Joseph Stieglitz on Lessons Learned from the Financial Crisis

Thanks to Barry Ritholz of The Big Picture for posting this pithy column from the China Daily Post.  

Ritholz summarizes the column by distilling these lessons from the financial crisis of the late '00's:

"1. Markets are not self-correcting, and without adequate regulation, they are prone to excess. 2. There are many reasons for market failures. Too-big-to-fail financial institutions had perverse incentives: Privatized gains, socialized losses. . 3. When information is imperfect, markets often do not work well - and information imperfections are central in finance. 4. Keynesian policies do work. Countries, like Australia, that implemented large, well-designed stimulus programs early emerged from the crisis faster 5. There is more to monetary policy than just fighting inflation. Excessive focus on inflation meant that some central banks ignored what was happening to their financial markets. The costs of mild inflation are miniscule compared to the costs imposed on economies when central banks allow asset bubbles to grow unchecked. 6. Not all innovation leads to a more efficient and productive economy - let alone a better society. Private incentives matter, and if they are not properly aligned, the result can be excessive risk taking, excessively shortsighted behavior, and distorted innovation."


Treasury Commitment to GSEs Stirs Debate

According to the Wall St. Journal, the Treasury Department's Christmas Eve announcement of an uncapped commitment to backstop Fannie Mae and Freddie Mac has caused a bit of a stir.  The article also details pay packages for the five highest paid people at both companies.


Fannie, Freddie Top Exec 09 Pay Noted

Fannie Mae's CEO Michael Williams and Freddie Mac's CEO Charles Haldeman received about $6 million each in compensation in 2009, reports CNN today.  Other senior executives also had enviable pay packages.  But unlike many other financial firms, including those under the supervision of pay czar Kenneth Feinberg, these packages did not include long term stock awards or options.  The Federal Housing Finance Authority approved all the GSE compensation packages, and FHFA Acting Director Ed DeMarco noted that unlike the other firms, the long term outlook for Fannie and Freddie as private companies is very much under discussion.  Hence, long term stock awards were not considered appropriate.  

I discuss the companies' possible futures in a recent blog post, in Shelterforce Magazine, and in a guest blog piece at the National Housing Conference's Open House blog. 


Odd Couple Attacks Rahm Over Freddie Mac

In a weird "East meets West" alliance, conservative activist Grover Norquist and liberal Firedoglake blogger Jane Hamsher are attacking White House Chief of Staff Rahm Emmanuel over his short stint as a board member of Freddie Mac, the New York Times' Caucus Blog reports.


ACORN broke no laws, CRS report says

The Congressional Research Service reports that its investigation of ACORN found the group did not break any laws in administering a number of contracts with federal agencies.  CRS examined ACORN contracts over the last 5 years and found no instances of the group violating the terms of its funding, reports the NY Times.


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