Perspective

The WSJ has an interesting list of folks contributing to “Academics on What Caused the Financial Crisis“. You’ll find a lot of the usual suspects that we’ve talked about around here. There’s some interesting comments on the housing and subprime bubbles, the increased use of exotic financial instruments, and our old friend moral hazard. I’m going to a highlight just a few for you.

Some of the more interesting comments focused on how the housing bubble was enabled by government. Some blame low interest rates by the FED, others see that it wasn’t just a U.S. phenomenon and look for bigger reasons. Many folks see securitization and the pass-the-trash loan model as the big factors.

Dwight Jaffee, Haas School of Business, University of California at Berkeley

On the government’s role in creating the housing bubble: “I find the GSEs [government sponsored enterprises including Freddie Mac and Fannie Mae] to have been a significant factor in expanding the mortgage crisis as a result of their high volume of high-risk mortgage purchases and guarantees. Furthermore, I find that the GSE housing goals for lending to lower-income households and in lower-income regions were secondary to profits as a factor motivating the GSE investments in high-risk mortgages.

…

Christopher Mayer, Columbia Business School

On the housing bubble: “For the housing market, the picture is much more complex than it might first appear. The housing bubble was global in nature and also included commercial real estate, so simple explanations that rely solely on predominantly American institutions like subprime lending or highly structured securitizations cannot be the only factor leading to real estate market excesses. …My own research shows the important role played by declining long‐term, real interest rates in helping drive real estate prices to high levels, at least up to 2005. However, at some point, speculation by both borrowers and lenders took over, leading to excessive appreciation in many parts of the United States and the rest of the world.”

…

Pierre-Olivier Gourinchas, University of California at Berkeley:

How did subprime bust trigger a financial tsunami? “Three factors ensured that the collapse in what was a minor segment of the U.S. financial markets turned into a global financial conflagration. First, profound structural changes in the banking system, with the emergence of the ‘originate-and-distribute’ model, coupled with an increased securitization of credit instruments, led to a decline in lending standards and a general inability to re-price complex financial products when liquidity dried-up.

Randall Kroszner, University of Chicago Booth School of Business and a former Fed governor:

On reducing moral hazard: “Given the extent of interventions world-wide, issues of moral hazard will remain. The Rubicon cannot be uncrossed and financial market behavior will surely anticipate the return of the “temporary” programs and guarantees in the event of another crisis. To maintain the stability of the system and to protect taxpayers, the “too interconnected to fail” problem needs to be addressed in two ways: through improvements in the supervision and regulation framework as well as improvements in the legal and market infrastructure to make markets more robust globally.”

“Ultimately, to mitigate the potential for moral hazard, policy makers must feel that the markets are sufficiently robust that institutions can be allowed to fail with extremely low likelihood of dire consequences for the system.”

These are just a few brief excerpts from a few of the contributors. You should really go check out the full article.

In the same vein, I wanted once again to go behind the unemployment number released to day and the WSJ has a pretty good explanation of the figure that I follow closely. It is called the U-6 unemployment rate. It not only focuses on people without jobs but people that are ‘underemployed’. This rate, unlike the unemployment rate itself which is staying around 9.7%, went up last month.

The U.S. jobless rate was unchanged at 9.7% in February, following a decline the previous month, but the government’s broader measure of unemployment ticked up 0.3 percentage point to 16.8%.

The comprehensive gauge of labor underutilization, known as the “U-6″ for its data classification by the Labor Department, accounts for people who have stopped looking for work or who can’t find full-time jobs. Though the rate is still 0.6 percentage point below its high of 17.4% in October, its continuing divergence from the official number (the “U-3″ unemployment measure) indicates the job market has a long way to go before growth in the economy translates into relief for workers.

You can read more at NYT in a thread called “Is the Recovery Losing Steam?”

Again and despite what AZ Senator John Kyle says–as highlighted in Krugman’s recent op-ed “Bunning’s Universe”–most folks cannot make ends meet on unemployment benefits and must find jobs that are way beneath their job skills, their income requirements, or the lower the number of hours they wish to work. This more realistic rate accounts also for people who simply have given up on finding a job. These folks don’t even collect unemployment benefits. Just to remind you on Kyle’s priorities, here’s a good bit of prose from Krugman.

Consider, in particular, the position that Mr. Kyl has taken on a proposed bill that would extend unemployment benefits and health insurance subsidies for the jobless for the rest of the year. Republicans will block that bill, said Mr. Kyl, unless they get a “path forward fairly soon” on the estate tax.

Now, the House has already passed a bill that, by exempting the assets of couples up to $7 million, would leave 99.75 percent of estates tax-free. But that doesn’t seem to be enough for Mr. Kyl; he’s willing to hold up desperately needed aid to the unemployed on behalf of the remaining 0.25 percent. That’s a very clear statement of priorities.

You can see from various folks quoted on top (some from liberal and some from staunchly conservative b-schools), they do not place the blame for the last financial catastrophe on folks who don’t want to work and simply want to sit around collecting government money. Yet, if you look at today’s unemployment numbers, it’s just plain working folks that are not recovering from the financial global crisis. They are not getting the policy or money to deal with what the crisis did to them. Instead, the people who cause it are the one’s getting giant bonuses, boosts in stock prices, and continued government goodies.

Life isn’t necessarily fair, but does macroeconomic policy have to be so too during a Democratically led Congress and White House?