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A website forum in which senior fellows of the Peterson Institute for International Economics discuss and debate their responses to global economic and financial developments as they occur each day and offer insights that others might overlook.
With short-term, risk-free interest rates essentially at zero in the major developed economies, conventional monetary policy is in a liquidity trap. As a number of commentators have observed, printing zero-interest-rate money to buy zero-interest-rate assets has no real economic effect because the assets are near-perfect substitutes for money. But does that [...]
Whether to use public money to rescue financial firms because they are too big, too complex, or too interconnected to be allowed to fail is not a new issue. However, in the financial and economic crisis of the last year and a half, the number and nature of such rescues in [...]
Most discussions about financial stability tend to focus on steps to ensure that last year’s meltdown does not happen again, including tighter regulation of capital and compensation policies, prevention of moral hazard through new resolution mechanisms, overhaul of supervisory structures, and reform of governance and disclosures.
But Europe’s policymakers should [...]
Just when our biggest banks thought they were out of the woods and into the money, the official consensus in their favor begins to crack. The Obama administration’s publicly stated view—from the highest level in the White House—remains that the banks cannot or should not be broken up. Their argument is that [...]
After getting bailed out by taxpayers’ billions, banking is clearly viewed by the public and by regulators as needing to become more boring. In other words, to look less like the high return-on-equity sector of yesteryear and more utility-like, perhaps outlawing the most volatile, highly leveraged, and profitable in the short-term [...]
On Friday morning (October 9), Diana Farrell—a senior White House official—made a significant statement on NPR’s Morning Edition with regard to whether our largest banks are too big and should be broken up.
“Ms. Diana Farrell (Deputy Assistant for Economy Policy): We understand Simon Johnson’s views on this, and I guess the [...]
Is modern finance more like electricity or junk food? This is, of course, the big question of the day.
If most of finance as currently organized is a form of electricity, then we obviously cannot run our globalized economy without it. We may worry about adverse consequences and potential [...]
Who Is Too Big to Fail? (Aug. 1)
In 2004, Brookings published “Too Big To Fail: The Hazards of Bank Bailouts” by Gary Stern and Ron Feldman (paperback edition 2009). There is a great deal of sensible thinking in this book, as well as much that now seems prescient— particularly asthey have been presenting and [...]
At a hearing of the House Financial Services Committee on July 21, Rep. Barney Frank, chairman of the House Financial Services committee, nicely summarized where we are with regard to re-regulation of our largest financial institutions: some of them are definitely “too big to fail,” with the potential to present [...]
Central bank independence is like motherhood and apple pie: Who can oppose it? We know from voluminous academic research that independent central banks tend to deliver better macroeconomic outcomes and in particular lower inflation. It is therefore unnerving that many members of Congress are calling for limits on the Fed’s powers, [...]