{Updated April 1, 2}
Ok. Some are cheering, if softly. But not among folks I read regularly. Clearly Robert Reich hates Secretary Paulson's self-proclaimed reform proposal, concluding: "Hank Paulson's discussion paper – it's not even meant to be enacted under the Bush Administration – is not broad, it's not an overhaul, and heaven forbid, if we're facing another Great Depression, it will do absolutely zilch to head it off."
More dissent:
Not "Calculated Risk" or Paul Krugman.
Not Clive Crook
Not Willem Buiter
Not Barry Ritholtz or Michael Mandel
Last but not least:
Stephen Cecchetti, soon to be Economic Advisor to the Bank of International Settlements, in a 19 min. Bloomberg audio podcast with Tom Keene says "Paulson Proposal isn't right first move". Included are good insights into much-needed regulatory reform, particularly w/r/t leverage and the troubling phenomenon of investment banks, hedge funds etc. moving where-ever around the world to avoid any specific country's regulatory requirements.
A few tidbits from Crook:
The new Treasury blueprint for reforming financial regulation is not really a blueprint at all. (The full document is here; or see a Treasury summary of it here.) It says some sensible things and has some good ideas, but for the most part it is an agenda for discussion rather than a detailed plan. Given that the Treasury has been working on this thing at least since March 2007, it is surprisingly thin.At least there is some agreement that "Something should be done." Duh! AND: It's about time. But 'not yet', of course it's an election year! Next year the excuse will be something else.Moreover, it is concerned exclusively with the structure of the regulatory system. I think that getting this right is more important than Paul Krugman does—he calls this the Dilbert strategy—but Paul is surely right to complain that a better structure will get you only so far. It is a question of form and content. What the rules say matters more than which regulators are responsible for enforcing them, and the so-called blueprint does not go into that. …
Here is CNNMoney Good plan, bad plan - Reaction to Paulson, demonstrating that mainstream media will always find opposing views, no matter how far and wide the search.
Still, I'm a wee bit hopeful, as is Paul McCulley, that we may at least avoid a Depression and get some needed financial regulatory reform as well—but it will take time and much deliberation, and perchance more pain felt by stock and bond fund holders as well as by taxpapers in general. Here's Paul McCulley's latest perspective [PDF] on the general financial/economic landscape—not specifically on Paulson's proposal. I think McCulley nails it! What do others think?
I think we'd all be better off today if McCulley's Boss & all the Bosses of all the pseudo FED-watchers over the last 20 years had limited their pay to the fundamental value of their work.
McCulley asserts, "Particularly in the first quarter (2007), you got compelling evidence that what had been driving prices in the last couple years of the bubble was not fundamentals ...." What about the "compelling" evidence of '04, '05 & '06? Doesn't he read or talk to his own mortgage man?
He talks almost reverently of BB, but in the Spring of '05 BB asserted that our housing prices were "driven by fundamentals". Hello, isn't that when the Housing Bubble popped? Had no one in the Princeton Econ. Dept. entertained or tried to refute the merits of Dean Baker's arguments? Was the FED's "asynchronous" approach to Bubbles accepted there as God's will? What is the role of Economists if they refuse to stand up for the most fundamental of economic principles?
Had BB addressed the housing horror in early '06 he might have shortcircuited a large part of the mess we face. Instead BB's FED waited until the Fall, '06 before signing on to the weakest warning imaginable to "players" (see "Non-Traditional Mtg. Advisory) that they should wind down their game.
It does us no good to beat up AG but give BB our condolences & a free pass. McCulley's latest efforts appear massive rationalizations to me, and the day's too short & his puffery too tedious to refute. Instead, I recommend a light dose of Kevin Phillips as an antidote to anyone looking for a more plausible macro-perspective.
Posted by: bailey | April 01, 2008 at 01:00 PM
I will wait longer, Bailey, before either eating crow re: BB or seeing my suppositions proven at least in part correct. Of course, if BB fails to stick around after the upcoming election I'll not get a chance to see or say much one way or the other. I've read a couple of Kevin Phillips books and at one time believed that times were as dire as Phllips supposes. But now I think our systems (LTCM and its various, tragic span not-withstanding) are more resilient than many (including many Austrian economists) believe.
Systems resilience, however, does not preclude moments like we are in when ever-more-tightly-coupled systems trend toward gridlock and implosion and/or explosion. What happens the the wake of the meltdowns and blowups re: regulatory reform will prove to be where we need to focus our attention. Will we make our systems better and more resilient? Or will we, as Greenspan did (with Bernanke not too far from standing at his right hand), just set the stage for even bigger and more-frightening bubbles?
So have patience with me as I continue to hope that Bernanke is more and better than 'Helicopter Ben'. And keep prodding me to rethink my views when I get too wild in my thoughts/perspectives.
Postscript: Tragically not many regular people (me and you included, likely) know enough to hedge our bets carefully enough so as not to be cannon-fodder in the structured-finance geopolitical games that are in play. Either we need much better consumer information/education systems to help people manage their money throughout their lives, else we need a much-tamer global capitalism system. The former is what I hope to work a bit on in the next few months (mostly finding what others have done). The latter is something to hope for, but not to depend on seeing anytime in our lifetimes.
Posted by: Dave Iverson | April 01, 2008 at 01:46 PM