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jerryking : moral_hazards   12

Yale to Build Tool Offering Real-Time Lessons on Financial Crises -
May 9, 2017 | WSJ | By Gabriel T. Rubin.

Yale University will launch an online platform to provide real-time support to policy makers dealing with financial crises, with the help of a $10 million gift from business leaders and philanthropists Bill Gates, Jeff Bezos, Bloomberg Philanthropies and the Peter G. Peterson Foundation.

The gift represents a major expansion of the Yale Program on Financial Stability, a degree-granting program in the university’s school of management that aims to train early- and midcareer financial regulators from around the globe.

The new resources will support a small staff of researchers, led by Professor Andrew Metrick, as they build a database of “lessons from hundreds of interventions from past crises,” the university said. The effort is the first of its kind, according to Yale, and reflects a need for more research on “wartime” situations, rather than the preventive sort of regulatory research done by central banks around the world. Central banks often avoid extensive crisis preparations out of reluctance to promote moral hazard, leaving policy makers to reinvent the wheel each time a new crisis arises.....Mr. Geithner, who serves as the chairman of the Program on Financial Stability, said that he and other policy makers would have been able to act faster and with greater confidence during the financial crisis with access to the tools that Mr. Metrick’s team will build.

“There were probably four or five periods when the crisis was escalating, the panic was spreading, sitting on the phone for 20 hours a day trying to figure out how to do things,” Mr. Geithner recalled. “And we hadn’t had to do some of those things since the Great Depression. That took us a lot of time, and that can be costly.”

The open online platform will include descriptions of specific interventions—for example, the use of a “bad bank” to hold distressed assets—and will detail what did and didn’t work well in each case.
Yale  Colleges_&_Universities  crisis  regulators  Walter_Bagehot  central_banks  real-time  databases  lessons_learned  policy_tools  Peter_Peterson  reinventing_the_wheel  policymakers  confidence  economic_downturn  decision_making  speed  the_Great_Depression  crisis_management  crisis_response  Tim_Geithner  moral_hazards  financial_crises 
may 2017 by jerryking
Flood. Rinse. Repeat: The costly cycle that must end
May 07, 2017 | The Globe and Mail |GLENN MCGILLIVRAY, managing director, Institute for Catastrophic Loss Reduction

Once again, homes located alongside a Canadian river have flooded, affected homeowners are shocked, the local government is wringing its hands, the respective provincial government is ramping up to provide taxpayer-funded disaster assistance and the feds are deploying the Armed Forces.

In Canada, it is the plot of the movie Groundhog Day, or the definition of insanity attributed to Albert Einstein: Doing the same thing over and over again and expecting a different result.....First, a homeowner locates next to the river, oftentimes because of the view (meaning a personal choice is being made). Many of these homes are of high value.

Then the snow melts, the ice jams or the rain falls and the flood comes. Often, as is the case now, the rain is characterized by the media as being incredible, far outside the norm. Then a scientific or engineering analysis later shows that what happened was not very exceptional.

These events are not caused by the rain, they are caused by poor land-use decisions, among other public-policy foibles. This is what is meant when some say there are no such things as natural catastrophes, only man-made disasters.

Finally, the province steps in with disaster assistance then seeks reimbursement from the federal government through the Disaster Financial Assistance Arrangements. In any case, whether provincial or federal, taxpayers are left holding the bag.....So what is the root of the problem? Though complex problems have complex causes and complex solutions, one of the causes is that the party making the initial decision to allow construction (usually the local government) is not the party left holding the bag when the flood comes.

Just as homeowners have skin in the game through insurance deductibles and other measures, local governments need a financial disincentive to act in a risky manner. At present, municipalities face far more upside risk than downside risk when it comes to approving building in high-risk hazard zones. When the bailout comes from elsewhere, there is no incentive to make the right decision – the lure of an increased tax base and the desire not to anger local voters is all too great.

Reducing natural disaster losses in Canada means breaking the cycle – taking a link out of the chain of events that leads to losses.

Local governments eager for growth and the tax revenue that goes with it need to hold some significant portion of the downside risk in order to give them pause for thought.
floods  catastrophes  natural_calamities  design  insurance  public_policy  disasters  relief_recovery_reconstruction  sustainability  municipalities  skin_in_the_game  disincentives  Albert_Einstein  complex_problems  land_uses  moral_hazards  man-made  hazards  downside_risks 
may 2017 by jerryking
How I learnt to love the economic blogosphere
July 27, 2016 | FT.com | Giles Wilkes.

Marginal Revolution
Econlog
Cafe Hayek
Stumbling and Mumbling
Brad Delong
Nick Rowe - Worthwhile Canadian Initiative
Steve Randy Waldman - Interfluidity
Slack Wire - JW Mason

"Sympathetic opinions coalesce in clusters of mutual congratulation (“must read: fellow blogger agreeing with my point of view!”). Dispute is often foully bad-tempered. Opposing positions are usually subject to a three-phased assault of selective quotation, exaggeration and abuse.'..."Lacking an editor to roll their eyes and ask what’s new, many writers soon become stale... Editors exist not only to find interesting pieces to publish but also to hold at bay the unstructured abundance of bilge that we do not need to read."....."...nothing as reliably good as the (eonomics) blogosphere. Some of its advantages are simply practical: free data, synopses of academic papers that the casual dilettante is unlikely to ever come across, a constant sense of what clever people are thinking about. But what is better is how its ungated to-and-fro lets a reader eavesdrop on schools of academic thought in furious argument, rather than just be subject to whatever lecture a professor wishes to deliver. No one learns merely by reading conclusions. It is in the space between rival positions that insight sprouts up, from the synthesis of clashing thoughts. Traditional newspaper columns are delivered as if to an audience of a million, none of whom might reply. The best blogs are the opening salvo in a seminar rather than the last word on the matter. They dumb down less "....."Ancient thinkers such as Adam Smith, John Maynard Keynes and Iriving Fisher were deployed not as some sort of academic comfort blanket but because their insights are still fresh, and beautifully written."..."Reading the economic blogosphere in 2008 felt to me like the modern equivalent of watching Friedrich Hayek, Keynes and Friedman quarrelling in front of a graduate class about how FDR should react to the depression. "...."Interfluidity is where to find such brilliancies as “the moral case for NGDP [Nominal Gross Domestic Product] targeting”, a political look at a seemingly technical subject, and “Greece”, a furious examination of how the term “moral hazard” is being traduced in the euro crisis. "..."Waldman’s thoughts go far beyond such a crude duality. After a long discussion of measurement problems, the institutional constraints on innovation and much more, he zeroes in on how governments build institutions to handle the disruption wrought by technological change. In a few hundred words he flips around Cowen’s stance and, instead of looking at the growth of government as the problem, makes a case for its opposite. Technological change creates concentrations of power, which “demands countervailing state action if any semblance of broad-based affluence and democratic government is to be sustained”. We have always needed institutions to divert spending power to those left behind, otherwise social disaster beckons. "....When reading, look for sources with something new to say!
economics  economists  blogosphere  Tyler_Cowen  Paul_Krugman  Adam_Smith  information_overload  social_media  Brad_Delong  blogs  Friedrich_Hayek  Milton_Friedman  political  economy  editors  tough-mindedness  FDR  Great_Depression  insights  John_Maynard_Keynes  sophisticated  disagreements  argumentation  technological_change  innovation_policies  moral_hazards 
july 2016 by jerryking
Why We Love Politics - NYTimes.com
November 22, 2012 | NYT | By DAVID BROOKS.

I hope everybody who shares this anti-political mood will go out to see “Lincoln,” directed by Steven Spielberg and written by Tony Kushner. The movie portrays the nobility of politics in exactly the right way.

It shows that you can do more good in politics than in any other sphere. You can end slavery, open opportunity and fight poverty. But you can achieve these things only if you are willing to stain your own character in order to serve others — if you are willing to bamboozle, trim, compromise and be slippery and hypocritical.

The challenge of politics lies precisely in the marriage of high vision and low cunning. Spielberg’s “Lincoln” gets this point. The hero has a high moral vision, but he also has the courage to take morally hazardous action in order to make that vision a reality.
Abraham_Lincoln  compromise  cunning  David_Brooks  hypocrisy  moral_hazards  movies  politics  political_expediency  public_policy  serving_others  tradeoffs 
november 2012 by jerryking
Risky Business - WSJ.com
April 24, 2003 | WSJ |By STAN O'NEAL.

Historically, investors' trust in the markets has been well founded because enterprising people have been willing to take risks. Backed by venture capital, entrepreneurs create value, employment, wealth, and opportunities. Without risk, there would be no electricity, no personal computers, no vaccines. No GE, no IBM, no Pfizer.

Of course, in any system predicated on risk-taking, there are failures, sometimes spectacular failures. But for every failure to be viewed as fraudulent or even criminal bodes ill for our economic system. The message to CEOs, to entrepreneurs and to venture capitalists right now is that you cannot afford to be wrong.

In the aftermath of history's greatest market bubble, this backlash against risk is understandable. Excesses in the system were taken to incredible levels. And while our industry did not create the bubble, it also did not bathe itself in glory recognizing or resisting those excesses.

But if we attempt to eliminate risk -- to legislate, regulate, or litigate it out of existence -- the ultimate result will be economic stagnation, perhaps even economic failure. To teach investors that they should be insulated from these forces, that if they lose money in the market they're automatically entitled to be compensated for it does both them and the economy a disservice.

In my view, the great, historical contribution of American capitalism is its ability to create value. Even when the system works imperfectly, value is created. If our financial system is to retain this particular genius, we need to be willing to continue to innovate. If we fail to rebalance the forces of risk and reward, the greatest danger may be deflation. Not probable, but not impossible either.
capitalism  Merrill_Lynch  CEOs  risks  Stanley_O'Neal  economic_stagnation  financial_system  overregulation  imperfections  value_creation  risk-taking  moral_hazards  backlash  innovation  deflation 
june 2012 by jerryking
Welcome to 'Moral Hazard' - WSJ.com
October 2, 2008 | WSJ | By DANIEL HENNINGER.

"Moral hazard" is an odd phrase. Its meaning isn't obvious though it does sound like something one ought to avoid. "Moral hazard" dates back hundreds of years in obscurity, but its use eventually settled inside the insurance business in the 19th century. The French call it risque moral.

Back then, it really was taken to mean that reducing risk too much exposed people to the hazard of poor moral judgments. If an insurer charged too little for a policy to replace farms in the English countryside, Farmer Brown might be less careful about cows knocking over oil lamps in the barn.

In time, the economists got their hands on "moral hazard," and the first thing they did was strip out the heavy moral freight to make the concept value-neutral. Now moral hazard became less about judgment and more about the economic "inefficiencies" that occur in riskless environments.

We're back to the original meaning. Losing tons of money for an institution is an economic inefficiency. Lose the nation's financial structure, however, and moral fingers get wagged.
moral_hazards  Daniel_Henninger  automotive_industry  TARP  inefficiencies  riskless  19th_century 
june 2012 by jerryking
The Spirit of Enterprise - NYTimes.com
By DAVID BROOKS
December 1, 2011

Nations like Germany and the U.S. are rich primarily because of shared habits, values and social capital....People who work hard and play by the rules should have a fair shot at prosperity. Money should go to people on the basis of merit and enterprise. Self-control should be rewarded while laziness and self-indulgence should not. Community institutions should nurture responsibility and fairness.

This ethos is not an immutable genetic property, which can blithely be taken for granted. It’s a precious social construct, which can be undermined and degraded.

Right now, this ethos is being undermined from all directions. People see lobbyists diverting money on the basis of connections; they see traders making millions off of short-term manipulations; they see governments stealing money from future generations to reward current voters.

The result is a crisis of legitimacy. The game is rigged. Social trust shrivels. Effort is no longer worth it. The prosperity machine winds down....The real lesson from financial crises is that, at the pit of the crisis, you do what you have to do. You bail out the banks. You bail out the weak European governments. But, at the same time, you lock in policies that reinforce the fundamental link between effort and reward. And, as soon as the crisis passes, you move to repair the legitimacy of the system.

That didn’t happen after the American financial crisis of 2008.
David_Brooks  Europe  moral_hazards  euro_zone  European_Union  bailouts  values  social_capital  social_fabric  social_cohesion  covenants  legitimacy  social_trust  social_contract  laziness  self-indulgence  self-control  self-discipline  self-regulation  undermining_of_trust  gaming_the_system  locked_in  financial_crises 
december 2011 by jerryking
Investment Strategies in Private Equity
Summer 2003| The Journal of Private Equity | Varun Sood
Adverse selection arises in a market
where buyers cannot accurately gauge the
quality of the product that they are buying. It
suggests that in such a case, the marketplace
most likely will contain generally poor-quality
products. This concept, also referred to as the
“hidden information” problem, is well known
in areas such as insurance and banking. In
simple terms, the theory is that there will
always be a seller for a poor-quality good,
because a seller of such items will always want
to sell. Therefore, by “self-selection,” poor quality
goods will be overrepresented in offers
made to buyers as well as in those accepted for
purchase.
private_equity  asymmetrical  moral_hazards  investing  strategies  overrepresentation  self-selection  adverse_selection  latent  hidden  Gresham's_law 
november 2011 by jerryking
Think Again: Debt Relief,
November/December 2001 | Foreign Policy Magazine | By William Easterly
William_Easterly  debt_relief  Bono  U2  moral_hazards 
october 2011 by jerryking
Paul Ingrassia: The Lessons of the GM Bankruptcy - WSJ.com
JUNE 1, 2010 | Wall Street Journal | by PAUL INGRASSIA.
Everybody knew it was ridiculous and unsustainable to pay UAW workers
not to work.
boards_&_directors_&_governance  automotive_industry  GM  Ford_Motor_Co.  moral_hazards  bailouts  unions  UAW 
june 2010 by jerryking
L. Gordon Crovitz Says Venture Capitalists Are Too Market-Oriented for Bailout Money - WSJ.com
MARCH 2, 2009 WSJ column by L. GORDON CROVITZ opines on venture
capital, government bailouts and the problem of adverse selection. in
response to Tom Friedman piece in th NYT urging bailout funds for
venture capitalists.
L._Gordon_Crovtiz  venture_capital  Tom_Friedman  bailouts  Fred_Wilson  moral_hazards  adverse_selection  industrial_policies  market_discipline 
march 2009 by jerryking

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