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Martin Wolf on Finanical Reform and Incentives
Calculated Risk —
From Martin Wolf in the Financial Times: Reform of regulation has to start by altering incentives Proposals for reform of financial regulation are now everywhere. The most significant have come from the US, where President Barack Obama’s administration last week put forward a comprehensive, albeit timid, set of ideas. But will such proposals make the system less crisis-prone? My answer is, no. The reason for my pessimism is that the crisis has exacerbated the sector’s weaknesses. It is unlikely that envisaged reforms will offset this danger. At the heart of ...
Are Managers Really Rational??
Robert Salomon's Blog —
... problem, not simply limited to the financial sector.
That said, there is one thing that has always bothered me about the explanation that somehow managers acted rationally, and that this “rational” behavior to an existing incentive structure caused the financial crisis. That is, it implies that someone else, somewhere, acted irrationally.
For example, Calculated Risk, discussing Martin Wolf’s column (see Financial Reform and Incentives or Reform of Regulation), writes:
[Martin] Wolf discusses how it is ...
Pink picks
FT Alphaville —
Comment, analysis and other offerings from Wednesday’s FT, Thing Martin Wolf : Reforming regulation Bubbles and crises cannot be eliminated from capitalism. Yet it is hard to believe the risks run by institutions had nothing to do with incentives. The unpleasant truth is that incentives for risky behaviour are, if anything, even bigger than before the crisis . Analysis: Madoff - a bitter dividend Bernie Madoff’s confession last December rocked the world’s financial services industry – shaking investor confidence in the markets and in regulators alike, sparking ...
Martin Wolf: c'mon, make the jump
European Tribune —
Martin Wolf has yet another hard-hitting article on the banking sector , which demonstrates with clarity how the sector has a structural incentive to engage in high-risk activities: betting with other people's money which is essentially guaranteed by the State, it can keep the profits during good times and dump a large part of the losses in bad times. His conclusion is simple: A business that is too big to fail cannot be run in the interests of shareholders, since it is no longer part of the market. Either it must be possible to close it down or it has to be run in a ...
Wednesday morning links
The Mess That Greenspan Made —
TOP STORIES • Fed to hold fire on buying, talk down rate hikes - Reuters • Citigroup Plans to Raise Salaries by as Much as 50% - Bloomberg • Cheatsheet: What to Look for From the Fed - WSJ Econ Blog • Eichengreen and O’Rourke: A Tale of Two Depressions - DebtWatch • Common Fallacies About Inflation and Deflation - Jesse's Cafe • Reform of regulation has to start by altering incentives - Wolf, FT • State budget plans are built with fiscal gimmicks - LA Times • Airlines renew call for rules on oil ...
Readings
Paul Kedrosky's Infectious Greed —
Behavioral finance redux, including an interview with Richard Thaler (CBC) Graphing real-time foreclosure data: Data Mashups in R (Revolutions) The Net Hubbert Curve: What Does It Mean? (TOD) Missing Governor Was in Argentina (WSJ) You can't borrow your way out of debt (Quinn) Reform of regulation has to start by altering incentives (FT)
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Martin Wolf on the Reform of Incentives as Part of Financial Regulation
J. Bradford DeLong's Grasping Reality with All Eight Tentacles —
... FT.com / Columnists / Martin Wolf - Reform of regulation has to start by altering incentives: At the heart of the financial industry are highly leveraged businesses. Their central activity is creating and trading assets of uncertain value, while their liabilities are, as we have been reminded, guaranteed by the state. This is a licence to gamble with taxpayers’ money. The mystery is that crises erupt so rarely.... ...
links for 2009-06-25
J. Bradford DeLong's Grasping Reality with All Eight Tentacles —
... Gary Stix: The Science of Economic Bubbles and Busts
Martin Wolf: Reform of regulation has to start by altering incentives
Ali ...
