Here is the system the military dictatorship of Burma/Myanmar is killing people to keep in place:
(h/t Johan Norberg)Political rights: 7, the lowest possible (Freedom House)
Civil liberties: 7, the lowest possible (Freedom House)
Press freedom: 164 of 166 countries (Reporters Without Borders)
Freedom from corruption: 179 of 179 countries (Transparency International)
Economic freedom: 140 of 141 countries (Economic Freedom of the World)
It doesn't always work out the textbook way.
Paul Krugman dissects the White House's spin.
How has the Bush Administration been doing with the inflation risk premium?
It turns out that it is not as bad as one might expect, another extension of the Greenspan-dubbed 'conundrum'. Either that or inflation hedging tools have gotten to the point where people can lay off the risk and it's not in the numbers completely (not so likely).
One can compare the real rates observed from the Treasury's Inflation Protected Securities (TIPs) to the real rates implied by a difference between nominal interest rates and some measure of inflation, typically the CPI.
The difference between the rates might be explained as a combination of the all-important inflation risk premium and the difference between true inflation expectations and the CPI inflation measure used in the calculation. To short-hand it, I'll just call this whole quantity the "inflations expectations risk premium" (IERP), which is a nonsense term that somehow seems to still convey the quantity's essence.
The first thing to note is that real rates have been trending up. Until the last quarter of 2005, say, they were below 2%, in the range of 0.5%-2.0%; and they are now back above 2%, in the range of 2-2.5%. Trend lines for both the 5-yr and 10-yr are positive, so it's not just a flattening of the yield curve over the period. (Gone are the days when one could get a 4% real yield on offer with TIPs. The rise in real-rates is a reminder that investors can lose money in TIPs, over certain intervals.)
The second thing to note is that the trend IERP is flat. Under adverse circumstances, one might reasonably expect both a rising risk inflation-risk premium and expectations of future inflation rate ahead of the current measured inflation rate. So, a flat IERP is good news, but also part of the "conundrum".
The IERP bounces around in its range, mostly with an average of about 0.5% and a standard deviation of circa 0.65%. (The fact that its volatility doesn't appear to be diminishing suggests that real rates may continue to be less volatile than nominal rates).
The latest IERP reading is below average, negative (just barely), and low (more than one standard deviation from its period average - a range of +/- 1 deviation is highlighted on the chart). Based on that, one might easily conclude that the bond markets are not expecting any accelerating inflation and, in fact, may be expecting either higher nominal rates or lower realized inflation (of about 0.5%, the amount that the current IERP reading is below its period average).
The impact of the latest Fed easing has been very small.
NEW FEATURE
The 'prediction markets' are showing the electoral college in a dead heat. 268 of 270 needed are leaning toward Democrats.
Volume in the New Mexico contracts is running higher than other states.
| State | DEM | REP | Chng Wk. Dem/Rep | Bid-Ask. Dem/Rep | Elec. Vote |
|---|---|---|---|---|---|
| D.C. | 97.5 | 2.5 | 0/0 | n.m. | 3 |
| Massachusetts | 93.5 | 6.5 | 0/0 | 6%/n.m. | 12 |
| New York | 92 | 8 | 0/0 | n.m./50% | 31 |
| Rhode Island | 92 | 8 | 0/0 | n.m./38% | 4 |
| Maryland | 88.5 | 11.5 | 0/0 | 8%/61% | 10 |
| Hawaii | 87 | 5 | 0/0 | n.m./298% | 4 |
| California | 85 | 12 | 0/0 | n.m./25% | 55 |
| Connecticut | 85 | 15 | 0/0 | n.m. | 7 |
| Illinois | 84.8 | 15.2 | 0/0 | n.m./35% | 21 |
| Delaware | 84 | 16 | 0/0 | n.m. | 3 |
| Vermont | 83 | 13.5 | 0/0 | n.m./26% | 3 |
| New Jersey | 80.1 | 17.5 | 0/0 | 12%/14% | 15 |
| Pennsylvania | 80 | 16 | 0/0 | 6%/56% | 21 |
| Michigan | 79.5 | 20.5 | 0/0 | n.m. | 17 |
| Oregon | 75 | 20 | 0/0 | 13%/50% | 7 |
| Washington | 75 | 22.5 | 0/0 | n.m. | 11 |
| Minnesota | 73.5 | 26.5 | 0/0 | n.m./6% | 10 |
| New Hampshire | 72.5 | 18 | 0/0 | 3%/n.m. | 4 |
| Maine | 71 | 25.1 | 0/0 | 5%/31% | 4 |
| Wisconsin | 70 | 20 | 0/0 | 29%/n.m. | 10 |
| Missouri | 54 | 40.1 | 0/0 | n.m./75% | 11 |
| New Mexico | 51 | 39.5 | 0/0 | n.m. | 5 |
| Ohio | 50 | 33.5 | 0/0 | 20%/109% | 20 |
| Florida | 41 | 55.5 | 0/0 | 22%/14% | 27 |
| Colorado | 40.2 | 57.7 | 0/0 | n.m. | 9 |
| Iowa | 40.1 | 50 | 0/0 | n.m. | 7 |
| Nevada | 40 | 40.1 | 0/0 | 50%/50% | 5 |
| West Virginia | 35 | 65 | 0/0 | n.m. | 5 |
| Arkansas | 29 | 50 | 0/0 | 72%/n.m. | 6 |
| Indiana | 25.5 | 74.5 | 0/0 | 18%/n.m. | 11 |
| Virginia | 25.5 | 71 | 0/0 | n.m. | 13 |
| Arizona | 20 | 70 | 0/0 | 100%/n.m. | 10 |
| Tennessee | 20 | 50 | 0/0 | 150%/66% | 11 |
| Louisiana | 19.5 | 70 | 0/0 | 54%/n.m. | 9 |
| Kansas | 18 | 60 | 0/0 | 61%/n.m. | 6 |
| North Carolina | 17 | 81.5 | 0/0 | 135%/10% | 15 |
| South Dakota | 15 | 85 | 0/0 | n.m. | 3 |
| Mississippi | 10 | 90 | 0/0 | n.m. | 6 |
| Alaska | 10 | 90 | 0/0 | n.m. | 3 |
| Montana | 10 | 90 | 0/0 | n.m. | 3 |
| North Dakota | 10 | 90 | 0/0 | n.m. | 3 |
| Kentucky | 10 | 74.5 | 0/0 | n.m./21% | 8 |
| Texas | 10 | 90 | 0/0 | n.m. | 34 |
| Oklahoma | 10 | 90 | 0/0 | n.m./5% | 7 |
| Nebraska | 8 | 92 | 0/0 | 38%/n.m. | 5 |
| Idaho | 7 | 93 | 0/0 | n.m. | 4 |
| Utah | 5.5 | 92.3 | 0/0 | n.m. | 5 |
| Wyoming | 5 | 92.5 | 0/0 | n.m. | 3 |
| Alabama | 2.1 | 94 | 0/0 | n.m. | 9 |
| South Carolina | 2 | 90 | 0/0 | n.m. | 8 |
| Georgia | 2 | 84 | 0/0 | n.m. | 15 |
THE NUMBERS
Very little changed. Ron Paul now has more strength than McCain, Gingrich, Huckabee.
Senate race figures, normally very quiescent, showed a pop for the Dems. (Not sure if this is related to Senator Warner's announced retirement or not).
THE STRATEGIES
The parley payoff for any combo of Clinton, Giuliani, Obama, or Romney as the nominees fell to 46%, (36% on the formidable "ask" side of the market).
As "inevitable" as Clinton looks, there is still a sizable 56% payoff for betting on her to win the Presidency (or a 50% annualized return to 11/4/08).
If you aren't a straight up better, you can bet on 'conventional wisdom', as follows: take the odds-on Clinton-Giuliani parley for the nominee match-up, but "hedge" by buying up contracts for Romney, Obama, Thompson to win the Presidency (rather than the nomination). That will yield a 46% return, unless Clinton-Giuliani isn't the matchup and someone other than Romney, Obama, or Thompson takes the oath of Office (e.g., it turns out to be a Clinton-Romney or Obama-Giuliani matchup and/or Clinton or Giuliani takes the oath).
Throwing in a Giuliani contract for President, addition protection, will yield 29%. A Clinton-Romney parley pairs it further to just 8% - you don't get paid for minimal risk.
Big payoffs await those who are down on Clinton's electability in the general election. If you believe that Clinton will win the nomination but her party's contract would go to zero in the general election, that would be worth a whopping 133%, if both events occurred.
IMPORTANT DISCLAIMER: this is just an informational note and not a solicitation or recommendation to buy or sell securities and there is no guarantee implied and people can lose all money on all investments. Numbers are believed to be correct, but do your own math and make your own conclusions or consult with an advisor before making any decisions.
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
How do you know when consumers have too much choice, if such a thing is possible?
Well, for all the economists out there who think that putting health care dollars into the hands of consumers will improve their price sensitivity and drive the system to better results (i.e. mitigate the unwanted effects of what Arnold Kling calls "insulation"), there is this tidbit:
The Dole-Shalala commission, convened after the failures at Walter Reed, is recommending recovery care coordinators, who will assist people in understanding the full range of benefits and options.
This is what people seem to want. Rather than 'just-in-time insurance', they would like "information care", when they need it, not to invest time and money in advance.
Some guy selling insurance pretends that you can sell/buy insurance as the train is crashing.
Before one even reads the article, you know the concept is flawed, in general, because insurance has to be a net loser to buyers in order for it to have force / value. Therefore, the concept must be related to something else, like just changing the timing of the payments one would otherwise make under "level pay" assumptions.
Of course, anyone fool enough to want to compound a sudden change in financial circumstances with a sudden decline in well-being is welcome to buy just-in-time insurance.
(btw, does anyone dare to publish the financial strength rating of the firm that would sell such insurance?)
A theoretical assumption linking current growth and long-term interest rate expectations combined with two interest-rate calculations of monetary stance get you to an r-square of nearly 75% in predicting recessions.
Monetary Stance Metric + Yield Curve Spread = Powerful Tool
If you haven't built a "probit" (probability unit) model in more years than you care to admit publicly, like me, then the amazing world-wide web provides a rescue, in the form of some fairly decent guidelines.
Another model, assuming "NAIRU* of the 1990s", answers the eternal question of what the level of policy rates should amount to:
Federal funds rate = 8.5 + 1.4 (Core inflation - Unemployment)
*NAIRU is that rate of unemployment below which the inflation rate will begin to accelerate. In the 1990s, it fell, for structural reasons that no one has pinpointed exactly (that I know).
THE NUMBERS
Giuliani sags a bit across the board. Thompson appears to get a bounce from his splash debut. Clinton, ever so slightly stronger, pushes Obama down.
Hagel's contract goes to zero bid. Tancredo goes to zero bid. Ron Paul maintains edge over Gingrich. Richardson at new contract low, below 1% for the first time.
THE STRATEGIES
Nothing new. Going to have a look at the "drop out" contacts.
| 2007 Week 37: Busy. GOP hopefuls debate in N.H. and high results for Ron Paul upset some; McCain calls Concord High kid "you little jerk"; Obama hits on Clinton's Iraq vote; Thompson enters race officially on Tonight Show, spurning GOP N.H. debate. All forcus on DC as Petraeus/Crocker report "upward slope" in Iraq progress.  | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| President Parley | Pr (%) | Chg Wk. | bid-ask |
|---|---|---|---|
| CLINTON-GIULIAN | 25 | -3 | 24% |
| CLINTON-ROMNEY | 16 | 0 | 25% |
| CLINTON-THOMP | 14 | 0 | 32% |
| OBAMA-GIULIANI | 7 | 0.9 | 57% |
| OBAMA-THOMP | 4 | 0 | 100% |
| OBAMA-ROMNEY | 3 | 0 | 117% |
| CLINTON-McCAIN | 3 | 0 | 167% |
| Caucus/Candidate | Pr (%) | Chg Wk. | bid-ask |
|---|---|---|---|
| Iowa Caucus | |||
| Democratic | |||
| CLINTON | 45 | 0 | 22% |
| OBAMA | 16.7 | 6.7 | 19% |
| EDWARDS | 30 | 5 | 23% |
| FIELD | 0.1 | -0.2 | n.m. |
| GORE | 0.1 | 0 | n.m. |
| Republican | |||
| ROMNEY | 45 | 0 | 100% |
| GIULIANI | 10 | 0 | 90% |
| THOMPSON(F) | 10 | -15 | 250% |
| FIELD | 6 | 0 | 67% |
| MCCAIN | 1 | 0 | n.m. |
| New Hampshire Primary | |||
| Democratic | |||
| CLINTON | 65 | 0 | 15% |
| OBAMA | 15 | 0 | 33% |
| EDWARDS | 5 | 0 | 200% |
| FIELD | 0.2 | 0 | n.m. |
| GORE | 2 | 0.6 | 400% |
| Republican | |||
| ROMNEY | 45 | 0 | n.m. |
| GIULIANI | 20 | 0 | 50% |
| THOMPSON(F) | 10 | -5 | 150% |
| FIELD | 6 | 0 | 150% |
| MCCAIN | 1 | 0 | n.m. |
| South Carolina Primary | |||
| Democratic | |||
| CLINTON | 50 | 0 | 20% |
| OBAMA | 25 | 0 | 40% |
| EDWARDS | 10 | 0 | 100% |
| FIELD | 0 | 0 | n.m. |
| GORE | 1.5 | 0 | n.m. |
| Republican | |||
| ROMNEY | 5 | 0 | 200% |
| GIULIANI | 30 | 0 | 33% |
| THOMPSON(F) | 11 | -39 | 445% |
| FIELD | 0 | 0 | n.m. |
| MCCAIN | 4 | 3.9 | 150% |
| Florida Primary | |||
| Democratic | |||
| CLINTON | 80 | 0 | 0% |
| OBAMA | 10.1 | 0 | 0% |
| EDWARDS | 0 | 0 | 0% |
| FIELD | 0 | 0 | 0% |
| GORE | 0 | 0 | 0% |
| Republican | |||
| ROMNEY | 0.1 | 0 | 0% |
| GIULIANI | 50 | 0 | 0% |
| THOMPSON(F) | 5 | -25 | 0% |
| FIELD | 5 | 0 | 0% |
| MCCAIN | 0.8 | 0 | 0% |
| Nevada Primary | |||
| Democratic | |||
| CLINTON | 70 | 0 | 0% |
| OBAMA | 0 | -15 | 0% |
| EDWARDS | 0 | 0 | 0% |
| FIELD | 0 | 0 | 0% |
| GORE | 0.1 | 0 | 0% |
| Republican | |||
| ROMNEY | 15 | 0 | 0% |
| GIULIANI | 30 | 0 | 0% |
| THOMPSON(F) | 0 | -40 | 0% |
| MCCAIN | 0 | 0 | 0% |
You know you've made it as a business when you have enough stock to handle a party like this and your clients can expense it ... :-)
A high-rolling businessman woke up with a bar receipt for £105,805 in his wallet after he treated a group of friends to a lavish night out at one of London's most expensive nightclubs [Crystal], it was claimed yesterday.
It total he is said to have bought an astonishing 102 bottles-worth of champagne and 11 bottles-worth of vodka.
The line-up:
The Wal-Mart Revolution: How Big-Box Stores Benefit Consumers, Workers, and the Economy
Author: Richard Vedder
The Chicago School: How the University of Chicago Assembled the Thinkers Who Revolutionized Economics and Business
Author: Johan Van Overtveldt
Consumed: How Markets Corrupt Children, Infantilize Adults, and Swallow Citizens Whole
Author: Benjamin Barber
Subprime Mortgages: America's Latest Boom and Bust
Author: Edward Gramlich
Mellon: An American Life
Author: David Cannadine
Freedomnomics: Why the Free Market Works and Other Half-Baked Theories Don't
Author: John Lott
The Road to Serfdom: Text and Documents
Author: Bruce Caldwell
Richistan: A Journey Through the American Wealth Boom and the Lives of the New Rich
Author: Robert Frank
What Would Jesus Buy?: Fabulous Prayers in the Face of the Shopocalypse
Author: Reverend Billy
The Politically Incorrect Guide to Capitalism
Author: Robert Murphy
The Coming China Wars: Where They Will Be Fought and How They Can Be Won
Author: Peter Navarro
THE NUMBERS
Clinton continues to move up in Iowa estimates and in the national ranks. Obama moving up in VP ranks.
Despite strong Iowa, Edwards contract now about even with Al Gore, who isn't even running ...
Very little change among the GOP nominee contenders. Brownback trades to zero (even Hegel, who isn't running, has a higher bid). McCain's recovery momentum stalls. (It's doubtful that the strong falloff in Thompson's primary figures amounts to more than a data error. If not, he's running on fumes ...).
THE STRATEGIES
Here's an very interesting and quite possibly very profitable set of payoffs.
Suppose you are (a) pretty sure that it will be one of the frontrunners but (b) not sure which. Pretty sure that Thompson won't be in the final round, but not willing to bet the farm on it.
Using a combination of the parley contracts and the straight-up Thompson contract, you can get up to an expected return of 28% (before trading costs and the horrible bid-ask in the parleys...).
| Payoff any combo of Clinton, Obama, Giuliani, Romney | 46.9% |
| Hedged Payoff, Thompson Loses | 25.7% |
| Hedged Payoff, Thompson Wins | 31.9% |
| Expected Gain | 28.8% |
| Payoff any combo of Clinton, Obama, Guiliani, Romney | 29.4 |
| Hedged Payoff, Thompson Loses | 6.9 |
| Hedged Payoff, Thompson Wins | 48.1 |
| Expected Gain | 27.5 |
| 2007 Week 35: Dems in Iowa with Lance Armstrong (Clinton announces new 'War on Cancer'); blogger Lane Hudson files against Thompson's entry dance; and Thompson will, at long last, announce. Rudy takes swipes at his 9/11 management with statistic about Yankees games; Romney releases jogging ad that causes a stir. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Caucus/Candidate | Pr (%) | Chg Wk. | bid-ask |
|---|---|---|---|
| Iowa Caucus | |||
| Democratic | |||
| CLINTON | 50 | 5 | 50% |
| OBAMA | 17 | 7 | 18% |
| EDWARDS | 27 | 2 | 85% |
| FIELD | 0.1 | -0.2 | n.m. |
| GORE | 0.1 | 0 | n.m. |
| Republican | |||
| ROMNEY | 50 | 5 | 80% |
| GIULIANI | 10 | 0 | 100% |
| THOMPSON(F) | 5 | -20 | 600% |
| FIELD | 6 | 0 | 150% |
| MCCAIN | 1 | 0 | n.m. |
| New Hampshire Primary | |||
| Democratic | |||
| CLINTON | 65 | 0 | 15% |
| OBAMA | 15 | 0 | 67% |
| EDWARDS | 5 | 0 | 200% |
| FIELD | 0.2 | 0 | n.m. |
| GORE | 1.4 | 0 | n.m. |
| Republican | |||
| ROMNEY | 50 | 5 | n.m. |
| GIULIANI | 20 | 0 | 50% |
| THOMPSON(F) | 0 | -15 | n.m. |
| FIELD | 6 | 0 | 150% |
| MCCAIN | 1 | 0 | n.m. |
| South Carolina Primary | |||
| Democratic | |||
| CLINTON | 55 | 5 | 9% |
| OBAMA | 25 | 0 | 40% |
| EDWARDS | 10 | 0 | 100% |
| FIELD | 0 | 0 | n.m. |
| GORE | 1.5 | 0 | n.m. |
| Republican | |||
| ROMNEY | 5 | 0 | 200% |
| GIULIANI | 30 | 0 | 33% |
| THOMPSON(F) | 11 | -39 | 445% |
| FIELD | 0 | 0 | n.m. |
| MCCAIN | 0.1 | 0 | n.m. |
| Florida Primary | |||
| Democratic | |||
| CLINTON | 80 | 0 | 0% |
| OBAMA | 10 | -0.1 | 0% |
| EDWARDS | 0 | 0 | 0% |
| FIELD | 0 | 0 | 0% |
| GORE | 0 | 0 | 0% |
| Republican | |||
| ROMNEY | 0.1 | 0 | 0% |
| GIULIANI | 60 | 10 | 0% |
| THOMPSON(F) | 5 | -25 | 0% |
| FIELD | 5 | 0 | 0% |
| MCCAIN | 0.8 | 0 | 0% |
| Nevada Primary | |||
| Democratic | |||
| CLINTON | 75 | 5 | 0% |
| OBAMA | 15 | 0 | 0% |
| EDWARDS | 0 | 0 | 0% |
| FIELD | 0 | 0 | 0% |
| GORE | 0.1 | 0 | 0% |
| Republican | |||
| ROMNEY | 15 | 0 | 0% |
| GIULIANI | 30 | 0 | 0% |
| THOMPSON(F) | 0 | -40 | 0% |
| MCCAIN | 0 | 0 | 0% |
Today's Bernanke speech on the housing market.
Meanwhile, the Fed couldn't have gotten a better set of economic numbers this morning, eh? Growth is solid and inflation is under control. Rock 'n Roll.
Diminished demand for loans and bonds to finance highly leveraged transactions has increased some banks' concerns that they may have to bring significant quantities of these instruments onto their balance sheets. These banks, as well as those that have committed to serve as back-up facilities to commercial paper programs, have become more protective of their liquidity and balance-sheet capacity.The evil side of technological change - too much shorthand? On the other hand, face-to-face lending, in the USA, has a nasty way of getting discriminatory in the wrong ways ...
In some ways, the new mortgage market came to look more like a textbook financial market, with fewer institutional "frictions" to impede trading and pricing of event-contingent securities. Securitization and the development of deep and liquid derivatives markets eased the spreading and trading of risk. New types of mortgage products were created. Recent developments notwithstanding, mortgages became more liquid instruments, for both lenders and borrowers. Technological advances facilitated these changes; for example, computerization and innovations such as credit scores reduced the costs of making loans and led to a "commoditization" of mortgages. Access to mortgage credit also widened; notably, loans to subprime borrowers accounted for about 13 percent of outstanding mortgages in 2006.Who will bear the costs of transition away from mistakes? It depends on how big they are, basically. If they derail the economy, yes; otherwise, no. That's a knife's edge to walk in a fully data-dependent way. [One has to laugh at "investors providing oversight", however ...]
A general truth that didn't work out in this particular bust. As we've discovered, a number of lenders have been caught with far too many short-term liabilities on their balance sheet. It is true, however, that it appears that fees and penalties have played a significant role, rather than rate levels, just as they did during the junk-bond, S&L boom-bust of the early 1990s.
I have argued elsewhere that, in some cases, the failure of investors to provide adequate oversight of originators and to ensure that originators' incentives were properly aligned was a major cause of the problems that we see today in the subprime mortgage market (Bernanke, 2007). In recent months we have seen a reassessment of the problems of maintaining adequate monitoring and incentives in the lending process, with investors insisting on tighter underwriting standards and some large lenders pulling back from the use of brokers and other agents. We will not return to the days in which all mortgage lending was portfolio lending, but clearly the originate-to-distribute model will be modified--is already being modified--to provide stronger protection for investors and better incentives for originators to underwrite prudently.
In particular, in the absence of Reg Q ceilings on deposit rates and with a much-reduced role for deposits as a source of housing finance, the availability of mortgage credit today is generally less dependent on conditions in short-term money markets, where the central bank operates most directly.
Every now and then you come across a piece of financial writing that is gleefully unaware of the case that they are making - a seemingly game-theoretic model in which competition incents excess:
The combination of 'teaser' interest rates on adjustable rate mortgages and institutional money flowing into the mortgage market seeking higher returns resulted in intense competition in the subprime mortgage origination market. The reason vintage years 2005 and 2006 are looked at with more scrutiny is because increased competition in the subprime mortgage arena led to relaxed underwriting standards.All the more reason why "free markets" is just a important rally point, but not a serious going analytical effort (or all that is required).
The original rationale for deposit ceilings [rate regulation under reg-Q] was to reduce "excessive" competition for bank deposits, which some blamed as a cause of bank failures in the early 1930s. In retrospect, of course, this was a dubious bit of economic analysis. In any case, the principal effects of the ceilings were not on bank competition but on the supply of credit.From which we can go the last step, beyond designing the right kinds of curbs, to the apt removal of curbs that outlive their usefulness. To wit, it was the relaxation of reg-Q that eventually created the enormously taxpayer-costly S&L thrift crisis ...
