Comments on Oliver Marc Hartwich “Cap and trade our way out of red-tape pollution”, 19/05/2010, http://www.theaustralian.com.au/news/opinion/cap-and-trade-our-way-out-of-red-tape-pollution/story-e6frg6zo-1225868389302
An excellent idea!
I would make two additional points:
1. Any accounting and future audit should be conducted by independent agencies/institutions with highest transparency possible to ensure their reliability.
2. Specify personal penalties for the chief person in charge of a bureaucratic agency any breach of that cap. The first chief must bear the penalties to ensure the accountability. Penalties should include severe monetary losses, demotion or sacking.
A side but related issue is that some kind of similar accountability should be imposed on elected politicians as well for their effects on regulations, and for serious public policy failures.
Showing posts with label Regulations deregulations. Show all posts
Showing posts with label Regulations deregulations. Show all posts
2009-07-27
Financial crisis, scapegoat and regulations
Comments on Jagjit S. Chadha “Is the love of finance the root of all evil?” 24/07/2009, http://www.eastasiaforum.org/2009/07/24/is-the-love-of-finance-the-root-of-all-evil/
I like this article. I find it fascinating and can’t help from commenting, though I didn’t rush in doing it earlier on after my first noting it.
Although it is against the current wind blowing heavily, it appears to be more sober analysis than most very loud noises calling for this and that.
While there may well be a case for strengthening some financial regulations, there is a real danger of overdoing it and over-regulation of the financial sector, at the expenses of efficiency and suffocation of innovations.
It is true that the world main financial and banking system came near collapse. But what were the main direct causes? It was the subprime problems and the malpractice of selling subprime mortgages in the US to the largest degree, wasn’t it? Imagine what would have been if there had not been those malpractices in which people without the ability to pay were given more 100% loans of the equities they bought, at very low interest rates.
International imbalance in saving and consumption may have contributed to the financial problems in the US. But, I would argue that the causal relationship is by no means inevitable and what had occurred in the US should have been avoidable in the first place.
For example, the US could have used the low interest rates afforded by excess international savings to invest in more productive sectors and areas, or even other countries, that would generate much higher returns and enhance the well beings not only in the US, but also other countries.
This in an indirect way would be similar to the argument of readdressing the patient and non-patient internationally discussed by Chadha in this article.
So I agree with Chadha that the size of the financial sector was not necessarily the problem. If looking at the worldwide, savings are not necessarily too high, because there are so many countries, mostly developing ones, have extremely low level of physical capitals and need to increase investment and accumulate them. Even in some advanced economies, infrastructures may need to be upgraded or replaced.
I find the argument that too much savings amusing, but can’t help laughing at it. When there are problems, it is easy and tempting to find a scapegoat, whether there is any justice to it or not is irrelevant to most people.
The financial and economic crisis is such a case in unprecedented scale.
I like this article. I find it fascinating and can’t help from commenting, though I didn’t rush in doing it earlier on after my first noting it.
Although it is against the current wind blowing heavily, it appears to be more sober analysis than most very loud noises calling for this and that.
While there may well be a case for strengthening some financial regulations, there is a real danger of overdoing it and over-regulation of the financial sector, at the expenses of efficiency and suffocation of innovations.
It is true that the world main financial and banking system came near collapse. But what were the main direct causes? It was the subprime problems and the malpractice of selling subprime mortgages in the US to the largest degree, wasn’t it? Imagine what would have been if there had not been those malpractices in which people without the ability to pay were given more 100% loans of the equities they bought, at very low interest rates.
International imbalance in saving and consumption may have contributed to the financial problems in the US. But, I would argue that the causal relationship is by no means inevitable and what had occurred in the US should have been avoidable in the first place.
For example, the US could have used the low interest rates afforded by excess international savings to invest in more productive sectors and areas, or even other countries, that would generate much higher returns and enhance the well beings not only in the US, but also other countries.
This in an indirect way would be similar to the argument of readdressing the patient and non-patient internationally discussed by Chadha in this article.
So I agree with Chadha that the size of the financial sector was not necessarily the problem. If looking at the worldwide, savings are not necessarily too high, because there are so many countries, mostly developing ones, have extremely low level of physical capitals and need to increase investment and accumulate them. Even in some advanced economies, infrastructures may need to be upgraded or replaced.
I find the argument that too much savings amusing, but can’t help laughing at it. When there are problems, it is easy and tempting to find a scapegoat, whether there is any justice to it or not is irrelevant to most people.
The financial and economic crisis is such a case in unprecedented scale.
2009-07-09
Not another review - there have been so many!
Comments on Joshua Gans, et al “Complacency is not an option”, 8/07/2009, http://www.businessspectator.com.au/bs.nsf/Article/Complacency-is-not-an-option-pd20090707-TQ39Y?OpenDocument&src=is&is=Property&blog=Concrete Detail/
While there may be a case for a review, we should avoid over regulations and over reviews.
The two important examples used in this article are bank deposit guarantees and residential mortgage-backed securities (RMBS). If they are the most severe problems with the current system, then there may not be a need for a review.
Bank deposit guarantees can be done easily when government sees a need. The Australian experience of both with no guarantees and with guarantees has proven this point.
The case of residential mortgage-backed securities (RMBS) is not a matter of Australia’s doing and Australia has little influence on the rise and collapse of that market. As a result, any Australian review is unlikely to contribute much to that market.
The fact that Australian banking system have performed well during the recent financial and economic crisis seems also to suggest that the need for a comprehensive review is not strong.
The authors raised quite a number of questions that they say are unanswered. But do they mean they can only be answered by a comprehensive review? What those relevant bureaucratic agencies do? Can’t they answer them or, at least some of them?
Some of the questions may not be very relevant. For example, the second question, whether banks should be subject to a ‘systemic capital charge’ to account for the risks associated with the correlation between bank balance sheets, is hardly necessarily a relevant question for Australian banks, given their remarkable performance during the severe international financial crisis. Their performances mean that the Australian banking regulatory system and capital requirement were and are good. Then why now to have a review of the system that works well?
The international financial crisis should not necessarily be an excuse for a comprehensive review in Australia! We must recognise there are costs associated with any reviews. It is not free and costs nothing!
PS: there have been so many adverse responses including from government to the proposal of a government bank. They indicate how out of touch those economists are!
While there may be a case for a review, we should avoid over regulations and over reviews.
The two important examples used in this article are bank deposit guarantees and residential mortgage-backed securities (RMBS). If they are the most severe problems with the current system, then there may not be a need for a review.
Bank deposit guarantees can be done easily when government sees a need. The Australian experience of both with no guarantees and with guarantees has proven this point.
The case of residential mortgage-backed securities (RMBS) is not a matter of Australia’s doing and Australia has little influence on the rise and collapse of that market. As a result, any Australian review is unlikely to contribute much to that market.
The fact that Australian banking system have performed well during the recent financial and economic crisis seems also to suggest that the need for a comprehensive review is not strong.
The authors raised quite a number of questions that they say are unanswered. But do they mean they can only be answered by a comprehensive review? What those relevant bureaucratic agencies do? Can’t they answer them or, at least some of them?
Some of the questions may not be very relevant. For example, the second question, whether banks should be subject to a ‘systemic capital charge’ to account for the risks associated with the correlation between bank balance sheets, is hardly necessarily a relevant question for Australian banks, given their remarkable performance during the severe international financial crisis. Their performances mean that the Australian banking regulatory system and capital requirement were and are good. Then why now to have a review of the system that works well?
The international financial crisis should not necessarily be an excuse for a comprehensive review in Australia! We must recognise there are costs associated with any reviews. It is not free and costs nothing!
PS: there have been so many adverse responses including from government to the proposal of a government bank. They indicate how out of touch those economists are!
2009-05-06
Don't overdo it or stuff up when tightening regulations
Comments on “Having a lend of us”, by Janet Albrechtsen, on The Australian, 6/05/2009, http://blogs.theaustralian.news.com.au/janetalbrechtsen/index.php/theaustralian/comments/having_a_lend_of_us/
The author is right to a degree in the sense that if there are asymmetry responsibilities between the two sides of the parties, you will likely to have what economists often call the moral hazard problem. The side with lower responsibilities than they should have is likely to act a little more recklessly and this is likely to generate some problems. In this sense the announced changes by the minister can be potentially very bad. A serious consequence is increased costs of financing and much tightened accessibility by low credit-worthy borrowers, mostly are likely to be the government’s backers as the author says.
However, as some commentators argued, one of the main causes of the subprime mortgages problems in the US was mortgages marketers to promote and sell them to borrowers who were very likely to default in payments with little or no check on their ability to pay the interest charges when the honey moon period was over or when there was a rise in interest rates. In this sense, there is a need to tighten regulations to make some people in the lending side to be accountable. So while the minister and government may have got the details wrong and need to change them, they do need to do something to get the balance right.
The main problem concerning this and some other issues is that the market may not be working perfectly all the time and if completely unregulated can from time to time cause serious problems, with low income people bearing the main brunt. Having said that, market forces can generally produce great good and government should not overreact and over regulate the market either to be populist or due to inexperience or ideology driven, especially during the time of a serious recession. From the essay of the PM in February this year, there is a serious danger that the current labour government will overshoot the regulation needs by a very large margin. That is not what Australia needs, but it is sad that may happen.
Further, I acknowledge that regulations may need to be dynamic and be responsive to reality and its changes. Constant and invariant regulations can equally cause problems. In this sense, there is a need for fine-tuning, although there might be a cyclic bias in terms of regulation and deregulation. In this regard, the name of the federal department of finance and deregulation is a very useful and interesting remind, irrespective whether it has past its used by date. The name came during the previous Howard government era to catch up with the populous international trends.
The author is right to a degree in the sense that if there are asymmetry responsibilities between the two sides of the parties, you will likely to have what economists often call the moral hazard problem. The side with lower responsibilities than they should have is likely to act a little more recklessly and this is likely to generate some problems. In this sense the announced changes by the minister can be potentially very bad. A serious consequence is increased costs of financing and much tightened accessibility by low credit-worthy borrowers, mostly are likely to be the government’s backers as the author says.
However, as some commentators argued, one of the main causes of the subprime mortgages problems in the US was mortgages marketers to promote and sell them to borrowers who were very likely to default in payments with little or no check on their ability to pay the interest charges when the honey moon period was over or when there was a rise in interest rates. In this sense, there is a need to tighten regulations to make some people in the lending side to be accountable. So while the minister and government may have got the details wrong and need to change them, they do need to do something to get the balance right.
The main problem concerning this and some other issues is that the market may not be working perfectly all the time and if completely unregulated can from time to time cause serious problems, with low income people bearing the main brunt. Having said that, market forces can generally produce great good and government should not overreact and over regulate the market either to be populist or due to inexperience or ideology driven, especially during the time of a serious recession. From the essay of the PM in February this year, there is a serious danger that the current labour government will overshoot the regulation needs by a very large margin. That is not what Australia needs, but it is sad that may happen.
Further, I acknowledge that regulations may need to be dynamic and be responsive to reality and its changes. Constant and invariant regulations can equally cause problems. In this sense, there is a need for fine-tuning, although there might be a cyclic bias in terms of regulation and deregulation. In this regard, the name of the federal department of finance and deregulation is a very useful and interesting remind, irrespective whether it has past its used by date. The name came during the previous Howard government era to catch up with the populous international trends.
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