Comments on: Like I Said…

By: perplexed

perplexed — Mon, 21 May 2012 03:23:57 +0000

Even if the entire risk wasn’t offset by insurance, as long as the liability amounts were substantial, 1. we’d have an idea of the price (and the value of the subsidy) & 2. we’d be involving the insurance companies in the oversight of these institutions, a layer of protection that doesn’t currently exist.

By: perplexed

perplexed — Mon, 21 May 2012 02:26:27 +0000

It will likely take many more years for economic historians to sort out the specifics of the costs of bailing out the economy from this disaster. IMO, one of the question they will likely struggle the hardest to answer is why we didn’t do enough to address the known risks that led up to it in light of the enormous damage caused. Its not as if we don’t know what they are.

By: Jared Bernstein

Jared Bernstein — Mon, 21 May 2012 01:47:27 +0000

Interesting–a market mechanism to discover true price of systemic risk.

By: perplexed

perplexed — Mon, 21 May 2012 01:31:27 +0000

Or perhaps the more important counter-factual to explore is the one that ties the Pearlstein & Morgenson papers together and gives us more input into the “what should be done now?” question. Maybe we should be asking how this would have played out had banks & other TBTF institutions been charged market rate insurance premiums (or compelled to buy insurance in amounts necessary to protect the public interest from their gambling)? This would force us to put our actuaries to work to determine what the exposure is and what the premiums would have to be to offset the risk that the public is taking. If these premiums had been paid in to a fund after the overturn of Glass – Steagall Act, how much would have been available to offset the TARP money the public had to provide? How likely is it the insurance companies taking on the risk would have allowed securities base on fraudulently underwritten mortgages (and derivatives based on them) to make up such a huge percentage of TBTF assets and collateral? We would then know the approximate value of the free subsidy we are providing to the TBTF banks and could make an intelligent decision about whether or not to force them to break up or pay adequate insurance premiums to offset the risk the public takes on for the benefit of bank stockholders and employees. We would also realize that the incentives to game the system were so large that it would be unlikely that any but the most stringent regulatory structure would be adequate to secure the system as a whole from the risks of moral hazard created by these institutions.

By: Mitchell Freedman

Mitchell Freedman — Sun, 20 May 2012 20:11:37 +0000

Whenever I hear that family-government analogy, I say: Okay, let’s do this, even though it is ridiculous. If the family is in debt, it has to change its ways, right? So the first thing is to stop getting into so many fights with other people. That costs money, and it has forced us to buy a lot of weapons around the house, half of which we don’t need or don’t work like we though they would. And cost all that upkeep. If we look at the costs of the Iraq and Afghanistan wars alone, it is obvious that Social Security and Medicare are being blamed for those wars.

Second, let’s see who in the family is struggling, and who is doing well. Turns out under Republicans and under this so-called Democrat, Dad’s doing well, going out for fancy dinners and takes vacations alone or with his mistress (named China) and leaves the wife and kids home searching through the garbage for a partial piece of cake or bread. So if the family wishes to stay together, Dad better spread the wealth around to help the family, especially Junior, who is starting college and is already borrowing money he doesn’t have.

Then, I say, now why is it ridiculous to compare the family to government? First off, it’s because the government can print money. Second, the government can borrow vast sums and make infrastructure investments that benefit everyone and money comes back in the form of tax revenue. Third, as we noted above, the analogy fits to require rich people to pay more in taxes, not less, and I thought the purpose of the analogy from conservatives was to make us stop taxing rich people. If so, then maybe find another analogy.

By: dilbert dogbert

dilbert dogbert — Sun, 20 May 2012 16:31:38 +0000

I was thinking that if one would apply the current republican solution to the US debt to the family tightening their belt to pay down debts, then the family should also voluntarily reduce their income. Yes with less income I can pay off my debts faster? Interesting concept.