Expert Blog

Last week the General Accountability Office (GAO) released it much awaited report on interchange fees. Congress had asked the GAO, the respected investigative arm of Congress, to wade into this battle between merchants and cards systems earlier this year when it passed the CARD Act.

"Whether to blame the financial crisis on Freddie and Fannie is partially about the blame game between Democrats and Republicans inside the Beltway. But it is also about a battle for ideas."

I once thought that spending money was the government’s strong suit. But as of October 20, only $120 billion of the $290 billion available so far from the stimulus package has been spent. Despite the early rhetorical emphasis on shovel-ready projects, the Department of Health and Human Services, the Department of Labor, and the Department of Education accounted for two-thirds of the total spent.

"This recession has taken a toll on most investments. Even though the stock market has improved recently, it's no where near its 2007 highs. Real estate prices are also still quite low. Given all of that, it probably comes as no surprise that many pension funds are in a lot of trouble. As you might have guessed, the government wants to help."

"The Economist, also known as known as Free Exchange, did a nice piece on my recent China post.  They contrasted my views with those of Paul Krugman, and also asked a few questions.  Here I’ll try to respond to those questions, but first I’ll clarify exactly where Krugman and I differ."

"As regular readers know, I’ve been growing increasingly concerned about the buzz saying “the recession’s over, let’s raise interest rates”. I think the ZIRP — the zero interest rate policy — needs to stay in place until unemployment has declined a long way, probably below 7 percent. And that will probably take years."

Over at the Financial Post, Jagadeesh Gokhale and Peter Van Doren meet calls for tighter regulation of financial institutions with the argument that tighter regulation won't make things better, it will make things worse. I've heard many argue that financial institution deregulation following adoption of the Gramm-Leach-Bliley Act a decade ago, coupled with the Federal Reserve Board's policy of keeping interest rates low, caused the current crisis or at the very least, were the major fuels that caused it to burn as fiercely as it has. Gokhale and Van Doren disagree.

Colossal taxpayer funded bailouts have steered us away from financial hell, at least for the time being. But the financial sector already wants to go back to ‘business as usual’. That way lies more fire and brimstone. Incorporating guiding principles in the design of regulations and bailout packages can help restore public confidence and ensure that we exit the crisis with a different but better financial system.

The national authorities and the international community should be commended for the speed of action taken to stop the spread of the financial crisis. To protect the financial system from the deflation in asset bubbles, the public sector has essentially guaranteed all deposits, rescued systemically important institutions, made large liquidity injections and brought interest rates to zero or near zero under a zero interest rate policy. Almost all systemically important central banks entered into ZIRP under emergency conditions at the same time.