Links
August 3, 2012 7 Comments
- What’s the purpose of bank capital regulation? Not sure but I think my answer ultimately boils down to: to keep afloat bankrupt socialist governments. Secondary answer: white-collar jobs program (like all regulation).
- “What are all the HR ladies going to do with all the spare time now that they can’t live vicariously through other strangers’ lives?” Glad I’m not the only one with a knee-jerk disdain for ‘HR ladies’. In my ideal world, there would be no such thing as an ‘HR’ department.
- By the way, the preceding link is about laws against potential employers asking for your Facebook passwords and so on. This is one of those topical issues that, like sexually-active women who work for Catholic employers having to forgo life necessities to pay for birth control, (1) has gotten a certain class of people up in arms and (2) I’m not certain has ever really occurred, so do let me know if there’s evidence to the contrary.
- Interesting theory meant to salvage Shyamalan’s Signs, which I never thought needed salvaging to begin with, since it’s freakin AWESOME. But it did mark my first, and not last, ‘hearing people openly laugh at, not with, a Shyamalan movie in the theater’ experience, so perhaps this will help.
- There Is No Money In Monetary Policy Anymore is an article I’m realizing I starred so as to read later. Still haven’t, anyone wanna Cliffs-notes summarize it for me?
- ICE is calling its swaps ‘futures’ to get around regulation. This sort of thing always tickles the abstract mathematician in me; technically isn’t everything just a special case of a ‘swap’?
If you’re a Chris Bertram, or perhaps an Arnold Kling who believes in ‘principles-based regulation’, you think this is a terrible and perverse outcome, since they are violating the ‘spirit’ of the regulation. You want regulators to have lots and lots of ‘discretion’ and ‘latitude’ to enforce the ‘spirit’ of regulations against this sort of thing. That is a very popular reaction to this sort of regulation-gaming nowadays. Less common, regrettably, are people willing to cite the fact that a regulation can be easily gamed/arbed as prima facie evidence that the regulation is probably stupid and that you need to rethink your approach to what you are regulating entirely, most likely in the direction of less micro-management of details. Wake me when a majority comes around to this (my), correct, way of thinking.
- James Kwak on the news that the JP Morgan mismark was directed by the trader’s boss:
The question is why bank managers don’t do a better job putting in place systems and processes to detect them [rogue traders, bad marks, etc]. The most plausible answer is that they don’t want to because, in the short term, they have the exact same incentives as those traders: they like the risk and the higher expected returns it generates. It’s only when things blow up that they act all shocked.
No real argument (for a change!). I would only add one other possibility: they don’t do a better job of it because they literally, physically can’t, since these banks (and their risks/balance sheets) are too frickin’ big. Yeesh, am I really siding with the left in the ‘Too Big To Manage/Break Up The Big Banks’ faction? How depressing, what’s next, should I just go join #Occupy?
So let me understand this. A company did something bad that principles based regulation would prevent, so principles based regulation is bad? It seems to me your making the point for the regulation.
“less micro-management of details”
I doubt this means banning whole classes of harmful things so regulators don’t need to sift through the details. I think rather it means don’t really regulate anything ever. And we know that doesn’t work.
Where did I say the company did something ‘bad’? What is the ‘harmful’ thing you think needs to be prevented using PBR here? I don’t see this issue as having much moral content…
Yes if there is a whole ‘class of thing’ that truly morally or on some objective public safety grounds needs to be regulated away (or in this case, have certain capital rules applied to it) then I would indeed be in favor of generalized rules that don’t involve regulators sifting through details. Part of what I’m saying here is, if and when regulations (instead) involve micromanagement and arbitrary distinctions that can be gamed away by cosmetic (yet valid!) changes in terminology, that may be an indication that such a need isn’t there at all. If the offending class of thing was so noticeably dangerous, why couldn’t you define it in a non-game able way?
“If the offending class of thing was so noticeably dangerous, why couldn’t you define it in a non-game able way?”
Lobbyists. Inertia. Asymetric Information/Analysis.
I can think of plenty of things at this very moment where the case for outright bans is a slam dunk, and yet it doesn’t happen.
In a way you’re not arguing with me. I’m saying the arbitrage it created is a canary in the coalmine telling us the regulation was probably written poorly. You’re giving a bunch of procedural/political/economic reasons explaining how/why regulations often end up getting written so poorly. I agree, and perhaps this is a case of that. Either way, it’s a poor regulation.
You’re right that what to do about that isn’t obvious. But a lot of the cases I have in mind involve drawing some arbitrary boundary and trying to apply a regulation inside of it, in a situation where *everyone agrees* it wouldn’t make sense to apply the regulation generally. In such cases the direction of improvement is, I think, clear.
P.S. Just to give a concrete example: as you know (if only because I’ve been whining about it for 2 years), Dodd-Frank also bans ‘prop trading’ (the Volcker Rule). I have argued that ‘prop trading’ is a fake/arbitrary category of thing to obsess over, and for this and other reasons, the Volcker Rule is a bad idea. If one agrees, there are basically only two directions of improvement:
1: Expand/fix the Volcker rule to ban all trading by banks altogether, to remove the arbitrariness.
2: Do not try to define some arbitrary category of trading to ban in the first place.
But note, no one is in favor of #1, and in fact, it doesn’t make logical sense.
I’ve actually argued for something like #1 on your blog before but you rejected it.
Which basically means you’re in favor of #2, but doing nothing pretty much led to the crash (you argued without bailouts it wouldn’t happen, I argued that thinking there will be no bailouts has no realistic merit given the political economy of the matter).
I reject #1, if that’s what you advocate, because it is self-contradictory. ‘Banking’ *is* trading. Borrowing over here and lending over there (the canonical function of modern banking) = selling one loan and buying another = trading loans. This activity may be talked about using other words, but fundamentally and economically, trading is still what it is. (And remember, this issue, and this sort of arbitrage, arose precisely because regulators stupidly focused on labels rather than the substance of financial instruments…)
More likely is that you suggested not #1 but some variant of circumscribing and banning some arbitrary category of thing to trade (or purpose of trading, or trading in things that have certain names), just like the Volcker Rule. This is dumb and pointless and probably wasteful, for reasons I have given ad exhaustium.
#2 is not ‘doing nothing’, it’s just not trying to do *that* thing. There are other conceivable ways to regulate banking (and banking has plenty of regulation as it is) than to try to ban some arbitrary designated-boogeyman category of risk generation and trading. In any event, the idea that ‘doing nothing’ ‘led to the crash’ is daft. At no time in recent history have U.S. regulators been ‘doing nothing’ as regards banking. I agree that ‘doing nothing’ sound like it would be bad, but in fact, as the results of that natural experiment are not available to us, it’s not obvious to me that ‘doing nothing’ would have been substantively worse than what regulators *have* been doing. Is it really that obvious to you? Don’t you agree that [whatever regulations have been in place] have not led to good results?