"My views on the crisis -- a summary statement
A few inattentive malcontents are complaining that I haven't stated my views. I have, but if you want them, or some of them, in one neat place, devoid of subtlety or explanation, here they are:
1. Glass-Steagall repeal was not a major cause of the financial crisis, nor was government-induced "minority lending."
2. We should use regulation to move more of the currently unregulated derivatives markets to the clearinghouse model.
3. The crisis represents a massive conjunction of both market and governmental failure.
4. I would not nationalize banks as ongoing concerns, at least not short of a far more extreme emergency than the current status quo.
5. The modified Paulson plan was better than nothing -- especially after the market had been scared -- but far from my first choice. In any case the plan would have been revised almost immediately. The Paulson and Dodd plans were never that far apart.
6. My first choice is to induce and if need be to force more information revelation, identify the insolvent banks, close them up, and give the battle-tested FDIC a much greater role in the whole process.
7. In the meantime the Fed should not worry much about inflation.
8. The critical deregulatory mistake was allowing excess leverage. Many deregulations get blamed but in fact contributed little to the problem.
9. Everyone says that letting Lehman die was a big mistake but I'm not yet convinced. Maybe a bracingly high TED spread is what we need.
10. Libertarians are overrating the moral hazard argument, as many equity holders have been wiped out.
11. If someone is pushing conclusions and not identifying the potential weak points in his or her arguments, be suspicious. Also beware of anyone pretending to offer you simple answers.
12. I have a long and complicated view on the relevance of Austrian Business Cycle Theory which resists easy summation, but markets could have and should have been more cautious in response to Greenspan's easy money policies.
13. Insolvent hedge funds and the commercial paper market remain outstanding issues which are not easy to address.
14. I agree with Arnold Kling about relaxing capital requirements though at this point I don't expect it to help much.
15. The crisis is complex and has many causes; there won't be a simple or quick solution."
Let me run through them:
1) I agree about minority lending, but am not sure about the repeal of Glass. It might not be a major cause, but it could be a cause, and certainly one needs to evaluate the case objectively.
2) This sounds good, but I'd need to know more to truly understand it.
3) I agree.
4) I would, in order to guarantee the taxpayer's money and because I understand the Swedish Plan and it has actually worked.
5) In essence, that's true on the economics, but the other provisions were more bothersome.
6) This sounds like a possible plan, but what does "induce" and "force" mean? I like the FDIC part.
7) I think that the Fed should worry about inflation, especially if you read my earlier post about what Greg Mankow calls Plan B.
8) This sounds correct.
9) I'm not sure, and this needs more investigation. Certainly if it could have prevented this crisis, we should recognize and accept that fact.
10) I agree.
11) Very true.
12) I agree. These businesses cannot be absolved of stupidity.
13) I agree.
14) I sort of agree.
15) I agree strongly.
So there you have it. One major caveat. My stance toward more regulation and government intervention is premised on the assumption that government will always intervene in crises like these. If someone does not accept this, they could well arrive at a more free market approach than mine.
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