The FDIC Improvement Act of 1991, based on the lessons of FSLIC and the 1980s, was thought to have solved the problems of deposit insurance--obviously, it did not.
Federal Reserve Board of Governors
October 1, 2009
The Federal Reserve's proposed mortgage disclosures correctly focus on presenting key information to borrowers, but the information presented should be more oriented around whether the borrower can afford the loan in question.
HousingWire Magazine
September 30, 2009
Alex Pollock examines the future of the current financial crisis as it relates to the housing industry.
We have two decades left to pay on the U.S. savings and loan bailout of 1989, let alone that of 2008-2009.
Many are accustomed to thinking in terms of a 'housing bubble.' But this is only part of the story. In fact, the first decade of the twenty-first century brought us a real estate double bubble--one in housing, and one in commercial real estate.
It is ridiculous to call the theory of the Fed under Alan Greenspan "libertarian."
Since no banker, or regulator, or politician, or fund manager, or rating agency, or accountant, or economist can know the future, the long historical series of financial mistakes called bubbles and busts is bound to continue.
We can do better next time provided we take these steps.
AEI's Peter J. Wallison and Alex J. Pollock offer their opinions on the proposed Consumer Financial Protection Agency.
A systemic risk adviser is distinctly worth a try, and, if it is properly structured, we should try it.
As Walter Bagehot said, it is "the ablest and cleverest the most" who in the fever of the boom "trade far above their means."
Any proposals that substantially increase regulatory burden and regulatory risk must be considered in light of the government's intense need to attract very large amounts of additional private equity capital into the banking system.
A "systemic risk adviser" independent enough to point out the systemic risks being created by the government's financial actions and policies, in addition to those of private financial actors, might be a useful institution.
In the wake of the burst tech stock bubble and the shock of the terrorist attacks, the Greenspan Gamble was to purposefully ignite a housing boom. Ex ante, it was a reasonable gamble, and it almost worked.
Economic and financial cycles are natural and cannot be avoided.
"Shareholders" are individuals who personally own shares of stock; agents should not be included in this category.
It may seem unlikely that there could be a negative nominal interest rate to combat potential deflation, but it is not impossible.
House Committee on Science and Technology
May 19, 2009
Economics and finance might be science, if it were not for people.
In the housing and mortgage bubble of the twenty-first century, the government sponsored credit rating agencies turned out to be a notable weak spot.
Political reaction to financial crises is usually accompanied by what proves to be greatly overstated expectations about its future effectiveness.
The stress tests have definitely achieved their principal purpose.
In the wake of every bust comes the political reaction.
End the government-sponsored cartel in credit ratings.
A wise saying is, "Many things previously considered impossible nevertheless came to pass."
We should encourage the creation and capitalization of new banks to provide new sources of private credit.
"Fair Value" accounting is not a fact. It is a theory that has had enormously damaging real world results.
In the wake of the global bust, loss reserve levels have become a matter of global debate.
There are dilemmas when public money is used to offset the losses of banks in the name of economic and social stability.
Do we care if the New York Federal Reserve does not have much capital relative to its assets?
Fannie and Freddie have already become part of the government.
Creating new banks deserves to be a priority, but regulations make it difficult.
Now is the time to think about fundamentally restructuring Fannie Mae and Freddie Mac.
With talk of a "Bad Bank" we are back where we were with the original TARP.
In 1933, the United States intentionally defaulted on its Treasury debt, an action supported by both Congress and the Supreme Court.
The recent period of bubbles, busts, and bailouts--with lessons for improving the financial system.
We need improvements in the bailout plan to make it reflect the interests of the taxpayers.
There are several modifications that can be made to the financial system that may help mitigate the severity of future downturns.
Companies should be permitted to publish pre-fair-value accounting statements as well as marked-to-market balance sheets, which would offer investors multiple perspectives on firms' financial health.
American History
December 1, 2008
Calvin Coolidge was the first president to master the use of radio as a medium for broadcasting his message.
The current financial crisis is not unprecedented, but rather a repetition of basic patterns found throughout financial history.
Barron's
November 3, 2008
David Hume correctly predicted 250 years ago that the government would infallibly abuse the privilege of incurring debt.
Only more capital can solve a capital problem.
What should we make of the proposed government bank bailout?
History proves that when government officials are faced with potential financial chaos, they always decide to intervene and support the market with a government bailout.
We need to start planning now how to put the recent government balance sheet expansion into reverse.
The Treasury should invest about $10 billion of capital in both Freddie Mac and Fannie Mae.
Going with the flow is not necessarily the best policy.
The SEC should revoke its requirement that Nationally Recognized Statistical Rating Organizations must make the records of their rating actions public.
The government should become a subordinated investor in Fannie Mae and Freddie Mac, buying a significant amount of the senior subordinated debt.
The conceptual deficiencies of the fair value accounting theory make it a poor choice for most companies as an accounting standard.
Alex J. Pollock explains the need for and the essential elements of a clear, one-page mortgage disclosure form.
The U.S. should emulate the Financial Services Authority's disclosure requirements policy.
Alex J. Pollock explains that the U.S. should emulate the Financial Services Authority’s disclosure requirements policy.
Alex J. Pollock writes a letter to the editor on the Federal Deposit Insurance Corp.
Credit rating agencies should be rated by investors, not the government.
Thetwenty-firstcentury has seen the housing cycle bubble and bust. Historical precedent says it will happen again.
Mortgage disclosures need to be simplified to help borrowers understand whether or not they can afford their mortgage loan.
History repeatedly shows that the government intervenes when faced with potential financial collapse.
Regulatory reform will not prevent all future financial busts, but there are sensible ways to reform the mortgage finance system.
Independent bodies like the Financial Accounting Standards Board need a system of check and balances.
The mathematical models used to design and evaluate structured mortgage securities, using vast computer power and reams of data, did not save us from the consequences of all-too-human behavior.
With the financial world in turmoil, there is a lot to know about thebursting of the housing market bubble.
Theunfair and faulty"fair-value" accounting theory isdetrimental to themarket economy.
A reason frequently given for financial market behavior in recent years is the belief that the Fed will bail out the market's mistakes.
The financial markets constantly have to relearn from the past.
Amid widespread financial turmoil and talk of recession, fivescholars atAEI graded and assessed the Federal Reserve’s recent policy decisions.
Borrowers need to understand the obligations ofa mortgage. The HUD four-page disclosure form is a step in the right direction, butit does not contain certain essential elements.
Bear Stearns had a credit crisis and neededa bailout.
A temporary housing intervention during the Great Depression offers lessons for how to deal with our current crisis.
In times of crisis, everybody wants a government guarantee, and those who have one have a fundamental advantage.
The current U.S. housing bust has been described as the worst since the Great Depression, butthe financial and economic collapse in 1933 is virtually impossible for people today to even imagine.
As the deflation of the housing and mortgage bubble continues into the new year, it is as much political as financial news.
The underlying problems that have caused the current credit crunch need to be addressed.
We are facing the bust that inevitably followed the housing and mortgage bubble,but we can learn from the history of mortgage crises.
The tendency of financial markets to relearn the same lessons every decade or so is one of the most intriguing things about them.
AEI Online
December 31, 2007
The Home Owners' Loan Corporation provides a useful history lesson for those seeking interventions to solve our current housing crisis.
If the government pays for you, then the government tells you what to do.
Helping increase liquidity in the jumbo-mortgage market in the short run would fundamentally improve the mortgage-finance system for the long run.
The only real excuse for Fannie and Freddie to exist at all is to help in times of housing finance crisis.
Mandatory use ofa simple mortgage disclosure formwould make borrowers better able to protect themselves by understanding what the mortgage really means to them, andpromote a more efficient mortgage finance system.
Ratings agency systems should promote a wealth of information and opinion about price and value.
Corporations today are based on "agency capitalism" rather than "shareholder democracy".
Testimony on the prospect for long term growth and economic well being through innovation.
The optimistic forecasts of subprime recovery have not panned out.
Pollock explains that "fair value" accounting theorists havearrived at absurdity.
The subprime mortgage bust and why “liquidity” is often a misleading metaphor.
Regulatory options for the mortgage and housing industry problems.
Testimony on the subprime lending diaster and the current economic issues.
How can positions be marked to market when there is no active market?
Pollock proposes a form, "BasicFacts About Your Mortgage Loan,"be given to potential borrowers.
The term liquidity can be ambiguous and is better understood as a figure of speech.
Is the current situation "the worst bust in housing in this nation's history"?
To the students of history, the vicious cycle around the bust is all too familiar.
Discussions of corporate governance today too often neglect important developments in how principals and agents interact.
A clarification concerning a recent Wall Street Journal article.
Freddie Mac's new accounting methods are misleading, not stricter.
A scholar explains his support of the Mortgage Disclosure Amendment Act of 2007.
In order to overcome the subprime mortgage bust, we must help borrowers to become more competent and informed.
The loan limits should be adjusted to match current market conditions.
Studies and experiments can determine whether Sarbanes-Oxley stimulates investment or imposes excessive costs.
Testimonyregarding thesubprime mortgage crisis to the U.S. House of Representatives.
The subprime boom is over; the bust is here.
Borrowers should be better educated and better equipped when signing on a mortgage loan.
Do the benefits of the Sarbanes-Oxley Act outweigh its drawbacks?
How is "fair value" affecting the accounting and financial sectors?
Accounting is an art, not a science.
Those burned in the subprime lending bust thought they could manage risk, but they neglected to consider the human factor.
The subprime boom in the housing marketis over; the bust is here.
The risk inherent in the subprime mortgage sector is not a new phenomenon.
The Sarbanes-Oxley Act, its effects on investors, andrecommended reform legislation.
Awritten comment submitted to the Securities and Exchange Commission with regard to oversight of credit rating agencies, File No. S7-04-07.
The subprime mortgage bust is a typical example of a credit over-expansion, and does not warrant intrusive Congressional and regulatory oversight.
Recent trouble in the riskiest part of the mortgage market fits a surprisingly consistent historical pattern.
Opponents ofcredit-union charter conversion to banks do not havea reasonable position.
AEI Online
January 18, 2007
The Federal Accounting Standards Board has tried to make accounting into an exact science. It has failed, and will never succeed.
Sarbanes-Oxley Act is bad for investors and for the international competitiveness of American business and American capital markets.
As average life expectancy continues to rise, we must move away from "traditional" definitions of retirement.
The reform of Sarbanes-Oxley must march on, cutting the bureaucracy and reducing the monopoly profits of the accounting firms that the act has so unfortunately engendered.
The Sarbanes-Oxley Act, particularly the notoriously inefficient implementation of its Section 404, has become a synonym for wasteful expense, bureaucracy and paperwork.
Perhaps reform of the excessive cost and bureaucracy created by the Sarbanes-Oxley Act will be a bipartisan effort, just as the original act was a bipartisan overreaction to the scandals of its day.
Enhancing the international competitiveness of the American economy and capital markets needs to be a priority for both parties.
You can have arguments this way and that about deposit insurance premiums, but for price discovery, such arguments are a pretty worthless substitute for market transactions.
What are we to make of the problems of pension finance?
AEI Online
September 25, 2006
The American system offunding retirementis broken. The future holds out a return to historical patterns of work and leisure.
What is the proper role for the government in the financial system, and in housing finance, in particular?
A common regulator for housing GSEs would regulate three of the largest debt issuers in the world.
Letter to the editor in Barron's.
Statement to the U.S. Securities and Exchange Commission on addressing the problems of Sarbanes-Oxley Section 404 that cause excessive and wasteful expense, bureaucracy and paperwork.
But thebill introduced by Congressman Tom Feeneywould mandate a number of key corrections to these implementation mistakes.
The outlook for the future structure of the credit rating agency sector improved greatly when the House passed the "The Credit Rating Agency Duopoly Relief Act."
Visa's governance change is a step in the same right direction. It should be praised, not attacked.
The recently announced acquisition of Nationwide Federal Credit Union by Nationwide Bank brings a whole new perspective to the credit union conversion issue.
Testimony to the Senate Judiciary Committee in a hearing titled “Hedge Funds and Analysts: How Independent is their Relationship?"
How can the future of the Pension Benefit Guaranty Corporation be improved?
The SEC cannot regulate the capital markets from an empyrean height.
Debates about the Sarbanes-Oxley Act continue, but one thing is clear: its implementation has created unintended consequences.
How should the SEC deal with the fact that other people wish to use it to change the price of certain stocks?
How effective is bond-based housing finance?
The American housing finance system is unique in the world for the predominant role played by the housing government-sponsored enterprises (GSEs).
Participation in a roundtable hosted bythe House Government Reform Subcommittee on Regulatory Affairs on section 404 of the Sarbanes-Oxley Act.
Is the Federal Housing Finance Board's newest regulation a wise one?
Congressional testimony on the SEC's implementation of the Sarbanes-Oxley Act.
By protecting some individual pension beneficiaries, the Pension Benefit Guaranty Corporation has become exposed to huge financial risks and has put all American taxpayers at risk.
Testimony to the House Government Reform Subcommittee on Regulatory Affairs onthe need for action to address the unintended, but very real, excessive burdens and bureaucracy created by the Securities and Exchange Commission's implementation of the Sarbanes-Oxley Act of 2002.
The Sarbanes-Oxley Act of 2002imposes huge costs on shareholders, whether they wish to bear these costs or not.
History is clear that as an empirical matter, booms induce fraud and swindling.
Is SEC regulation always effective?
Bank of America is the latest victim of the conceptual incoherence and labyrinthine demands of FAS 133, the U.S. accounting standard for derivatives.
Conference on Secondary Mortgage Markets in Emerging Economies
March 8, 2006
By developing mortgage and bond markets together, can they potentially reinforce each other?
Testimony before the Senate Committee on Banking, Housing and Urban Affairs about how to improve the credit rating agency sector.
AEI Online
February 3, 2006
February 2006'sFinancial Services Outlook outlines an optimal plan for corporate governance.
Should credit unions be able to choose to convert to mutual savings banks and change their charter accordingly, if they think that would be better?
GSEs, if they are created at all, should always have limited-life charters and never be granted perpetual ones.
Regulatory Issues Debate
January 12, 2006
The House Financial Services Committee and Senate Banking Committee bills are generally consistent, although a few points of controversy must be addressed.
IUHF Newsletter
December 20, 2005
History teaches an essential lesson: GSEs, if they are created at all, should always have limited-life charters and never be granted perpetual ones.
No government of any constitution or party, once it has established a fiat currency regime, can resist using the implicit tax of inflation to enhance its spending, activity and power.
AEI Online
November 4, 2005
The GSE reform legislation now being considered by Congress should be amended to revoke the GSEs' perpetual charters and replace them with limited-life charters.
The House has passed its GSE reform bill by 331 votes to 90, but the Senate bill is stalled.
One of the most controversial elements delaying GSE reform legislation is the provision in the billthat would direct 5% of Fannieand Freddieprofits to an affordable-housing fund.
American Banker
September 9, 2005
FAS 133 is so deeply flawed that it should be scrapped altogether and re-thought from scratch.
Barron's
September 5, 2005
On this Labor Day, we see an important part of the compensation for a lifetime of work placed in doubt.
One doesn’t expect serious thinking in such an advertisement, but this one is utterly detached from reality.
Wall Street Journal
July 22, 2005
LawrenceHunter does not mention what I believe is the most important advantage of this plan--it will be very popular with the American people.
Did therecent accounting scandalsoccur in spite of the rules, or did the project of expanding rules contribute to the problems?
Journal of Applied Corporate Finance, Vol. 17 Num. 3
July 1, 2005
What is accounting truth? This is the best we can do.
H.R. 2990's approach is in the best tradition of competition and disclosure, rather than regulatory prescription and government sponsorship.
Wall Street Journal
June 27, 2005
Perpetual government-sponsored charters are simply a mistake. Let's at least relearn that lesson.
Personal accounts should be created with the annual Social Security surplus, with the Treasury issuing bonds (TIPS)directly to these personal accounts, thus bypassing the trust fund.
Financial Times
June 18, 2005
Instead of issuing bonds into the Social Security trust fund,the Treasury should issue the bonds directly into your own personal account:your own trust fundofrisk-free assets.
Financial Times
May 23, 2005
While GAAP is required of everybody else, the Federal Reserve banks choose to follow their own special accounting rules created by the Federal Reserve itself.
FDIC and the Risk Analysis Center
May 18, 2005
It's a pleasure to be here to talk about the economic consequences of Sarbanes-Oxley, a matter which we know some things about and have opinions on a great many more.
Tech Central Station
May 17, 2005
When the First Continental Congress proclaimed that it stood for "Life, Liberty and Property," it was linking ownership of property to liberty in a free society.
To create personal Social Security accountswithout divertingcash from payroll taxes, the Treasury could issue bondsdirectly to personal accounts.
Wall Street Journal
May 4, 2005
Anyone conversant with international discussions of housing finance knows that the rest of the world does not admiringly look to Fannie and Freddie as the model.
Financial Times
April 25, 2005
There is little doubt that Sarbanes-Oxleyis causing a huge wastage of shareholders' money under the Orwellian motto of protecting the shareholders.
The Sarbanes-Oxley Act should be rigorously applied to public accounting firms, the SEC, the Public Company Accounting Oversight Board, and the federal government.
Combined oversight of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks constitutes a logical and effective regulatory domain.
Efforts to encourage investor confidence are fundamentally misguided. A skeptical disposition is much better for investors and for the proper functioning of the economy as a whole.
Personal retirement accounts with a structure using inflation-indexed Treasury bonds would deliver the benefits of personal accounts without the risks or costs often cited by critics.
Financial Times
March 16, 2005
The notion that accounting standards are purely objective matters for "experts" is simply wrong.
American Banker
March 4, 2005
The Federal Housing Enterprise Regulatory Reform bill introduced gets halfway to the needed housing government-sponsored enterprisereform.
Housing Finance International
March 1, 2005
Now exists the opportunityto begintransitioning to a new housing finance paradigm, toone built on competitive secondary markets instead of a government-sponsored duopoly.
National Mortgage News
February 28, 2005
The consensus is that it is time at a minimum for major revisions, if not for Financial Accounting Standard 133 to be scrapped altogether and replaced.
Washington Times
January 12, 2005
The turmoil at Fannie Mae signals it is time for Congress to reconsider the structure of the federally chartered Government Sponsored Enterprises.
AEI Online
January 1, 2005
Steps should be taken to increase competition in the rating industry, which would increase customer choice, price competition, innovation, and the analysis available to investors.
Without in any way making excuses for Fannie and Freddie, the questionable character of Financial Accounting Standard 133 is the ghost at the feast of their accounting scandal.
American Banker
November 19, 2004
The best answer to the housing GSEs, whichinvolves the privatization of Fannie Mae, Freddie Mac,and the Federal Home Loan Banks, remains politically improbable.
National Mortgage News
November 15, 2004
With the re-election of President Bush and increased Republican majorities in the Congress, legislation addressing stronger regulation of the housing GSEsis now highly probable.
AEI Online
November 1, 2004
The author recommends structural and regulatory requirements to ensure that competition is enhanced with regulation, with improvement of the American mortgage-finance system.
This testimony before Congress suggests ways the SEC could improve the competitiveness of credit rating agencies.
AEI Online
August 1, 2004
By considering three government-sponsored enterprises together, we can see how developing a common regulatory framework for them could be the basis for developing a competitive market.
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