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THE ROLE OF INFORMATION FAILURES IN THE FINANCIAL MELTDOWN. Yale M. Braunstein | School of Information UC Berkeley, Summer 2009. Introduction. Disclaimer:

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the role of information failures in the financial meltdown


Yale M. Braunstein | School of Information UC Berkeley, Summer 2009



  • Disclaimer:
    • I’m not a macro-economics expert, but I do know something about the economics of risk and uncertainty, and something about markets, market failure, and appropriate regulatory response.
  • Overview:
    • A major source of the meltdown in the financial markets was the result of information failures and any “solutions” that did not address the information needs would not be viewed as anything more than holding actions that would eventually fail.
    • Each of these attempted fixes only made the overall situation worse by highlighting what we still did not know about the underlying valuations of the assets and derivatives at the heart of the financial side of the problem.


  • Basic points:
    • Original view was this was primarily a "financial" crisis. Taking that view, the first proposed remedy was a bailout of major financial institutions with some government entity using taxpayer funds to buy securities of unknown value from supposedly sophisticated money managers.
    • Instead we needed to both understand the scope of the problem (not just financial assets) and the underlying causes. To start, the focus should have been:
      • to resolve the information problems to help evaluate the suspect securities
      • to assist in the renegotiation of mortgages to help keep homeowners in their houses.
  • Introduction
  • Background on Banking
  • Background on Mortgages
  • Background on Derivatives
  • Background on Insurance
  • Background on Ratings Agencies
  • Bailout measures that did not work (and why)
  • Proposed measures that probably will not work
  • Summary/Conclusions
  • Other topics(?)
    • Stimulus
    • Auto industry
    • Education
background on banking
Background on Banking (
  • Banks and other financial institutions used to hold assets—some cash, real estate, securities, and the loans they made to their customers.
  • Some still do, but—for the most part—they now are in the business of earning fees for originating loans, buying and selling obligations of one sort or another, etc.
  • On the other side of the ledger, the liabilities of the financial institutions are the sums they owe others—the depositors in commercial banks and S&Ls, and frequently the deposits of other institutions as well as government agencies.
  • The basic principle of banking was to know the value of one’s assets and liabilities, accurately disclosing this to regulators and the public.
changes in the industry
Changes in the Industry

Background on Banking

  • As the business of banking became more fee-based, the functions of loan origination, loan processing, and asset management became more separable.
  • Home buyers no longer dealt with a local bank that would be expected to hold and process their loan into the future. Banks provided consumer credit, via credit cards, “homeowners’ lines of credit,” and so on, but again often did not hold onto the asset.
  • So long as the packaging and re-packaging of these assets (loans) into financial instruments was done in a transparent fashion, the result was mostly positive.
changes in the industry7
Changes in the Industry

Background on Banking

  • The major loss from this change was the lack of a personal relationship with one’s “banker,” who was frequently a respected member of the local community.
  • There were gains in this system as loanable funds could more easily flow to growing regions and industries, and the entry of non-bank financial institutions into some parts of the market provided competition that reduced costs and eliminated pockets of discrimination.
  • “Near banks” and “non-bank banks” became common, and regulation was lax.

Background on Mortgages

  • An old-fashion fixed-rate mortgage was typically:
    • 30-year loan on a single-family, owner-occupied, primary residence
    • For a fixed annual percentage rate
    • Held by the lender (traditionally a local bank or S&L)
    • …and therefore had reasonable fees (“points”)

Background on Mortgages

  • Remember that banking became more fee-based, so lender and loan processor were not always the same entity.
  • Specialized lenders emerged (e.g., Countrywide)
  • Two channels for loan origination:
    • Lender’s sales organizations
    • Mortgage brokers
mortgages mortgage packages became more complex
  • Even “simple” variable rate mortgages (ARMs) require one to understand:
    • Basis for the rate (the “index”)
    • The margin (mortgage rate – index rate)
    • When it can be reset
    • Caps
    • Negative amortization possibilities
  • In 2004, then FRB Chair Greenspan argued that ARMs were under-utilized and the reliance on traditional fixed rate loans was costing home buyers money. While the second part was technically correct, it ignored the increased risk to both borrowers and society of an increased reliance on variable-rate products. (Speech to the Credit Union National Association, February 23, 2004) .
mortgages mortgage packages became more complex11
  • And then there were even more complex versions:
    • GPARMs (“Gip-ims”)
    • Hybrid ARMs, interest-only ARMs, payment-option ARMs, etc.

Consider the result of a complex, no-doc mortgage on a home with an inflated appraisal. The outcome is that the underlying value of the property is unknown, the credit-worthiness of the borrower is unknown, and the precise terms of the loan and the stream of payments are also unknown. This is the exact opposite of how a reasonable credit market should operate.

mortgages what is the extent of the problem
Current mortgage delinquency rates (July 2009):

6.8% of non-agency prime mortgages

21% of Alt-A mortgages

40% of sub-prime mortgages



Fitch Ratings, as reported in Brett Arends, “Should You Invest In Toxic Assets?”, WSJ, July 29, 2009

pay option arms at countrywide 1
  • “Both Mozilo and Sambol were aware as early as June 2006 that a significant percentage of borrowers who were taking out stated income loans were engaged in mortgage fraud. On June 1, 2006, Mozilo advised Sambol in an email that he had become aware that the Pay-Option ARM portfolio was largely underwritten on a reduced documentation basis and that there was evidence that borrowers were lying about their income in the application process. On June 2, 2006, Sambol received an email reporting on the results of a quality control audit at Countrywide Bank that showed that 50% of the stated income loans audited by the bank showed a variance in income from the borrowers’ IRS filings of greater than 10%. Of those, 69 % had an income variance of greater than 50%. These material facts were never disclosed to investors.”

SEC Complaint, SEC v. Mozilo, Sambol & Sieracki, CV09-03994, filed June 4, 2009



  • On June 1, 2006, one day after he gave a speech publicly praising Pay-Option ARMs, Mozilo sent an email to Sambol and other executives, in which he expressed concern that the majority of the Pay-Option ARM loans were originated based upon stated income, and that there was evidence of borrowers misrepresenting their income.
  • … Mozilo met with Sambol the morning of September 25, 2006 to discuss the Pay-Option ARM loan portfolio. The next day Mozilo sent an e-mail to· Sambol and Sieracki expressing even greater concern about the portfolio. In that e-mail, Mozilo wrote: “[w]e have no way, with any reasonable certainty, to assess the real risk of holding these loans on our balance sheet. ... The bottom line is that we are flying blind on how these loans will perform in a stressed environment of higher unemployment, reduced values and slowing home sales.”

SEC Complaint, SEC v. Mozilo, Sambol & Sieracki, CV09-03994, filed June 4, 2009

the placid mortgage case from john grisham s the associate

“Starting in 2001, when a new wave of government regulators took over and adopted a less intrusive attitude, Placid and other huge home mortgage companies became aggressive in their pursuit of new loans. They advertised heavily, especially on the Internet, and convinced millions of lower- and middle-class Americans they could indeed afford to buy homes that they actually could not afford. The bait was the old adjustable-rate mortgages, and in the hands of crooks like Placid it was adjusted in ways never before imagined. Placid sucked them in, went light on the paperwork, collected nice fees up front, then sold the crap in the secondary markets.” (pp. 152-153)

packaging mortgages
Packaging Mortgages
  • “Secondary markets”: Packages of loans had been sold to investors for years (e.g. via GNMA)
  • Computerization made it even easier to track these.
    • But it also made it easier for the packages to become more complex.

GNMA PL#042341X DTD 07/01/1980R/MD 12.50 06/15/2010 105.00(5/26/09) N/A N/A 25,000

background on derivatives
Background on Derivatives
  • Derivatives can be economically useful
    • Provide flexibility to buyers/sellers (lenders/borrowers)
    • Their value depends on the value of the underlying assets (claims)
    • But the asset values themselves can be uncertain (hence there is risk)
    • Derivatives can range from relatively simple to incredibly complex
  • Therefore, derivatives can be “good” or “bad” depending on the circumstances
    • Linkage to underlying assets: STRIPS & GNMA obligations are very direct (so much so that some do not consider them to be derivatives).
    • I probably should refrain from making simplistic value judgments, but I won’t. But there are a number of unstated caveats and qualifications to much of what follows.
    • I’m not the only one using this terminology: “bad assets”, “bad bank”, etc.
a good derivative
A “Good” Derivative
  • First, a relatively simple example with little or no risk: STRIPS
    • STRIPS is the acronym for Separate Trading of Registered Interest and Principal of Securities.
    • STRIPS let investors hold and trade the individual interest and principal components of eligible Treasury notes and bonds as separate securities.
    • STRIPS are popular with investors who want to receive a known payment on a specific future date.
    • STRIPS are called “zero-coupon” securities. The only time an investor receives a payment from STRIPS is at maturity.
    • STRIPS are not issued or sold directly to investors. STRIPS can be purchased and held only through financial institutions and government securities brokers and dealers.


more on strips
In the old days a bond was a combination of “return of principal” and “coupons” (usually one every 6 months)

Now they are all “electronic entries”

More on STRIPS

More on STRIPS

  • A financial intermediary (bank, brokerage house, etc.) would combine various coupons from a number of bonds so that an investor could find the maturity and rate of return desired independent of what the borrower had originally offered.
    • It was a straight-forward operation to determine the value with a computer.
    • Also, there was no physical “coupon” as such, just the computer entry.
    • The intermediary charged a small fee to record and manage the transactions.
a bad derivative 1
A “Bad” Derivative - 1
  • Tom Wolfe’s “Giscard” (from Bonfire of the Vanities, 1987)
    • The (fictional) Giscard Bond, issued by the French government, had coupons and maturity value linked to the French Franc value of a fixed weight of gold.
    • “So as the price of gold when up and down, so did the value of the Giscard.” (p. 65)
    • “The only real problem was the complexity of the whole thing.” (Ibid.)
bad derivatives 2
“Bad” Derivatives - 2

“Simply put derivatives are the weapon of choice for gaming the system….Derivatives provide a means for obtaining a leveraged position without explicit financing or capital outlay and for taking risk off-balance sheet, where it is not as readily observed and monitored….Viewed in an uncharitable light derivatives and swaps can be thought of as vehicles for gambling; they are, after all, side bets on the market.”

--Richard Bookstaber, author of A Demon of Our Own Design, in congressional testimony.

bad derivatives 3
“Bad” Derivatives - 3

“Even when derivatives do allow financial risks to be transferred, that is not always a good thing. John Kay, a leading Scottish economist, noted recently that he used to teach — along with most other economics professors — that derivatives allowed risks to be transferred to those better able to bear them. But, he added, experience had shown that to be wrong. Now, he said, he teaches that derivatives allow risk to be shifted from those who understand it a little to those who do not understand it at all.”

--Floyd Norris, New York Times, June 25, 2009.

uncertain derivatives you decide whether they are good or bad
“Uncertain” Derivatives --You decide whether they are good or bad
  • Other examples of derivatives
    • Puts, calls, stock options
    • SDRs, ECUs (pre-Euro bundles of currencies)
    • Commodity futures
cmos combining mortgages and derivatives
CMOs: Combining Mortgagesand Derivatives
  • Collateralized mortgage obligations (CMOs) are bonds based on home mortgages with a twist that the bonds are categorized into different tranches to redistribute the risk of mortgage prepayment and mortgage default.
    • “Tranche” is French for “slice”, and is used in finance to refer to one portion of a group of related securities.
  • More generally, CDO (…Debt…)
cdos combining mortgages and derivatives
CDOs: Combining Mortgagesand Derivatives
  • Why some CDOs are probably worth ZERO:
    • Higher yield tranches have higher risk (this should not be a big surprise to anyone)
cdos a special purpose entity initial condition
CDOs: A Special Purpose Entity—Initial condition

Assuming 3 tranches“Equity tranche”

Medium-risk tranche

Low-risk tranche



Calculation area:

$8.0 mil

-2.5 mil

-2.4 mil


$10 million @ 31%

100 mortgages x $ 1 million each = $100 million(say at 8% each)

$40 million @ 6%

$50 million @ 5%

the special purpose entity a few years later
The Special Purpose Entity—A few years later

Assuming 3 tranches“Equity tranche”

Medium-risk tranche(75% recovery)

Low-risk tranche(full recovery)



Calculation area:

50% refinance or pay off loans

50% foreclosed; 60% of that recovered

$20 million(lost)

$10 million @ 31%

$40 million @ 6%

gets $30 million

$30 million (hopefully cash)

$50 million(cash)

$50 million @ 5%


So… The CDOs are assets on someone’s (bank, financial institution) balance sheet and may be truly worth zero (depending on which tranche they represent)



Possibly held by the originating institution (i.e., not sold to investors)

$10 million @ 31%

$20 million

$40 million @ 6%

gets $30 million

$30 million

$50 million

$50 million @ 5%(full recovery)

background on insurance
Background on Insurance
  • To prevent insurance from being little more than gambling, one needs to have an “insurable interest”
  • The cost of insurance is:
    • (The probability of the loss) x (the expected amount of the loss)
    • Plus a “risk premium”
    • Possibly plus any transactions costs
more on insurable interest
More on Insurable Interest
  • (From an economist who is a fan of murder mysteries)
    • To prevent (additional) incentives to murder, one can not buy a life insurance policy on a stranger. You can purchase insurance on a relative, a business partner, etc.
    • This has been the plot device in a number of mysteries (often in the form of a “tontine”).
      • R. L .Stevenson, The Wrong Box
      • A. Christie, 4:50 from Paddington Station
      • And, of course most famously, The Simpsons.
    • Similar rules for other types of insurance
More on Insurable Interest (actually a digression on the importance of “The Simpsons” in modern culture)
  • Grampa and Mr. Burns enter into a tontine during World War II, involving a treasure of antique paintings stolen from a German castle. When the two of them become the only surviving members, they compete for the rights to the prize. Eventually they both lose once the US State Department interferes and takes the paintings back to the German baron who is the rightful owner. (From Wikipedia entry for “tontine”.)

Season 7, episode 22: "Raging Abe Simpson and His Grumbling Grandson in ‘The Curse of the Flying Hellfish’”. Originally aired April 28, 1996.

insurance the good and the bad
Insurance—the Good and the Bad
  • Again, the “good” and the “bad”, but this time with the “uncertain”—
    • Good: Life insurance, car insurance, maritime insurance, etc.
    • Bad: Tontines, “bucket shops”, sports betting (?)
    • Uncertain: Credit default swaps
bucket shops

“Bucket Shops”

Formally, a bucket shop is a firm that “books" (i.e., takes the opposite side of) retail customer orders without actually having them executed on an exchange.

From the Financial Times:

The bank panic of 1907 is remembered for J.P. Morgan forcing all the bankers to stay in a room until they agreed to contribute to fixing the crisis. What has been forgotten is one major cause of the crisis – unregulated speculation on the prices of securities by people who did not own them. These betting parlours, or fake exchanges, were called bucket shops because the bets were literally placed in buckets. The states responded in 1908 by passing anti-bucket shop and gambling laws, outlawing the activity that helped to ruin that economy. (March 30, 2009)

These laws were pre-empted by the Commodity Futures Modernization Act of 2000.

“Bucket shops”
what is a credit default swap
What is a Credit Default Swap?
  • A contract between two parties, in which one party makes periodic payments, while the other agrees to pay a sum of money if a certain event occurs. A CDS takes place in the world of financial markets, and the "event" that triggers the payoff is when a credit instrument, such as a bond or loan, goes into default.
  • Investors use CDSs primarily for two reasons:
    • as an insurance vehicle to hedge an investment in a company
    • as a gambling mechanism to make a profit if the company fails.
credit default swap valuation
Credit Default Swap valuation
  • CDS pricing: The spread is an annual amount that the buyer must pay to the provider of the CDS over the length of the contract, expressed as a percentage of the notional amount. This is very much like the premium paid in insurance. In general, a company with a higher CDS spread is considered more likely to default by the market, and a higher fee would be charged to protect against this happening.
  • Other valuation issues: the length of the contract, the amount of protection, “health” of the issuer (as well as of the covered entity).
  • Partial payments (to “counter-parties”) required as underlying conditions change.
credit default swap markets
Credit Default Swap “markets”
  • No organized exchange; therefore, no clear understanding of amount outstanding.
  • Gretchen Morgenson estimated $30 billion outstanding in Jan. 2009.
    • Some estimate that as much as 90% were not used for hedges.
    • But there may have been offsets included in this estimate.


background on ratings agencies
Background on Ratings Agencies
  • Standard & Poor’s, Moody’s & Fitch
  • “[If the ratings agencies had done a better job], we wouldn’t be having this conversation.” Larry White (NYU), on NPR Planet Money, June 5, 2009.
bailout measures that did not work and why
Bailout measures that did not work (and why)
  • Banks
    • Original plan to take “bad” assets off the books—no credible way to value them
    • Preferred stock—viewed as just another obligation
    • Stress tests
      • Odd assumptions about revenue projections, etc. (WSJ, May 28, 2009)
      • As of June 5, 2009, it appears as though even the FDIC does not accept the results.
bailout measures that did not work and why40
Bailout measures that did not work (and why)
  • More on the “too big to fail” logic
    • Size = political power (even noticed by the WSJ)
      • “Congress Helped Banks Defang Key Rule” (June 3, 2009) about “mark-to-market” and “Banks Try to Stiff-Arm New Rule” (June 4, 2009) off-balance sheet accounting
      • “Secret Sanctions” (WSJ, July 17, 2009)
        • “Bank of America Corp. is operating under a secret regulatory sanction that requires it to overhaul its board and address perceived problems with risk and liquidity management, according to people familiar with the situation…. Citigroup Inc. has been operating since last year under a similar order with the Office of the Comptroller of the Currency, according to people familiar with the matter. The company recently has been negotiating with the Federal Deposit Insurance Corp. about entering into a similar agreement with that agency, these people say…. Spokesmen for Citigroup and the FDIC declined to comment.
bailout measures that did not work and why41
Bailout measures that did not work (and why)
  • Mortgages
    • Refinance plans too small, poorly implemented
      • 17,000 loans modified through May 31, 2009 (NPR)
      • “Some 9% of eligible borrowers have received trial modifications under the Obama administration's ambitious effort to help struggling homeowners, according to data released by the Treasury Department on [Aug. 4, 2009].”Maya Jackson Randall & Jessica Holzer, WSJ
    • Ignored differing incentives of originators, servicers, and holders of loans
    • Exacerbated by revision of mark-to-market rule
      • (technical digression needed here)
bailout measures that did not work and why42
Bailout measures that did not work (and why)
  • Mortgages
    • Confounded by second mortgages and homeowner lines of credit (HLOC)
      • Second mortgages & HLOC are profitable for lenders. But they are subordinate to first mortgages. If a lender and borrower want to re-negotiate a first, they may need the holder of the second (or HLOC) to also take a write-down in order for the borrower to afford the revised first.
      • Recognizing this, the “book” value of the second should be reduced, forcing the bank to incur additional losses.
      • Lesson: “Mark-to-market” rules really do matter.
credit default swap markets 1
Credit Default Swap “markets” (1)
  • Proposed solutions:
    • Buyers should take the hit.
      • “If you live in a house and you don’t buy reputable insurance and a fire burns it down, it’s your fault.”
    • Unwind the contracts (“inversion”)
      • Insurance premiums would be refunded to buyers of credit protection from the entity that wrote the initial contract. And the seller would no longer be under any obligation to pay if a default occurred. The premium repayments would be made over the same period and at the same rate that they were paid out. If a contract was struck three years ago and charged quarterly premiums, the premiums would then be refunded quarterly over the next three years.
      • Counter argument from an insider: “Unwinding CDS would harm the integrity of financial market. Kind of like if I place a bet with a bookie that doesn't pay, the bookie can't pick and choose after the fact which games he wants to payout on and which he wants to cancel. Not without risking have customers fleeing.”
credit default swap markets 2
Credit Default Swap “markets” (2)

Proposed solutions (continued):

Use bailout funds to pay counter-parties.

(Longer-term) Create exchange(s) or clearinghouse(s), regulator, reserve requirements.

Worry about the exemptions!

credit default swap markets 3
Credit Default Swap “markets” (3)
  • CDS – what we actually did (difficult to document)
    • AIG: loans at 18% p.a.
      • Possible rationales: hide transfers to counter-parties, especially foreign banks & institutions; prop up insurance subsidiaries
    • Bear Stearns: guaranteed contracts
    • J. P. Morgan: -------”---------

CW (early July 2009): Actually, these last two seem to have worked reasonably well, at least when compared to the AIG bailout. But were they worth the cost?

CW (late July 2009): “The dozens of insurance companies that make up AIG show signs of considerable weakness even after their corporate parent got the biggest bailout in history, a review of state regulatory filings shows.” NY Times, July 30, 2009


Proposed measures that probably will not work (and why)

  • Use Treasury/Fed funds to assist private entities to buy troubled assets
    • (I guess) the theory is that if one only has to put up (say) 5-20% of the purchase price, the “correct” valuation isn’t too much of an issue.
    • But this leads to its own set of strange incentives:
      • Some banks are prodding the government to let them use public money to help buy troubled assets from the banks themselves. Banking trade groups are lobbying the Federal Deposit Insurance Corp. for permission to bid on the same assets that the banks would put up for sale as part of the government's Public Private Investment Program.
      • “PPIP was hatched by the Obama administration as a way for banks to sell hard-to-value loans and securities to private investors, who would get financial aid as an enticement to help them unclog bank balance sheets. The program, expected to start this summer, will get as much as $100 billion in taxpayer-funded capital. That could increase to more than $500 billion in purchasing power with participation from private investors and FDIC financing.” (WSJ, May 27, 2009)
what is wrong with letting the banks be both buyers and sellers of toxic assets
What is wrong with letting the banks be both buyers and sellers of toxic assets?

Some critics see the proposal as an example of banks trying to profit through financial engineering at taxpayer expense, because the government would subsidize the asset purchases.

"To allow the government to finance an off-balance-sheet maneuver that claims to shift risk off the parent firm's books but really doesn't offload it is highly problematic," said Arthur Levitt, a former Securities and Exchange Commission chairman who is an adviser to private-equity firm Carlyle Group LLC.

"The notion of banks doing this is incongruent with the original purpose of the PPIP and wrought with major conflicts," said Thomas Priore, president of ICP Capital….

One risk is that certain hard-to-value assets might not be fairly priced if banks are essentially negotiating with themselves. Inflated prices could result in the government overpaying. Recipients of taxpayer-funded capital infusions under the Troubled Asset Relief Program also could use those funds to buy their own loans. (WSJ, May 27, 2009)

proposed measures that probably will not work and why
Proposed measures that probably will not work (and why)
  • CDS or derivatives “clearinghouse”
    • Too many possible exemptions
      • Profits for the “custom” CDS are much higher than for the “plain vanilla” ones
      • There are a number of facilitators and intermediaries, all of whom make large fees
    • Intermediaries will be “on the hook” and someone has to insure and/or regulate them
      • “ICE Trust” (in NYC) wants this business
    • CDS contracts are inherently easy to manipulate
      • WSJ, June 11, 2009
Create “database” to help evaluate mortgages and ABS

“To deal with the problem, issuers of asset-backed securities should provide extensive detail in a uniform format about the composition of the original pools and their subsequent structure and performance, whether they were sold as SEC-registered offerings or private placements. By creating a centralized database with this information, the pricing process for the toxic assets becomes possible. Making such a database a reality will restart private securitization markets and will do more for the recovery of the economy than yet another redesign of administrative agency structures.”(Ken Scott & John Taylor, WSJ, July 21, 2009)

“Insufficient data are collected on individual loans, and often the data are of questionable accuracy or timeliness, so the analysis of mortgages and other types of loans which have been sliced and diced through multiple levels of securitization will be subject to substantial error. Accordingly, the valuation of such ABS will be highly suspect, even if the data reside in a centralized database…Rather than using securitization to shift individual loans toward their funding source, public policy should seek to encourage lenders to retain ownership of the loans they make.”(Bert Ely, WSJ, July 27, 2009)

Proposed measures that probably will not work (and why)

Current proposal to overhaul financial regulation

(See earlier slide on political power of financial institutions)

Suspicion of giving the FRB more power

“Treasury Secretary Timothy Geithner blasted top U.S. financial regulators in an expletive-laced critique last Friday as frustration grows over the Obama administration's faltering plan to overhaul U.S. financial regulation, according to people familiar with the meeting.The proposed regulatory revamp is one of President Barack Obama's top domestic priorities. But since it was unveiled in June, the plan has been criticized by the financial-services industry, as well as by financial regulators wary of encroachment on their turf.Mr. Geithner, without singling out officials, raised concerns about regulators who questioned the wisdom of giving the Federal Reserve more power to oversee the financial system. Ms. Schapiro [SEC] and Ms. Bair [FDIC], among others, have argued that more authority should be shared among a council of regulators.” WSJ, Aug. 4, 2009

Need more specific guidance!

Proposed measures that probably will not work (and why)


Summary or Conclusions

  • More disclosure needed
    • “Off balance sheet” entries
    • Nature of CDS and derivatives
    • Property and asset (re)valuations
    • Strong “mark-to-market” rules
  • Other options
    • Return to traditional banking (at least in part)
    • Improved regulatory system
      • “Systemic regulator”
summary or conclusions
Summary or Conclusions

“Certainly confidence is crucial to the open and fair operating of markets. [Bailouts did not build confidence….] What confidence is created by is a clarity of the problem.”

Interview with Gretchen Morgenson on NPR’s “Fresh Air”, June 9, 2009

questions other topics
Questions & Other topics (?)
  • Q & A
  • Stimulus
  • Auto industry
  • Education
additional sources
Additional sources
  • Our paper: ( )
  • WSJ
  • New YorkTimes (Gretchen Morgenson; Floyd Norris; even Ben Stein)
  • Khan Academy sections on “Credit Crisis”
  • Wikipedia (surprisingly good in several areas)
  • Planet Money (from NPR)

Thanks to Patrick Riley for graphics & editing support.

Official disclaimer: The opinions or statements expressed herein should not be taken as a position of or endorsement by the University of California, Berkeley.