Comments for iMFdirect - The IMF Blog

Comment on Banking on Reform: Can Volcker, Vickers and Liikanen Resolve the Too-Important-to-Fail Conundrum? by Per Kurowski

Per Kurowski — Tue, 14 May 2013 15:34:37 +0000

By allowing minuscule capital requirements for banks whenever something was officially or privately perceived as “absolutely safe”, regulators have been feeding the banks with growth-hormones which turned some of these into too big to fail banks.

Clearly a bank regulator who does not understand that lacks the capacity of solving the problem without perhaps making it all worse.

Comment on The Lessons of the North Atlantic Crisis for Economic Theory and Policy by Gerd Castan

Gerd Castan — Sat, 11 May 2013 22:18:16 +0000

Good points. One more:

Models near equilibriums are easier to calculate and teach than those far away from equilibriums.

Being far away from an equilibrium is giving structure and dynamics to the economies. Time to reflect this in economic models. Makes them harder to calculate and to understand. Sorry.

Thanks,
Gerd

Comment on After a Golden Decade, Can Latin America Keep Its Luster? by Abraham Vela (@A_Vela_Dib)

Abraham Vela (@A_Vela_Dib) — Wed, 08 May 2013 21:49:04 +0000

Excelente blog. Many challenges ahead for the region. It is worth reflecting on the possible push and pull factors that can threaten macroeconomic and financial stability in the region.

Comment on After a Golden Decade, Can Latin America Keep Its Luster? by Javed Mir

Javed Mir — Wed, 08 May 2013 06:02:56 +0000

–output growth is expected to remain near potential.–

Latin Americans will hopefully keep on availing the external finances and windfall from the commodity exports. But if not properly taken care of, even gold can not maintain its lustre. To keep the growth on a sustainable level, structural reforms as suggested by Mr Werner need to be properly heeded.

Comment on Preventing The Next Catastrophe: Where Do We Stand? by truedream1

truedream1 — Sun, 05 May 2013 13:48:19 +0000

I do not agree with your recommendations with respect to introducing special rules for institutions that create more systematic risk. Wouldn’t it be better to enforce an advocate policy for institutions to create more non-systematic risk so that those institutions are discouraged to create more systematic risk, thereby reducing a widespread risk to the market economy as a whole? I think if you enforce stricter rules for institutions in favor of systematic risks, would probably persist in spreading non-diversifiable risks especially when there is an option for government lobbying.

Comment on The Lessons of the North Atlantic Crisis for Economic Theory and Policy by Javed Mirj

Javed Mirj — Sat, 04 May 2013 19:51:49 +0000

–to clearly identify the really big market failures, the big macroeconomic externalities, and the best policy interventions for achieving high growth, greater stability, and a better distribution of income — Joe Stiglitz

An exhaustive article by an exeperienced economist giving all the possible options to avert another global crisis. Briefly speaking those economies which are strong from inside — having buffers — can face the challenges without much damage to their credibility and sustainability. All the economies specially EU economies which have been found easily vulnerable to crisis, had developled high debts and deficits. On the other hand developing/emerging economies specially China and India braved the last crisis (2008-2009) successfully because of their inner strength.

Comment on Preventing The Next Catastrophe: Where Do We Stand? by Robert Aylward

Robert Aylward — Sat, 04 May 2013 16:14:12 +0000

(1) Too much capital chasing (2) too little return leads to (3) excessive risk. Increasing bank capital requirements reduces the amount of (1) by forcing the capital to the sidelines. At least that’s the idea. Two impediments, one political (owners of capital make the rules) and the other creative (owners of capital are adept at evasion). More robust fiscal policies should increase the amount of (2) by providing more options for investment with reasonable returns.
Romer’s observations about fiscal policy don’t provide much optimism. Greater regulations (e.g., prohibiting or limiting proprietary trading) are intended to address (3), but they would have to defy the laws of nature, including the law that capital is gonna go where capital is gonna go (to the highest rate of return). My view is that financial (and economic) instability is primarily attributable to a combination of (1) and (2), which, in turn, is attributable to excessive concentrations of both wealth and income. That topic, however, is not raised in polite company.

Comment on The Lessons of the North Atlantic Crisis for Economic Theory and Policy by Rank Editor, WNY-WJ

Rank Editor, WNY-WJ — Fri, 03 May 2013 23:30:27 +0000

Distribution matters… yes, definitely so – you could construct a whole analysis showing that the financial crisis at its core was nothing more than a distribution-of-income problem. For instance, given rising productivity and flat or declining real income for many or most in the US, debt was “necessary” to fund consumption in an economy driven largely by consumption.

And obviously, the still-ongoing growth of concentration – the distribution of assets among banks, within the banking industry allows the mistakes of a small few to reverberate throughout the entire real economy.

It looks like Prof. Dr. Joseph Stiglitz hits it right on the head in his guest post.

Comment on The Lessons of the North Atlantic Crisis for Economic Theory and Policy by Chris Williams

Chris Williams — Fri, 03 May 2013 22:56:02 +0000

Per,
At least by haranguing the regulators you are giving the Credit Rating Agencies a rest. Oh, I forgot, they are part of the non-regulatory problem where corporate decisionmakers have to make decisions.

Comment on Preventing The Next Catastrophe: Where Do We Stand? by matcohen

matcohen — Fri, 03 May 2013 22:35:42 +0000

Michael Lewis suggests making financial executives personally liable for the debts of their firms. They used to be when the firms were partnerships. Odd that the idea has gained no traction.