Mittwoch, 2. Oktober 2013


Ich werde noch zum Cochrane-Fan.

Diesmal hat mich auf seinem Blog das Skript eines Kurzvortrags über die Reform der Finanzmarktregulierung begeistert. Hier einfach mal ein paar  (lange) Auszüge mit Hervorhebungen von mir:
"Is too big to fail over? No. Are we ready for the next crisis? Absolutely not. [...]

The basic structure of Dodd-Frank is a huge expansion of regulation – largely “discretionary, judgmental, and micro-managing” as nicely put by an earlier panelist – to try to prevent any large and “systemically important” institution from losing money again, and a “resolution authority” in place of bankruptcy court should it fail anyway.

The premise of “resolution authority” is that large financial institutions are too complex to go through bankruptcy.  So instead, the mess will be dumped into the lap of appointed officials who will figure out over a weekend who gets how many billions of dollars. If it is so complex that bankruptcy can’t fixed, to write down ahead of time who gets what, how in the world are these poor folks going to figure it out on the spot?  This idea is a triumph of discretion over rules. [...]

There is an alternative.

The crisis was a run. The tech stock bust did not cause a crisis, because tech stocks were stocks. When stock prices fall, it’s too late to run. The housing bust led to a crisis because houses were funded, in the end, by overnight debt, which ran. [...]

Institutions are not systemically dangerous. Run-prone assets are dangerous.

So, why not just ban run-prone assets? We could require that all run-prone fixed-value liabilities, including deposits, overnight debt, and money-market shares, must be backed 100% by short-term treasuries; ideally in separate or at least ring-fenced institutions.  Mortgage-backed securities can be held, without government guarantee, via long-only, floating-value mutual funds in your and my 401(k) accounts, by pension funds and by endowments. Banks, and everyone else, must then finance risky investments primarily by equity, with perhaps some long-term debt. Equity will no longer be just a “cushion” but a main source of funds.

Why not? The bank answer is “the Modigliani-Miller theorem fails for banks, so borrowing will be more expensive.” The MM theorem does indeed fail – because the government subsidizes and guarantees debt! Sure, banks want to maximize the value of those subsidies, and greater equity dilutes them.  In addition, even if equity-financed banks charged 20 basis points more for loans, in equilibrium, remember that we lost almost 10% of GDP and 10 million jobs 5 years ago, and they have not yet returned. That’s a big price to pay.  If we want to subsidize borrowing, we can do it transparently, on budget, rather than by subsidizing or even tolerating run-prone debt. [...]

How do we get there? Much – much – higher capital requirements are a good first step. But they choke on two practical problems: First, what’s the denominator? Risk weights can be gamed, and prescribing a ratio of capital to total assets incents banks to find clever ways to take on more risk at the same asset value. It’s not hard to buy beta. Second, what’s the minimum? 20%? 50%? 100%? The right answer is “the more the better,” and “so big that it doesn’t matter,” but that’s hardly satisfying.

I think a simple tax is the answer – though since “tax” is a dirty word, let’s call it a “systemic externality fee” – on debt, and especially on short-term debt or any other contract where the investor has the right to demand payment, and fail the firm if not received.  Every dollar of such funding will cost, say, a 10 cent fee. Payments due later generate smaller fees. I think we’ll see a lot less run-prone debt, fast. (We could at least stop subsidizing debt!)

Then, we won’t have to argue about risk weights and precise capital ratios, we won’t have to intensively regulate bank assets, we won’t tempt regulatory arbitrage, we won’t ask the Fed to decide whether houses in Palo Alto are a “bubble,” we will not hear the periodic call “we must recapitalize the banks” (at taxpayer expense), and, most of all, we can escape the chokehold on competition and innovation posed by our current expanding regulatory mess, together with the capture, cronyism, and politicization to which it is swiftly leading.

We need a financial system that can absorb booms and busts without creating a run or a crisis, rather than dreaming that regulators can produce a world without booms and busts. We need to regulate financial institutions’ liabilities, not micro-manage their assets, and especially not try to manage the price of every asset in which they might invest. We must escape this crazy system in which our government subsidizes debt, guarantees debt, increases the demand for debt by regulating it as a safe asset, and then tries to regulate financial firms away from issuing that debt.

We need to insulate the financial system from looming government financial trouble rather than more deeply intertwine them."
To repeat the essence:
"We need a financial system that can absorb booms and busts without creating a run or a crisis, rather than dreaming that regulators can produce a world without booms and busts."

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