All Articles Finance Modern Money While You Were Working - March 19

While You Were Working – March 19

Looking back on the financial crisis, Share buybacks vs capital investment, globalizing fintech, and fun with Bitcoin charts

3 min read

Modern Money

Phil Angelides

Remember this guy? (Mark Wilson/Getty Images)

It’s not like he is an expert on the financial crisis or anything

Since it has now been a decade since the collapse of Bear Stearns, all kinds of people are weighing in with reflections of what went wrong, how it all could have been avoided, lessons learned, etc. Today, it was Phil Angelides’ turn.

Congress is also doing its part to destabilize the system again. Just this week, Senate Republicans joined with a rump group of Democrats to pass legislation rolling back important post-crisis protections. Among other things, the bill would lessen oversight of 25 of the nation’s 38 biggest banks; exempt a slew of financial institutions from reporting mortgage lending data; weaken prohibitions against steering borrowers into higher-cost loans; and reduce the frequency of stress tests on the nation’s biggest banks from semi-annually to as little as once every three years.

Angelides was chairman of the Financial Crisis Inquiry Commission, which conducted the nation’s official inquiry into the 2008 financial crisis, so he is very well-positioned to know more than a thing or two about the crisis. And yet, just like the findings of the Commission, Angelides’ viewpoint is often overlooked or outright shunned. It shouldn’t be.

And about those capital regulations

Here is a deep dive at just how shockingly effective capital regulations have been at helping boost financial stability.

Our conclusion is simple: effective supervision is a public good. Just like disclosure, it helps overcome information asymmetries, reducing uncertainty and the cost of financing. When investors trust banks’ valuations of their assets, so that they can confirm there is sufficient capital, they reward them with higher equity prices.

The piece makes passing mention of a key lessons from the crisis that many in the banking industry and on Capitol Hill are already starting to forget. The speed with which reforms are implemented matters. Tearing down the agencies set up to respond to the next crisis and/or stocking them with people who are incredibly unqualified is a foolish move that will only end up hurting the public and the industry.

In an unrelated story …

… Goldman Sachs says it sees increased “financial fragility” in the markets. Hmmmm.

The end of Bitcoinitis?

The FT had some serious fun with charts related to the rise and fall of bitcoin.

On share buybacks vs. long-term capital investment

On the heels of tax reform and a long run-up in the market, there is a widely held belief that too many companies are infected with near-sightedness as they move to buy back shares instead of spending that money on long-term strategic investment. This post from the Harvard Law School Forum on Corporate Governance and Financial Regulation says that viewpoint is bogus … and cites data to back it up.  

Everybody look what’s going down … in Pennsylvania

Forgive the Buffalo Springfield reference, but when it comes to the kind of gerrymandering that has plagued US politics for quite a few election cycles, there’s something happening here.

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