Words of wisdom

You could construct a whole blog of mishnah on Scott Sumner, but no, I cannot link to every post he writes.  Nonetheless I especially liked this passage:

If our banking system absorbs trillions in losses you can be sure the government will step in, regardless of whether we have big banks or small banks.  And if our banking system isn’t in crisis, then FDIC is perfectly capable of handling an isolated bankruptcy, even at a large bank.  In any case, I can’t imagine a future where the US doesn’t have any large banks, but Europe, China, Japan and Canada have lots of large banks.  Can you?  Wouldn’t it make more sense to try to prevent the banking system from suffering trillions in losses after a bubble bursts, perhaps by requiring sizable downpayments?

But then I read that the FHA is about to set much tougher standards for FHA mortgages–they plan to require borrowers with a 590 credit score to put down at least 3.5% downpayments.  As Tyler Cowen recently argued, you knew Congress wasn’t serious about global warming when they refused to make Americans pay more for gasoline.  And I would add that you can be sure that the populists who want to “re-regulate the banking system” aren’t serious when all they can do is talk about 3.5% downpayments for bad credit risks.  It is so much more fun to bash big banks.


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