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  • Smegma: 
  • Comments (19)
  Wild and crazy bankers are what made this country great. The current downturn is the result of mark-to-market accounting and the elimination of the uptick rule. Now that those misguided policies are being corrected, the economy will resume its upward trajectory.

  Apr 10 11:44 AM | Link | Reply
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  • Drew Arnold: 
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  The current downturn obviously isn't due to mark-to-market or the elimination of the uptick rule. This story has been told a million times: heaps of mortgage-backed securities and other related products lost their value when the housing market collapsed, causing banks to become insolvent and rendering them unable to loan, causing a credit crunch and causing the economy to suffer. "Wild and crazy bankers" did not understand their own financial products, nor did the rating agencies that covered them, and now we are in a mess as a result. Mark-to-market accounting and a lack of the uptick rule did not cause Lehman to go down...
  
  
  On Apr 10 11:44 AM Smegma wrote:
  
  > Wild and crazy bankers are what made this country great. The current
  > downturn is the result of mark-to-market accounting and the elimination
  > of the uptick rule. Now that those misguided policies are being
  > corrected, the economy will resume its upward trajectory.

  Apr 10 11:59 AM | Link | Reply
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  • Smegma: 
  • Comments (19)
  Drew, that is what the defeatists would have you believe. You're mistaken on every point.
  
  Mortgage-backed securities and related products have not lost any value, they are simply being mispriced because of a liquidity crisis.
  
  The housing market has not collapsed. Homes have merely been mispriced because of a credit crisis which is due to an unfounded crisis of confidence. Now that confidence is returning, home sales are rising. Declining home prices are a lagging indicator and should be ignored.
  
  Banks are not now, and never have been, insolvent. The NYT has reported that all banks have passed the stress tests and Wells Fargo is making record profits. Bank stocks rose 20-40% in one day yesterday.
  
  Far from bankers and ratings agencies not understanding financial products, it was and is investors who do not understand them. Now that the PPIP will facilitate market-driven price discovery, the true value of legacy assets will be clear.
  
  Lehman's demise (like Bears') was the result of pernicious traders who manipulated the market through a combination of short sales and CDS purchases. A ban on short selling would have saved them. Since the misguided SEC refuses to consider banning shorts, the uptick rule is the best alternative.
  
  Defeatism like yours is just what the terrorists are hoping for.

  Apr 10 12:25 PM | Link | Reply
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  • Arete: 
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  This was a column written in a hurry. Krugman implies a connection between "boring banking" and "economic progress," but fails to describe the nature or strength of this connection. He also, crucially, fails to describe what he means by "boring banking." Even a quick appositive phrase might have been helpful.
  
  How ironic that he adduces the current depressed share prices in the financial sector as evidence for his argument. These share prices fell, of course, due to required disclosure of losses, and uncertainty about what had not been disclosed. In other words, a disclosure regime, inadequate though it was, brought about what Krugman views as a good pricing of the firms in question. Which leads one to think:
  
  Sure we need better regulation of the financial industry, and in particular certain financial products that increase the systemic risk posed by large players (disclosure alone isn't adequate for these products). We need to find a way to let firms that don't want to become "boring" fail in a way that doesn't crash the rest of the system, and we need adequate disclosure and warning systems so that outside investors will know just what types of risks firms are taking. But once that is done, why do we need to push further?
  
  Finally, speaking of disclosure, why haven't we seen much discussion by proponents of "boring banking" of the COSTS of requiring all banks to become boring? If we're going to invest in a radically new regulatory regime, I, for one, would like to see what the price is.
  

  Apr 10 12:29 PM | Link | Reply
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  • Chris B: 
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  We can return to the stable banking system that existed prior to 1999 at any time - Just reinstate the Glass-Steagal Act of 1933 and separate investment banking from commercial banking.
  
  60+ years of world leading banking stability and economic growth were the consequences of that system. Then, in 1999, we foolishly threw out the winning formula our grandparents created. Just a few years later, we're enduring the same type of credit crunch that led to the depression, and the passage of Glass-Steagal in the first place. Keynsian stimuli are no replacement for banking laws that maximize growth and reduce systematic risk.

  Apr 10 12:43 PM | Link | Reply
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  • coloneldebu...: 
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  Krugman himself said Glass-Steagal would not have prevented the financial disaster brought on by the shadow banking system. The issues that caused the problems would not have been regulated by that act.
  
  
  On Apr 10 12:43 PM Chris B wrote:
  
  > We can return to the stable banking system that existed prior to
  > 1999 at any time - Just reinstate the Glass-Steagal Act of 1933 and
  > separate investment banking from commercial banking.
  >
  > 60+ years of world leading banking stability and economic growth
  > were the consequences of that system. Then, in 1999, we foolishly
  > threw out the winning formula our grandparents created. Just a few
  > years later, we're enduring the same type of credit crunch that led
  > to the depression, and the passage of Glass-Steagal in the first
  > place. Keynsian stimuli are no replacement for banking laws that
  > maximize growth and reduce systematic risk.

  Apr 10 01:41 PM | Link | Reply
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  • Adrienne Go...: 
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  I pine for the days when Paul Krugman wasn't the be-all-end-all of economic authorities and Nouriel Roubini wasn't stalking girls on Facebook.

  Apr 10 02:46 PM | Link | Reply
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  • Vuke: 
  • Comments (506)
  Smegma, this statement is not fully accurate. The country was made great on the efforts of industrialists, manufacturers, marketers, benign jurisprudence, cooperation, hard work and sound money.
  
  "Wild and crazy" bankers have contributed unsound debt, mountains of doubtful derivatives and a casino mentality to a market that was originally designed to fund ventures, distribute profits and punish failure.
  
  Real bankers quietly search for viable enterprises and offer sound financial instruments. Hopefully, these are not the ones being laid off. They're needed now, more than ever, to once again have the country deserve the epithet "great".
  
  
  On Apr 10 11:44 AM Smegma wrote:
  
  > Wild and crazy bankers are what made this country great.

  Apr 10 03:05 PM | Link | Reply