Month: June 2009

From Slate's new XX blog, here is Emily Bazelon:

Because of the downturn, friendships between two people whose Saturday night spending and overall class status used to calibrate precisely have now turned into trickier relationships between one person who still has money and one person who doesn’t. The sudden uneven footing isn’t easy to negotiate, as I’ve learned from the responses I got to my question about the effect of the recession on friendships.

Do income classes become more clannish in hard economic times?  There is either a very deliberate trade of favors for money, or you stick with those who can spend as you do.  An alternative model is that it becomes easier to ask what the other person can afford, and more gains from friendlly trade are opened up across a variety of income classes.

I take this as a signal to go short the metal:

Germans, long attracted to the safety of solid gold, will soon be able to sate their appetite for the yellow metal as easily as buying a chocolate bar after plans were announced yesterday to install gold vending machines in airports and railway stations across the country.

…He hopes to install "Gold to go" machines in 500 locations in German-speaking countries this year.

Here is one imperfect link to an FT article.  This link might work too.  There are, by the way, two other catches:

Gold prices from the machines – about 30 per cent higher than market prices for the cheapest product – will be updated every few minutes.

A camera is installed to monitor possible attempts to launder money by buying gold, Mr Geissler said.

I thank Alex L. for the pointer.  Here is a related article.  It discusses the use of test explosives to make sure that the machines cannot be carted off or ripped open.

Addendum: One more thing: I know this was reported in both the FT and the NYT, but this skeptical blogger still doesn't think it will ever happen or come close to happening.  I believe it is a publicity stunt (or fraud) and that some top reporters were simply tricked.  We'll see.

Second addendum: Here is a video.

Kevin Drum says no:

If you're going to create some kind of system risk regulator at all –
about which I'm sort of agnostic in the first place – you want to give
the authority to an agency that's institutionally dedicated to reducing
risk and considers it a primary task.  That ain't the Fed.  It's just
going to get buried in the bureaucracy and forgotten there.

Assuming we are going to do it, I think it has to be the Fed, whether we like it or not.  It's the Fed who is the fireman with the awesome power to print money, move markets, lend to the banking system on a large scale, and now even conduct fiscal policy, all without Congressional approval.  Our textbooks speak of the Fed as a lender of last resort but very often it is the lender of first resort too.

If you stuck another agency into that mix, it would end up waiting for the Fed's go-ahead, once an actual crisis arrived.

OK, so the systemic regulator is the Fed.  But then you can't make the systemic regulator too accountable to Congress without eliminating the quasi-independence of the central bank.  There's not any comfortable point on the power-accountability continuum, mostly because we don't trust Congress to run monetary policy.

The stinger on the tail is this: we want the Fed to deliver low inflation.  That means we let it be influenced by financial creditor interest groups but not so much by populist interest groups (Adam Posen had a good piece on this but I cannot recall the reference).  Right now a lot of people are asking for more populist regulation without realizing that also requires more populist monetary policy.

It's very hard to get financial regulation right.  It's the populist stuff that Obama wants to strip into a separate agency (for consumer protection) but it is difficult for such an agency to cover the major elements of systemic risk.

Find it here, run by Conor Clarke.  Excerpt:

Milton Friedman. Friedman had a solid MV = PQ
doctrine from which he deviated very little all his life. By the way,
he's about as smart a guy as you'll meet. He's as persuasive as you
hope not to meet. And to be candid, I should tell you that I stayed on
good terms with Milton for more than 60 years. But I didn't do it by
telling him exactly everything I thought about him. He was a
libertarian to the point of nuttiness. People thought he was joking,
but he was against licensing surgeons and so forth. And when I went
quarterly to the Federal Reserve meetings, and he was there, we agreed
only twice in the course of the business cycle.

Kevin Drum is unhappy.  Paul Krugman is critical.  My mental model of Simon Johnson is even more critical.  Need I cite Yves Smith?  Felix Salmon is confused.

Is there anything to say, other than rehashing old debates about regulation and blame?

As the NYT notes:

A key element in the plan will be creating an independent Consumer
Financial Protection Agency to write and enforce rules on fair lending
and other matters.

Maybe that's where one chance to get tough lies.  We are creating an agency which will have plenty of incentive to limit risk by installing plain vanilla products, and yet it will have little stake in preserving economic growth. 

It is possible that the real action is in the future flow of financial innovation rather than how we treat the stock of extant financial innovation (recall Arnold Kling's chess game analogy).  I suspect the Obama plan is tougher on the former than on the latter.

I would say we still don't know what is actually going to be done.

Addendum: Here are more details, I believe they support the last sentence of this post.  Matt Yglesias offers good comments.