Rogoff on Bailouts, Rates and Our Fannie
Kenneth Rogoff, Harvard University professor of economics and former chief economist at the International Monetary Fund:
"The worst is yet to come in the U.S. The financial sector needs to shrink;
I don't think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job.
Like any shrinking industries, we are going to see the exit of some major players. We're really going to see a consolidation even among the major investment banks.
The only way to put discipline into the system is to allow some companies to go bust.
You can't just have an industry where they make giant profits or they get bailed out.
Rates are too low. They must realize we're going to get inflation if things stay where they are.
They need to raise rates but I don't think they are going to because they're way too nervous.
FHLMC and FNMA should have been closed down 10 years ago. They need to be nationalized, the equity holders should lose all their money.
Probably we need to guarantee the bonds, simply because the U.S. has led everyone into believing they would guarantee the bonds."
The Nattering One muses... is there an echo in my office or am I just hearing myself thinking?
Rogoff and I differ only on the bond guarantee, let those investors lose their money as well. Don't tread on me to guarantee bonds for Japan, China, et al.
"The worst is yet to come in the U.S. The financial sector needs to shrink;
I don't think simply having a couple of medium-sized banks and a couple of small banks going under is going to do the job.
Like any shrinking industries, we are going to see the exit of some major players. We're really going to see a consolidation even among the major investment banks.
The only way to put discipline into the system is to allow some companies to go bust.
You can't just have an industry where they make giant profits or they get bailed out.
Rates are too low. They must realize we're going to get inflation if things stay where they are.
They need to raise rates but I don't think they are going to because they're way too nervous.
FHLMC and FNMA should have been closed down 10 years ago. They need to be nationalized, the equity holders should lose all their money.
Probably we need to guarantee the bonds, simply because the U.S. has led everyone into believing they would guarantee the bonds."
The Nattering One muses... is there an echo in my office or am I just hearing myself thinking?
Rogoff and I differ only on the bond guarantee, let those investors lose their money as well. Don't tread on me to guarantee bonds for Japan, China, et al.
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