SIFIs and Sisyphus: The Latest Bank-Regulation Rewrite

By Karen Petrou

Starting in 2010, U.S. regulators erected a pyramid of complex, costly, and stringent safety-and-soundness, resolution-planning, and conduct regulations for the largest U.S. banking organizations that have come to be called SIFIs (i.e., systemically-important financial institutions).  Starting in 2018, the agencies began to demolish the still-incomplete SIFI pyramid, issuing on October 31 two sweeping proposals (here and here) not only to implement new U.S. law, but also to go farther.  Bankers say this is nice, but not enough; critics lambast the proposals as forerunners of the next financial crisis.  Either could be right – the proposals repeat the most fundamental mistake of post-crisis financial regulation:  rules piled upon rules or, now, rules subtracted from rules without even an effort to anticipate how all of the revised rules work taken altogether in the financial marketplace as it exists in the real world, not in a set of academic papers or political edicts. Continue reading “SIFIs and Sisyphus: The Latest Bank-Regulation Rewrite”

Can We Create Equality Insurance?

By Karen Petrou

Much of the work posted so far on this blog centers on the traditional pillars of financial policy:  monetary policy and the sweeping post-crisis framework of bank regulation.  But, awesome though the Fed’s reach may be and as critical as banking is to income and wealth equality, these financial-policy channels are not the only ones that determine economic equality.  In this blog post, we assess another policy channel:  health, property-and-casualty, and life insurance.  With almost no research in this sector, we pose questions based on what we’ve read and what we think we know based on all our other works.  At the least, insurance requires equality evaluation and, quite likely, significant changes so it makes low-and-moderate income and wealth families healthier, readier to retire, better positioned to bequeath wealth to their children, and all around more equal. Continue reading “Can We Create Equality Insurance?”

Inequality Hits Fiscal Reality

By Karen Petrou

Readers of this blog know well that we think U.S. economic inequality is not only a profound social-welfare and political-consensus problem, but also a scourge to financial-market stability.  We have not generally wandered into fiscal-policy questions, preferring to focus on a far less well-known, but potent inequality force:  U.S. monetary and regulatory policy.  However, financial and fiscal policy are inextricably intertwined.  If inequality increases the risk of financial crises – which it does – and financial crises pose macroeconomic risk – which of course they do – then fiscal policy must ride to the rescue to prevent prolonged recession or even depression.  Could it, given how acute U.S. economic inequality has become?  A new report from Moody’s says that the rating agency may well have to downgrade U.S. debt – the AAA sine qua non of global finance – due to inequality.  Continue reading “Inequality Hits Fiscal Reality”

If You Really Want to Be Unequal, Be Disabled

By Karen Petrou and Matthew Shaw*

Like most who assess U.S. economic inequality, we’ve focused in this blog on the way income and wealth divide across Americans in general, by race, by age, by gender, by ethnicity, and even by nothing more than where one lives.  However, working on another pro bono initiative – this time to speed biomedical research – it’s dawned on us that there’s another major factor that divides the haves from the have-nots that’s even less the result of individual action than all these well-studied demographic criteria:  disability. Continue reading “If You Really Want to Be Unequal, Be Disabled”

It Wasn’t the Butler

By Karen and Basil Petrou

Summary

In the raft of crisis retrospectives released during the ten-year anniversary of the Great Financial Crisis, general consensus continues the conventional wisdom that subprime mortgages were the spark of the subsequent conflagration.  A new study from the Federal Reserve Banks of Atlanta and New York mobilizes formidable data to show that hapless subprime purchase-money borrowers were victims, not perpetrators.  The borrowers who did the damage that precipitated the debacle were, they find, prime borrowers whipped into a speculative frenzy by the combination of low rates and flagrantly-unwise mortgage lending.  Theoretically, post-crisis reforms have solved for this.  Actually, maybe not given the exodus of mortgage securitization from regulated entities, sharp rise in cash-out refis, and investment-focused borrowing with house prices well above affordability thresholds in many major markets.  Continue reading “It Wasn’t the Butler”