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”

How the Other Half Goes Broke

By Karen Shaw Petrou and Matthew Shaw

In our last blog post, we laid out the most telling inequality-data points from an important new study from the Federal Reserve Bank of Minneapolis which for the first time runs from 1949 to 2016 and adds many critical equality measures.  These data show more decisively than ever not only that wealth inequality in 2016 is the worst since at least the Second World War, but also that this is due to who holds the assets that have gained the most.  Since which assets return how much is due now in large part to post-crisis monetary and regulatory policy rather than to market forces and broader macroeconomic trends, it’s post-crisis policy – not forces from beyond – that increasingly dictates U.S. economic equality. Continue reading “How the Other Half Goes Broke”

Baseball Cards for the Equality Game?

By Karen Shaw Petrou

Although the Federal Reserve resolutely rebuffs suggestions – mine included – that it’s exacerbated U.S. economic inequality, the Bank of England has been forced by public outcry to deal directly with its own inequality impact.  Reacting to strong public protest and withering fire from the Prime Minister, the BoE recently released not only a report denying the charges itself, but now also an exculpatory speech by Andrew Haldane, its influential chief economist.  Clearly feeling the heat, the Bank of England has even come up with a way to sell its positive message:  personalized “scorecards” proving to the skeptical citizenry that it’s better off than personal economic problems might lead it to believe.  Continue reading “Baseball Cards for the Equality Game?”

How to Turn CRA into a Positive Force for Economic Equality

By Karen Shaw Petrou

On January 10, the Wall Street Journal confirmed that Trump Administration regulators plan to advance the reforms to the Community Reinvestment Act (CRA) first outlined in a 2017 Treasury Department report.  The CRA dates backs to an era when progressive Democrats controlled federal financial regulation and is now a hallowed artifact of policy that progressives believe advances economic equality.  Community advocates and many Democrats will thus cry foul as this Trump Administration initiative begins.  Are they right?  Does the CRA really advance economic equality?  Continue reading “How to Turn CRA into a Positive Force for Economic Equality”

How Equality Hangs in the Balance Sheet

By Karen Shaw Petrou

As Thomas Piketty’s book and much other research show, economic equality is a cumulative-return construct – that is, absent engines of growth, the rich get richer and middle-income households fall ever farther behind.  Thus, when bank balance-sheet capacity shrinks and lending to core economic engines such as housing and small business falters, income distribution widens and wealth inequality grows inexorably worse.  Continue reading “How Equality Hangs in the Balance Sheet”