5 Questions for Christy Romer

By Simon Johnson

Christy Romer, chair of the President’s Council of Economic Advisers, will appear before the Joint Economic Committee tomorrow. (Details, background, and links to Christy’s relevant recent work will appear on The Hearing shortly).

I suggest Committee members consider pursuing the following lines of questioning.

1. Please explain precisely how the U.S. will avoid the type of “balance sheet” recession seen in Japan during the 1990s? Building on that, kindly elaborate on why this kind of recession is not an issue at the global level. Related to this, what is your view of the IMF’s latest global forecast, for example for Western Europe?
2. Larry Summers argues that growth in the recent past was overly based on the financial sector and there is now a need to rebalance the economy, led by public investment. Do you agree with this view and which public investments - and related private sector activities - exactly would you have in mind? How /why will resources move out of the financial sector, given the level of bailouts (i.e., insurance for bankers’ bonuses) today and promised for the future?
3. The Administration indicates that it wants to reform the way finance is regulated. Regarding the past two decades, would you agree that the financial sector has proved able to “capture” regulators and to resist rules (e.g., on derivatives) that would restrict potential profitability? If yes, how exactly do you think future regulators (e.g., the system regulator now under discussion) will resist similar capture?
4. Do you support the idea of applying and updating antitrust principles to banks that are “too big to fail”?
5. What other approaches make sense for dealing with big banks in the future? Do you agree that controlled financial system risk creates serious potential for huge unpleasant fiscal surprises? Could Pecora-type hearings be one way to examine how best to bring down these risks?

Feel free to add more questions here or at The Hearing at WashingtonPost.com. The JEC is definitely interested in what you have to say.

Comments

[Lilguy]

Great questions, but I don't expect any kind of well-considered, detailed answers to them, even if they are asked by Congress. The White House will just keep selling the same line--a liquidity problem (not an insolvency problem), wait for the stimulus to have its effect, already seeing "green shoots," blah, blah, blah.

2009 Apr 29 11:48 AM

[Steak]

Geithner's favorite line is that his alphabet soup of programs (with the PPIP as the standard bearer) are to ensure "government doesn't take all the risk."

Why does the government have to take ANY risk beyond the minimal guarentees afforded to depositers when the capital structure affords a myriad places where losses can be absorbed.
You know, the wipe out shareholders and make the bondholders the new shareholders with a haircut approach.

Why is that not a viable solution here? Can't that happen without a liquidation of assets if the institution goes into chapter 11? Or is this an idea only the unwashed masses who just don't get it cause "its complicated" would suggest?

2009 Apr 29 12:03 PM

[infp]

My fear is that the debate on whether or not to bailout the banks is already over. Too much federal (taxpayer) money and too much of Obama's political capital has already been spent propping up Wall Street for Obama to turn back now. We have created our own zombie banking system and there is no giant foreign market (as the US was for Japan) to bail us out. Buckle up its going to be a bumpy ride.

2009 Apr 29 04:52 PM

[Jasper M]

Steak
In their mythology, major corporate bankruptcies are bad for morale, worse than debasing the currency.

How pathetic is this? Some of what have become our nation's flagship corporations, along with (arguably) our government itself, are languishing in a clearly insolvent condition, waiting, like Dickens' Simon McCawber, for something to "Turn Up".

2009 Apr 30 12:15 AM

[Teutonic Knight]

The Baseline Scenario:

Saw her talk on TV the other day. She came across as a bit more down to earth compared with her predecessors and counterpart economists. Maybe she would have some honest answers for you

Best of luck. Let us know if she responded.

Teutonic

2009 Apr 30 10:34 PM