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Showing posts from July, 2011

Who Will Be Telling the Truth: Greece, the EFSB, or National Regulators?

Recently the EU set up the European Systemic Risk Board (ESRB). Ok, this is kind of old news (the enacting legislation went into effect in December 2010). Why am I writing about it now? Well, just the other day EU leaders put together another rescue package that included guarantees and lose-sharing with banks (a partial default). In all of the discussion surrounding the future shape of a sustainable system of EU government financing ( here or here for example) there has been little discussion of the need for good information about what is really going on. In research I'm currently putting together (and mentioned in previous posts ) I've found that in order for policymakers to actually choose the level of bank (and I suppose government debt) guarantees that they want they need good information about economic fundamentals (not a huge surprise). But there is a good chance that the ESRB won't be able to give good information. Or more precisely, any information they give wi

Fake Apple Store, Real Hysteria.

The NY Times website recently published a story about "The Rise of the Fake Apple Store" . Um, there are "fake" Apple Stores everywhere, including in the US. There is even a "fake" store up the street from my Dad's house in Erie, Pennsylvania. The real story isn't "Asians are Slavishly Copying American Creativity", but "Local Entrepreneurs Meet Demand for Apple Retail Experience when Apple Doesn't". Basically, even in places where Apple doesn't set up shop like Erie, PA, Kunming, and Seoul (which I know also has plenty of Apple Store-like stores) there is still a latent demand for well designed modern places to try and buy Apple products. Look-a-like stores are just filling this demand. Since (all the ones I've ever been to) sell actual Apple products what is the harm in this? However, the comments on both the NY Times site and at Slate (where it is largely reprinted) have largely picked up the "Slavish Asians&

Korean Lessons for the US, Part 2: Look the Other Way, It's for the Economy

In the previous post I pointed to some of the ways that financial regulators in Korea and the US have credibly committed to bad regulation by making themselves bad at collecting financial market information. But there were two unresolved issues I'll cover now: Why would regulators want weak regulation? How did Korea get out of this problem? Answer 1: Sure, there are lots of reasons why regulators would want to have weak regulation. There are the usual stories about crony capitalism , revolving doors , etc. Sure, there probably is something to these theories. But there is also something less sinister, but more problematic going on: loose regulation might be good for the general economy in the short-term . In fact, this is how US regulators have been talking about the issue (for example see this great article from the FT ). The basic argument is that enforcing tight capital adequacy requirements, lending standards, etc., makes less money and credit available to lend to busine

Korean Lessons for the US, Part 1: Credibly Committing to Bad Regulation

It's always a good day when you notice your PhD research overlapping with what's going on in the news. PhD research might actually matter! This happened to me when I was listening to a recent Fresh Air interview with NY Times reporter Louise Story about why the United States has prosecuted so few people involved in the financial crisis. A couple points caught my attention: Regulatory agencies, especially the SEC, are understaffed. (not really news to most people interested in this stuff) Since 2008 the Justice Department has officially allowed financial companies to defer prosecutions if they conduct their own investigation into alleged wrongdoing. (that's more like it) The combined effect of understaffing and essentially outsourcing investigations to financial companies is that regulators are: Losing the capacity to do their own investigations of financial institutions Not going to even be able to critically evaluate the investigations