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  • Backgrounder posted July 1, 2014 by Norbert J. Michel, Ph.D. The Centennial Monetary Commission Act of 2013: A Second Look at the Fed and the 2008 Financial Crisis

    More than five years after the 2008 financial crisis, the Federal Reserve’s role is still the subject of much debate. Some critics feel that the Fed’s efforts to stem the financial panic were misguided because they allocated credit directly to insolvent institutions. They believe that the Fed should have allowed insolvent firms to restructure through bankruptcy and should…

  • Commentary posted June 6, 2014 by Norbert J. Michel, Ph.D. Don't Blame It on the Weather

    Despite massive fiscal and monetary stimulus since the financial crisis, the economy continues to disappoint.  The big news this past week was that the BEA revised its first quarter GDP estimate downward to reflect a 1% decline – far worse than its previous estimate of 0.1% quarter-to-quarter growth. Why so bad?  A popular explanation seems to be the weather.  Fed Chair…

  • Commentary posted May 27, 2014 by Norbert J. Michel, Ph.D. Transparency More Important Than "Full" Board of Governors

    Senator Rand Paul (R-Ky.) wants an up or down vote on his bill that would require a full audit of the Federal Reserve, but Senate Majority Leader Harry Reid doesn’t want to let that happen. To force the issue, Paul is trying to block new nominees to the Federal Reserve’s Board of Governors. On Wednesday, Paul failed to stop the confirmation of Stanley Fischer to the…

  • Commentary posted May 12, 2014 by Norbert J. Michel, Ph.D. Behold the Power of the Fed

    Janet Yellen’s latest testimony before the Senate Budget Committee confirmed one of my long-held beliefs about the Federal Reserve: People give the institution way too much credit. Too many people seem to assume that the Fed can achieve almost any economic goal.  Need a new regulator of insurance companies and asset management firms? Let the Fed do it.  Inequality on the…

  • Issue Brief posted May 6, 2014 by Norbert J. Michel, Ph.D. Financial Stability Oversight Council and Asset Management Firms

    The 2010 Dodd–Frank Act greatly expanded the federal government’s reach into financial markets. In particular, the creation of the Financial Stability Oversight Council (FSOC) leaves the Federal Reserve poised to regulate nonbank sectors of financial markets more extensively than ever before. The FSOC is supposed to increase U.S. financial stability, but in practice it…

  • Commentary posted April 26, 2014 by Norbert J. Michel, Ph.D. Dreams of a Central Planner

    The Federal Reserve has arrived at last.  Exhibit A: The tremendous number of people interested in who would be confirmed as the new Fed Chairman last January. For monetary geeks like me, it’s an exciting development.  It gives me a chance to talk about topics I’ve been interested in for decades, but now with more than two people. I sincerely hope to use this column to…

  • Backgrounder posted April 23, 2014 by Norbert J. Michel, Ph.D., John L. Ligon Basel III Capital Standards Do Not Reduce the Too-Big-to-Fail Problem

    Many experts recognize that the government will still step in to support some financial institutions rather than allow them to go through bankruptcy. This “too-big-to-fail” doctrine remains at least as prominent now—and as costly to taxpayers—as it was prior to the 2008 crisis, partly because the Dodd–Frank bill exacerbated the problem. For instance, in the…

  • Issue Brief posted April 18, 2014 by John L. Ligon, Norbert J. Michel, Ph.D. Fannie and Freddie 2.0: The Senate Does Not Get the Government Out of the Market

    In an effort to reform the nation’s housing finance system, Senate Banking Committee Chairman Tim Johnson (D–SD) and ranking member Mike Crapo (R–ID) have announced that they will hold a markup for their bill on April 29, but many details still have to be ironed out. Given that close to 100 percent of the U.S. mortgage market is now backed by the federal government, it…

  • Issue Brief posted April 3, 2014 by Norbert J. Michel, Ph.D., John L. Ligon U.S. Financial Markets Do Not Need a New Regulator: Senate Misses the Mark

    Senators Tim Johnson (D–SD) and Mike Crapo (R–ID) have released a new housing finance reform bill, and as expected, it is very similar to the bill that Senators Bob Corker (R–TN) and Mark Warner (D–VA) released last June. Both Senate proposals would wind down the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, and both would replace the GSEs with a new…

  • Backgrounder posted April 1, 2014 by Norbert J. Michel, Ph.D. The Financial Stability Oversight Council: Helping to Enshrine “Too Big to Fail”

    The 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act was Congress’s response to the 2008 financial crisis. Yet many of the act’s components do virtually nothing to fix the root causes of the financial crisis and simply expand the government’s reach into financial markets. Some of the biggest changes are in the nonbank financial sector, where Dodd–Frank…

  • Issue Brief posted March 27, 2014 by Norbert J. Michel, Ph.D., John L. Ligon Johnson–Crapo Housing Finance Reform Misguided

    Senators Tim Johnson (D–SD) and Mike Crapo (R–ID) have released a new housing finance reform bill, and as expected, it is very similar to the bill that Senators Bob Corker (R–TN) and Mark Warner (D–VA) released last June. Both Senate proposals would wind down the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, but both would also replace the GSEs…

  • Issue Brief posted March 20, 2014 by Norbert J. Michel, Ph.D. Camp Bill Keeps Good Debate Going, but Bank Tax Embeds “Too Big to Fail”

    Ways and Means Committee Chairman Dave Camp (R–MI) has performed a valuable service in highlighting the need to reform the tax code, but the draft proposal falls short of what is needed. In particular, the plan’s new “bank tax” would embed the anti-market principle that certain financial companies are too big to fail. The bank tax would actually magnify the government’s…

  • Commentary posted March 14, 2014 by Norbert J. Michel, Ph.D. Housing Market Doesn't Need Government To Do Its Job

    When Fannie Mae and Freddie Mac went into federal conservatorship in 2008, industry lobbyists leapt to save government guarantees in the housing finance markets. The National Association of Realtors was particularly ardent, insisting the 30-year fixed-rate mortgage would disappear without government backing. Put aside the question of whether public policy should favor…

  • Commentary posted February 27, 2014 by Norbert J. Michel, Ph.D. Government guarantees make housing market worse

    Does the housing-finance system require government guarantees? We’re often told it’s worked so well for so long that reforms should only tweak things. The market won’t survive, it’s said, if we completely eliminate those guarantees. But the reality is that if the system had worked, we wouldn’t have had millions of home foreclosures. Taxpayers wouldn’t have spent $200…

  • Backgrounder posted February 7, 2014 by John L. Ligon, Norbert J. Michel, Ph.D. GSE Reform: The Economic Effects of Eliminating a Government Guarantee in Housing Finance

    The U.S. government was barely involved in the housing finance market before the Great Depression. Subsequently, the Federal National Mortgage Association (commonly known as Fannie Mae) and the Federal Housing Administration (FHA) attained an almost legendary status for having “saved” the housing market in the 1930s with various forms of government guarantees. The…