Charles Calomiris offers some insights onto the ongoing financial crisis. I have been following the news just like you all, but am humble in recognizing that authoritative pieces are out there already (e.g. Jim Hamilton, or Bob Litan et al). But I see a kindred spirit the WSJ Calomiris interview. Two selective nuggets copied here:
The key thing we’ve learned during the downward spiral of confidence is that you have to deal with the problem in the mortgage market directly. There are probably 18 million subprime and Alt-A mortgages out of 57 million total. Probably half will end up in foreclosure. ... The problem is the completely opaque distribution of losses because no one knows how to value these mortgage losses. The way to solve the problem is from the bottom up.
Notice this is the root cure that I (and separately Hillary Clinton) suggested along the lines of HOLC 2.0. A Main street mortgage remedy was raised in the presidential contest by Senator McCain, misinterpreted, mocked, and eventually attacked by the Obama campaign. Hopefully, it will be reconsidered now that the silly season is over. Now that TARP isn't for TA (or is it?) the $700 billion could presumably be shifted to bottom-up mortgages, no?
There actually is a stock of knowledge about this. The scandal is that when Congress has been considering this, not one independent economist has been allowed to testify. Do you know why they weren’t? Paulson and Bernanke didn’t want anyone causing problems.
I don't believe anything conspiratorial about Ben Bernanke. But I do believe the politics of the financial bailout have been inept, tragically inept, bi-partisan tragicomically inept ... I could keep going. At the very least, the public should be asking why outside economists weren't part of the process, as Calomiris does. If your child were sick and Congress refused to seek the advice of independent medical doctors, what would you call that?
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