Tag: Mortgages

The Inequality Under-Belly of “Sound” Consumer Finance

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By Federal Financial Analytics

In remarks on Tuesday, Karen Petrou will lay out two reasons why post-crisis financial regulation makes America less equal: rules are is aligned with real-world business incentives and capital standards unduly penalize equality-critical lending.  Basing her views on Federal Reserve research, Petrou focuses on the Durbin Amendment, qualified-mortgage standards, small-dollar/short-term lending, and subprime mortgages.  Continue reading “The Inequality Under-Belly of “Sound” Consumer Finance” →

This Little Equality Goes to Market

~ Karen Petrou ~ 1 Comment

By Karen Petrou

After crafting the initial features of the post-crisis bank-regulatory framework, global and U.S. policy-makers were dumbfounded to discover that costly new rules changed the competitive financial-market balance.  Mirabile dictu, when costs rose for banks, banks changed their business model to cling to as much investor return as possible instead of, as regulators apparently expected, taking it on the chin to ensure ongoing financial-service delivery at whatever pittance of a profit remained.  As markets rapidly and in some cases radically redefined themselves, global regulators dubbed the beneficiaries of this new competitive landscape “shadow banks.”  At the most recent meeting of the FSB Plenary, they changed   shadow banks to the less stealthy moniker of “non-bank financial intermediaries.”  A new BIS working paper shortens the scope of shadow banking to “market-based finance,” going on to assess a fundamental question:  does the transformation of financial intermediation from banks to non-banks alter the income and equality landscape?  The answer:  It’s complicated. Continue reading “This Little Equality Goes to Market” →

It Wasn’t the Butler

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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” →

Public or Perish? The Future of Public Banking

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By Karen Petrou and Drake Palmer

“Public” banks have been touted since before the U.S. Revolution as a remedy for a variety of common financial ailments, most recently as a cure for private banking’s presumed indifference to public purpose in order to protect personal profit.  The 21st-Century Equality Bank we previously outlined is one way to align a bank’s private interest with public purpose without public subsidy.  Is it enough or are public banks also required?  The public-bank scorecard documents several centuries of well-intentioned financial institutions brought down due to immunity from effective regulation and a lack of market discipline.  Given the renewed interest in public banks, will this time be different?  We doubt it.  Continue reading “Public or Perish? The Future of Public Banking” →

Disquiet on the Home Front

~ Karen Petrou ~ 2 Comments

By Karen Shaw Petrou and Basil N. Petrou

On June 20, FRB Chairman Powell said, “Nine years into an expansion that has sometimes proceeded slowly, the U.S. economy is performing very well.”  Although Mr. Powell noted low labor participation, puzzling inflation, and problematic wage growth, he said that all will come right as long as the Fed stays the course.  No mention was made of unprecedented U.S. income and wealth inequality or of a housing market serving mostly the oldest, wealthiest, and most coastal among us.  Too bad – inequality and the impediments to effective monetary-policy transmission it erects are among the most important reasons that the nine years Mr. Powell cites have seen the slowest recovery in decades in concert with new threats to financial stability. Continue reading “Disquiet on the Home Front” →