Higher Bank Capital Requirements are Necessary but not Sufficient to Prevent the Next Crisis | naked capitalism

Bill Black explains why higher capital requirements for banks is only part of the solution. Capital is simply an accounting measure of Assets minus Liabilities and bankers are not above gaming this to their advantage.

….There were hundreds of Office of Thrift Supervision examiners whose opinions repeatedly proved vastly superior to the economists’ predictions during the S&L debacle. Akerlof and Romer concluded their 1993 article with these sentences in order to emphasize this message to their peers.

The S&L crisis, however, was also caused by misunderstanding. Neither the public nor economists foresaw that the [deregulation] of the 1980s were bound to produce looting. Nor, unaware of the concept, could they have known how serious it would be. Thus the regulators in the field who understood what was happening from the beginning found lukewarm support, at best, for their cause. Now we know better. If we learn from experience, history need not repeat itself. (Akerlof and Romer 1993: 60)

Larry and Janet: please listen to the regulators in the field. Please end Ben Bernanke’s practice of placing economists in charge of Fed supervision. The Fed’s economists are a major source of the Fed’s problems….. the solution needs to come from the people in the field. That is particularly true with regard to detecting systemic risks.

Read more at Bill Black: Higher Bank Capital Requirements are Necessary but not Sufficient to Prevent the Next Crisis « naked capitalism.

Fed’s Fisher Slams Congress Over Fiscal Policy | WSJ

Rob Curran at WSJ reports on a speech by Dallas Fed President Richard Fisher:

Speaking at a luncheon hosted by financial-industry trade group the Dallas Estate Planning Council at the Dallas Country Club, Mr. Fisher said the central bank has done all it can to stimulate the U.S. economy. He said members of Congress–both Republicans and Democrats–have failed to do their part. Elected officials have “sold our children–and our grandchildren–down the river,” Mr. Fisher said. “We haven’t had a budget for five years; no one knows what their taxes are going to be; no one knows what spending is going to be.”

The Dallas Fed president has long maintained that the missing ingredient in the economic recovery is a sound fiscal policy.

via Fed’s Fisher Slams Congress Over Fiscal Policy – Real Time Economics – WSJ.

Federal Reserve FOMC statement | Press Release

…..Although strains in global financial markets have eased somewhat, the Committee continues to see downside risks to the economic outlook. The Committee also anticipates that inflation over the medium term likely will run at or below its 2 percent objective.

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month……

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal……

Read the complete statement at FRB: Press Release–Federal Reserve issues FOMC statement–January 30, 2013.