or TLAC, requirement. The requirements will bolster financial stability by improving the ability of banks covered by the rule to withstand financial stress and failure without imposing losses on taxpayers.
To reduce the systemic impact of the failure of a GSIB, an orderly resolution process should allow a GSIB to fail, and its investors to suffer losses, while the critical operations of the firm continue to function. Requiring GSIBs to hold sufficient amounts of long-term debt, which can be converted to equity during resolution, would facilitate this by providing a source of private capital to support the firms' critical operations during resolution.
Our bold in the above. Long time readers of this blog will immediately recognize our enthusiasm for the idea of using contingent convertible debentures to provide managers of banks with a powerful market incentive to not take too much risk in the first place. We could point to numerous posts, such as this one from almost a year ago;
HSIB has noted the enthusiasm for this form of bank self-regulation on the part of Columbia economist Charles Calomiris;
...the Columbia economist offers a suggestion to improve the banking system;
 I would establish a minimum uninsured debt requirement for large banks in the form of subordinated debt, known as contingent capital certificates, or "CoCos." The CoCos would automatically convert to equity based on predetermined market triggers, which would be very dilutive to pre-existing shareholders. One banker who understood my proposal for CoCo's said, "You are putting an electric fence behind me."
The potential for dilution of stockholder equity being the key incentive for management to work to prevent that from happening.
Calomiris has said, in speeches, that the Federal Reserve has had the legal authority to do this since the 1999 Gramm, Leach, Bliley Act, but chose not to implement that reform. Now would be a good time to listen to Charlie.
That's right, the 1999 legislative handiwork--which, btw, did not 'repeal Glass-Steagall'--of former Texas A&M economist Phil Gramm is finally being implemented 16 years after it was authorized. Unfortunately, seven years too late to have prevented the financial crisis of 2008.

Wednesday, September 30, 2015

Pardon the interruption

Blogging at this site will be suspended, at least temporarily, for non-econospheric reasons. Lo siento.

Tuesday, September 29, 2015

Ridin' the rails to Malmo

First, Mark Steyn risks his life speaking in Copenhagen;


where he details his own, very real, ordeals with the anti-free speech policemen of Canada. Speaking truth to power, if he weren't a conservative.

Then he takes a trip on a train, and thinks some more about Abdul;
...unlike the bad old days of Nazi-occupied Denmark and neutral Sweden that "some" are comparing it to, there are no border controls whatsoever between Copenhagen and Malmö. You just hop on a train at the aforementioned Central Station in Copenhagen and hop off a half-hour or so later on the other end of the impressive Øresund Bridge at the Central Station in Malmö. I did it myself the other day, and was looking forward to sitting back and enjoying the peace and quiet of Scandinavian First Class. But, just as I took my seat and settled in, a gaggle of Abdul's fellow "refugees" swarmed in, young bearded men and a smaller number of covered women, the lads shooing away those first-class ticket-holders not as nimble in securing their seats as I. The conductor gave a shrug, the great universal shorthand for there's-nothing-I-can-do.

What Abdul made of being shanghaied by some high-class Nordic totty to serve as her cabin mate on a stomach-churching voyage of moral exhibitionism, I cannot say. But, from personal observation, the "refugees" around me seemed to take it for granted that asylum in Europe should come with complimentary first-class travel (see picture at top right, from a German train).

There were more shrugs at Malmö, when I asked a station official about it. He told me that, on the train from Stockholm the other day, a group of "refugees" had looted the café car. The staff were too frightened to resist. "Everyone wants a quiet life," he offered by way of explanation.
That's looking unlikely.

Separat aber gleich?

Deutschland nicht über alles;
Separating refugees according to religion is now being mentioned as an interim solution to help alleviate the problems.
.... Tempers flare easily at close quarters. In Leipzig last week, about 200 refugees wielding table legs and bed frames started a fight after they couldn't agree who got to use one of the few toilets first. It took a large police contingent to calm the situation.
Elsewhere;
Other recent incidents include a riot at a refugee shelter in central Germany over a torn Koran and Muslim Chechens beating up Syrian Christians in a Berlin shelter.
Islam is a part of Germany, but Islamism clearly isn't, said opposition Greens party leader Cem Özdemir, adding that tolerance must not be misinterpreted and exploited as weakness.
Maybe it must not, but it is.
But insults, threats, discrimination and blackmail against Christian asylum-seekers in particular are a regular occurrence, according to the Munich-based Central Council for Oriental Christians (ZOCD).
"I've heard so many reports from Christian refugees who were attacked by conservative Muslims," said Simon Jacob, of the Central Council for Oriental Christians (ZOCD).
But that's only the tip of the iceberg, the ZOCD board member told DW: "The number of unreported cases is much higher."
 Our bold. Herr Jacob also summed it up thus;
"People bring with them the conflicts that exist in their native countries, Christians and Muslims, Kurds and extremists, Shiites and Sunnis - they don't leave them behind at the border."
And there will be more refugees to come.

Wanna be a coal-miner's hostage?

That would be the result of a Jeremy Corbyn Labour government for the UK, and the comrades at Morning Star The People's Daily think, a consummation devoutly to be wished;
AT THE Labour Party conference in Blackpool exactly 40 years ago this week, then prime minister Harold Wilson made one of the most prophetic speeches any politician has ever made. He warned of the extremist direction that the Conservative Party under its new leader Margaret Thatcher was heading in, and how, if her party was elected, Conservative policies would adversly affect Britain.

.... To some, Wilson’s warnings in 1975 might have sounded far-fetched. But Thatcherism, as he so correctly pointed out, did mark a real and radical break with the egalitarian politics of the post-war era. Too many on the left did not appreciate just how much of a threat Thatcher posed, until it was too late.
Having actually lived in England while Harold Wilson was Prime Minister (1974), we can only laugh, or cry, over any dire warnings he made. London was like a third world city back then, with its electricity supply determined by the real rulers of the UK; the coal miners and their union. Wilson had to resign the PM-ship in 1976 due to the hardships in the country. Leaving the mess to James Callaghan. Which the comrades at Morning Star seem to be forgetting;
Forty years on from Wilson’s speech, there are at last signs that this incredibly regressive chapter in our history may be coming to an end. In Jeremy Corbyn, Labour now has a leader who wants to break with the neoliberal policies first introduced by the Conservatives in 1979 (and continued by Labour when in office from 1997-2010), and which have done so much harm to our economic and social fabric.
The election that brought Thatcher to power followed The Winter of Discontent in which the UK's unions flexed their political muscles to extort above market wages. As Wikipedia puts it;
The Winter of Discontent refers to the winter of 1978–79 in the United Kingdom, during which there were widespread strikes by public sector trade unions demanding larger pay rises, following the ongoing pay caps of the Labour Party government led by James Callaghan against Trades Union Congress opposition to control inflation, during the coldest winter for 16 years.
And, the social fabric of that day? Let's let a Labour Party insider, Bernard Donoughue, from back in the day, tell it;
The 1970s were, after all, a generation ago and it was a very different age, dismal in many ways.
The economic climate facing Jim Callaghan was far worse than anything that confronts [Gordon] Brown or the Chancellor, Alistair Darling (when the latter finds time to read the economic history of the 1970s and early 1980s he will want to revise his curious claim that today's [2008's] is the worst economic situation for 60 years). Inflation peaked around 30 per cent just before Callaghan took over, and was usually in double figures. Most other economic indicators were worse than today's, with growth and productivity very poor over a long period and strikes continually disrupting industry. Not for nothing was Britain then known as "the sick man of Europe".
[our bolds]

Politically, the challenges facing Callaghan were daunting. Labour was in a Commons minority throughout his premiership (he skilfully cobbled together small majorities through pacts with the Liberals and the Ulstermen). Labour itself was riven by deep ideological differences of a kind and on a scale unknown today, with the strong left wing consistently on the edge of rebellion and limiting the policy options available to the government. The unions and activists facing Brown at this [2008] month's conferences are mere pussies compared to the wild men fighting Callaghan.
The wild men would quickly return if Corbyn ever got into power.

The wages of Obama

Is there a Kaiser in your future? The family foundation says, there are two Americas;

... 81 percent of covered workers are in plans with a general annual deductible, which average $1,318 for single coverage this year. Covered workers in smaller firms (three to 199 workers) face an average deductible of $1,836 this year. That’s 66 percent more than the $1,105 average deductible facing covered workers at large firms (at least 200 workers).
We note the date;
Since 2010, both the share of workers with deductibles and the size of those deductibles have increased sharply. These two trends together result in a 67 percent increase in deductibles since 2010, much faster than the rise in single premiums (24%) and about seven times the rise in workers’ wages (10%) and general inflation (9%).
“With deductibles rising so much faster than premiums and wages, it’s no surprise that consumers have not felt the slowdown in health spending,” Foundation President and CEO Drew Altman said.
 It was in 2010 that a Democrat congress passed Obamacare. So that we could, in Nancy Pelosi's words, find out what was in it. Wonder how many Americans expected this?

Unfortunately, Kaiser makes an elementary error in this statement of supposed fact;
The average annual premium for single coverage is $6,251, of which workers on average pay $1,071.  The average family premium is $17,545, with workers on average contributing $4,955.
Workers pay the entire amount. What Kaiser is promoting is false incidence; the employer pays for its share by reducing the amount the workers get in their paychecks as wages and salaries. Substituted for with a health insurance benefit--which, at least, is not taxed by the government as income.