Re: The person behind the Consumer Financial Protection Agency proposal

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That would be Jamie Dimon, CEO of JP Morgan.


Posted by: ajay | Link to this comment | 01-25-10 9:45 AM
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While I'm not a fan of corporate bigness generally. I'm not sold on too-big-to-fail being a real problem, as opposed to too-interconnected-to-fail, which seems harder to prevent.


Posted by: Nathan Williams | Link to this comment | 01-25-10 9:48 AM
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Not having read the post, of course, I do want to comment that Elizabeth Warren's interview on The Daily Show o'while back is one of the few times in the past year that I thought I understood and was even optimistic re: the efforts to get through the recession. Now I in the doldrums on this subject, but I still think highly of Ms. Warren.


Posted by: Boo | Link to this comment | 01-25-10 11:14 AM
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"You know, you just have to expect this. We'll have crashes like this every five to seven years--"

We didn't have crashes every 5-7 years during the largest sustained economic expansion in recorded history, a period during which banks were heavily regulated and the top tax rate was well over 50%

Just sayin'


Posted by: togolosh | Link to this comment | 01-25-10 12:58 PM
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I'm not sure that for practical purposes there is a difference between too big-to-fail and too connected-to- fail. Companies get big by putting their fingers in every pie.

I'm still at McManus levels of gloom. The banks can't self regulate, and the right won't allow the government to regulate the banks, meaning there will be more instability and crashes. It won't be long before the government won't have the ability to bail out the banks any more. Currency collapse. General strikes. Bankers' heads on pikes. The full McManus-ocolypse.

Also, I have to go to a two hour meeting that promises to be boring and unproductive.


Posted by: rob helpy-chalk | Link to this comment | 01-25-10 1:00 PM
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Are we going to write a set of rules where the same banks are going to stay in control of the financial system, and they're going to do what they want to do, and in the good times they take all the profits and in the bad times they come tell the American taxpayer to bail them out?

Yes. Next question?


Posted by: fake accent | Link to this comment | 01-25-10 1:16 PM
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I am not sure that I understand too connected to fail.

I see this: The underlying problems in the 09 crisis were -massive leverage by investment banks, fixable with regulation
-lack of oversight for mortgage loans by originators, which include but are not limited to commercial banks. Fixable by regulation.
-Bad credit ratings for securities based on mortgage debt (who knows?)

Fixing the first two seems easy-- if the new smaller investment banks are forbidden from being too deeply leveraged, who cares what they're connected to? The off-balance sheet vehicles where banks hid bad debts were just fraud, weren't they? That is, no fancy economics, just an accounting dodge. The only underlying problem not addressed by sharply and carefully limiting leverage is BS ratings, as far as I can tell. Also, mortgage loans are not fixed yet, since ~30% of mortgages are underwater now, and still on the balance sheets of either banks or the holders of the securities. Hypothetical systematic default seems like a luxury, this is a more pressing problem.

I don't know whether the most recent bank regulation proposals are sensible. Ms Warren talks very well, but there was a problem with her bankruptcy assesment-- she said that healthcare costs were the most common driver for individuals filing for bankruptcy, which turned out to be unsubstantiated. I like how she thinks, but would read the fine print on policy proposals.


Posted by: lw | Link to this comment | 01-25-10 2:00 PM
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||
My BFF has a show premiering on PBS tonight and you all should totes watch. It's about music nobody has ever heard of, so perfect for you lot. My BFF's piece is about Kazakhstan and of course it rocks.
|>


Posted by: togolosh | Link to this comment | 01-25-10 3:17 PM
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Anyone have reason to be optimistic about the future I will be dumping these progenitors into? Kthxbai.


Posted by: Turgid jacobian | Link to this comment | 01-25-10 7:08 PM
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Uh. Progeny. Pierogies.whatever.


Posted by: Turgid jacobian | Link to this comment | 01-25-10 7:09 PM
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Posterity is just around the corner.


Posted by: fake accent | Link to this comment | 01-25-10 7:45 PM
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I don't think so, TJ. The idea of having children seems pretty unethical to me.


Posted by: Cryptic ned | Link to this comment | 01-25-10 7:51 PM
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We were going to harvest their organs but the wait just seems too long now.


Posted by: Turgid jacobian | Link to this comment | 01-25-10 7:57 PM
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I'm worried. And I'm worried because I think about where we were 15 months ago. Fifteen
months ago we said this crisis was brought on because there are too many toxic assets.
Remember, bad mortgages on the books of the banks.
Here we are 15 months later, and most of those bad mortgages remain on the books of the banks.

Let M be the number of bad mortgages on the books and m be the number charged off each month ...


Almost related:
http://www.creditslips.org/creditslips/2010/01/visa-does-not-issue-cards-or-extend-credit.html


Posted by: Econolicious, available for sale | Link to this comment | 01-25-10 10:39 PM
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Warren is pretty thoroughly fabulous.
Now if only people with real power would listen to her.


Posted by: Jimmy Pongo | Link to this comment | 01-26-10 7:44 AM
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Ms Warren talks very well, but there was a problem with her bankruptcy assesment-- she said that healthcare costs were the most common driver for individuals filing for bankruptcy, which turned out to be unsubstantiated.

Do you have a cite? Warren is one of the world's premier scholars on bankruptcy law and her scholarship takes the form of actual empirical studies of bankruptcy data, not just theory or the like. I'm having a hard time envisioning her making an unsubstantiated claim about bankruptcy.


Posted by: | Link to this comment | 01-26-10 12:56 PM
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Gah, 16 was me.


Posted by: M/tch M/lls | Link to this comment | 01-26-10 12:57 PM
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Elizabeth Warren. Ethical, intelligent, and a strong backbone.


Posted by: Julie Grimme | Link to this comment | 01-26-10 2:09 PM
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16: I remember a lot of fussing about this, and IIRC it came down to more than half of all filers have significant health-care debt. But they also have other debt. So, is it fair to say that the health-care debt alone drove the bankruptcy? Hard to say.


Posted by: LizardBreath | Link to this comment | 01-26-10 2:33 PM
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19: Now that you mention it I do seem to remember someone at Volokh Conspiracy saying something like that back during the debates over the last bankruptcy bill. I concluded at the time, based on the robustness of Warren's research, that it was just a quibbling attempt to muddy the waters and not an actually substantiated critique.

So, is it fair to say that the health-care debt alone drove the bankruptcy? Hard to say.

Hard to say, maybe, but amenable to empirical inquiry, which is Warren's bread and butter.


Posted by: M/tch M/lls | Link to this comment | 01-26-10 2:47 PM
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Yeah, it was Volokh or McArdle I got it from. I should really stop reading McArdle -- it's a longstanding habit, but I don't really know what the point of it is.


Posted by: LizardBreath | Link to this comment | 01-26-10 2:56 PM
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McMegan is sometimes a guest commenter on Marketplace on NPR, where she unsurprisingly says things that are deeply stupid (or profoundly disengenuous, it's so hard to tell), even by the standards of that deeply stupid program. Lucky for her they usually pair her with a batshit insane wingnut woman (whose name I forget), so she ends up sounding like the reasonable one on the panel.


Posted by: M/tch M/lls | Link to this comment | 01-26-10 3:32 PM
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Unsubstantiated headlines, fine print is OK.

I had seen this
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=971134
and something on Volokh to the effect that she lumps medical and other debts together.

Warren makes a point that regression analysis can't answer the question because people shift expenses:
http://content.healthaffairs.org/cgi/content/full/25/2/w84#R3
It's not obvious to me that interviews without control groups (her method) can do so either.

I had also seen headlines (that she and her coauthors didn't write) to the effect of two thirds of bankruptcies due to medical bills, while they actually write 50% and qualify that with the phrase "at least in part".

I'd probably agree with most problem descriptions she outlines. I liked her two-income trap summary. Mostly- I thought it was striking that she said nothing about a savings rate that recently dropped to 0 in an otherwise sensible discussion of economic security. I think that she's a politician, using "simplify and exaggerate" to deliver a mostly sensible message. I hope that doesn't come off as a smear-- she's probably as good as it gets.


Posted by: lw | Link to this comment | 01-26-10 4:32 PM
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19

I remember a lot of fussing about this, and IIRC it came down to more than half of all filers have significant health-care debt. But they also have other debt. So, is it fair to say that the health-care debt alone drove the bankruptcy? Hard to say.

"alone" obviously not. Warren has an agenda and the way she presents data reflects this. She defines medical bankruptcy in a broad way. See for example exhibit 2 in her 2005 paper (pdf file) where loss of income from inability to work due to injury or illness, death, compulsive gambling and drug or alcohol addiction are all included. Obviously these are serious problems for those affected but they are not clearly attributable to lack of health care reform.


Posted by: James B. Shearer | Link to this comment | 01-26-10 4:38 PM
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One more thought, then I gotta go-- people who write about complex problems (what are the characteristics of people in bankruptcy? in this case) are faced with a problem when they have to summarize for interviews and headlines. To be effective, which she is, they have to simplify a lot in the face of "What causes bankruptcy!!?!


Posted by: lw | Link to this comment | 01-26-10 4:44 PM
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25

... To be effective, ...

Effective as what, a polemicist?


Posted by: James B. Shearer | Link to this comment | 01-26-10 4:51 PM
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26: On the odd chance you're actually being sincere with that question, effective in explaining a complex issue to the media and a lay audience.


Posted by: M/tch M/lls | Link to this comment | 01-26-10 5:59 PM
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23 Warren makes a point that regression analysis can't answer the question because people shift expenses:
http://content.healthaffairs.org/cgi/content/full/25/2/w84#R3

Warren says,

urge us to dismiss the empirical evidence provided directly from the debtors and to rely instead on multivariate analyses to unearth the
"true cause." As clinicians and women who were fooled by the sophisticated multivariate analyses "proving" the benefits of estrogen, we are skeptical
that such manipulations invariably reveal truth and trump other kinds of evidence. Indeed, most medical and policy breakthroughs--such as
Harvey's discovery of the circulation of blood, Koch's that infectious agents cause disease, Semmelweis's that hand washing prevents
puerperal fever, Doll and Hill's and Wynder and Graham's that smoking causes cancer, or the Supreme Court's that educational segregation
causes disadvantage--eschewed multivariate analysis. When families melt down financially, they describe a host of experiences, from having debt
collectors call every ten minutes all evening long to receiving foreclosure notices on their homes. Multivariate modeling is unlikely to yield a deeper
understanding than the methods we used, based on debtors' detailed descriptions of the role that illnesses and injuries played in their financial ruin.

Somebody with expertise could critique the model specification or fitting method, or inference based on the model.
This here from Warren is not a rejection based on evidence or expertise

Within law, Todd J. Zywicki is the canonical counterpoint to Warren's bankrupt hypothesis (possibly p0wnd by 21 at Volokh).


Posted by: Econolicious, reduced form but asymptotically correct | Link to this comment | 01-26-10 9:36 PM
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