Pat

Resource Proposal #1 (more on proposals)

Type (Biz, Gov, or Soc): Society [Edit: Business] (Right… except Forbes is himself a businessperson, so maybe we call this a business source.  There is some flexibility).

Name of Resource and Citation:

Forbes, Steve, and Elizabeth Ames. How Capitalism Will save Us: Why Free People and Free Markets Are the Best Answer in Today’s Economy. New York: Crown, 2009. Print.

Topic for Paper:

The Triple Bubble: How Misinformed Regulation of the Financial Markets Will Be Our Downfall

Your proposal.

In How Capitalism Will Save Us: Why Free People and Free Markets Are the Best Answer in Today’s Economy, Steve Forbes and Elizabeth Ames address the issue of financial regulation in the wake of the subprime mortgage crisis. Forbes is the Chairman, CEO and editor-in-chief of Forbes Media and Elizabeth Ames is the founder of BOLDE communications, a communications advisory firm. The authors address the issues of federal regulation, taxes, and the realities of a free market.

This text is not an interpretation of Ayn Rand that curses any form of regulation and believes that regulation will limit business to the point of destruction. Instead, Forbes and Ames argue that the benefits of a free market are recognized only at a distance while looking at a long timeline of booms and busts. Free markets can seem inhumane and at times seem “brutal”, but in the long run they create more jobs and economic value than a limited marketplace through continuous and unrestricted innovation. Rather than arguing in favor of deregulation of finance and complex financial products, they argue that economic growth is not more of the same. Firms should consider how Henry Ford changed the world by making the car available to working people instead of grinding out a few extra widgets each year.

My white paper will be focused on the idea that Dodd-Frank and other regulation following the most recent financial crisis has set us up for an even bigger bubble. Continued government intervention in the bond markets has led to a disproportionately strong dollar, a stock market continuing to hit new highs and a completely unnatural sense of prosperity. Many people argue that financial deregulation has caused income inequality and reckless behavior in the financial industry. However, my paper will argue this inequality is a natural result of capitalism and has existed forever. Looking back to the largest economic booms, there have always been extremely wealthy individuals in the private sector who have allowed our country to innovate and grow. They have also saved our economy on numerous occasions when regulation has failed. Just as it has every time in the past, the most recent regulation will eventually fail and when it does we should not try to solve the problem with more government intervention.

Did you add “this is not Ayn Rand” or was that from them?  Just curious as her version of political philosophy does seem among the more extreme.  I see two issues in what you have here.  One is the current state of the bond market and if Dodd-Frank changes are enabling a new bubble.  The second is that inequality is unavoidable and perhaps a necessary “cost” to longer term growth.  I suggest you focus on only one of these for the white paper. 

More generally, I am unsure if you (and Forbes and Ames) are saying that cycles are normal and even healthy or that the continued US intervention is setting up the economy for unnecessary and undesirable cycles (boom-bust).  Are you a bubble defender here?  or a “lets make bubbles smaller even if they will always happen”?  

This book may be useful if you continue with the idea of bubbles and cycles… This TIme is Different by Reinhart and Rogoff.  Link to review.

Resource Proposal #2 (more on proposals)

Type (Biz, Gov, or Soc): Government

Name of Resource and Citation:

White, William R. “Ultra Easy Monetary Policy and the Law of Unintended Consequences.” (n.d.): n. pag. Dallasfed.org. Federal Reserve Bank of Dallas, Sept. 2012. Web. 22 Apr. 2015.

Topic for Paper: Is the Federal Reserve Creating a Triple Bubble

Your proposal.

Since 2008, the Federal Reserve (“Fed”) has kept short-term interest rates at near-zero levels. These zero interest rate policies (ZIRPs) have allowed the United States economy recover relatively quickly from the subprime mortgage crisis and continue to hit all-time highs in the stock market. However, as we continue to grow well beyond the stock prices seen in 2000 and 2007, nobody seems to question the potential problem of a third bubble and subsequent market crash. Controlling short-term rates through changing the monetary base is the Fed’s most useful tool in times of a market crisis. In maintaining low rates during a time of economic prosperity they have rendered their most useful tool useless in the event that the market turns before rates are allowed to rise and the money supply tightens.

William R. White’s paper discusses the potential “unintended consequences” of ultra easy monetary policy. These unintended consequences include the health of financial institutions, the “independence” of the central bank, and a widening wealth gap in the long run. White argues that ZIRPs encourage leverage and increased debt levels as stock prices continue to rise with noapparent ceiling in sight.

ZIRPs?  

This causes financial institutions and the central bank to become overly exposed to risky assets that are likely to decrease in value in the event of a crash.

How does Fed as the central bank become more exposed?  And, what are these currently risky assets?  Is the Fed exposed becuase now we have institutionalized the idea that it will bail out “the system” even if that means buying up risky or volatile assets like it did with CDOs?

Furthermore, the most wealthy, who have the most access to credit and are least likely to lose jobs, continue to become more wealthy. Meanwhile, the wealth gap widens, as the least wealthy are less able to gain access to credit, at least at the same levels as their wealthier counterparts. It is further widened in the event of a crisis as credit tightens and minimum wage earners are either unable to handle increasing rates on debt or lose their jobs when their employers lose access to cheap money.

White’s argument supports the idea that Fed policy since 2008 has created an overly inflated stock market. This report was published in 2012 and since then the positive trends have continued with interest rates staying close to zero. White does not dispute the fact that in the short term, low interest rates are beneficial to the economy and asset prices. In support of his idea that the Fed has not done their job of taking away the “punch bowl just as the party gets going” (William McChesney Martin), he leads his report with a quote from Ludwig von Mises:

 So, a Fed paper says that they are pursuing ulta easy monetary policy?  Interesting… they promote a diversity of internal opinions so as to encourage better policy-making?

 

“No very deep knowledge of economics is usually needed for grasping the immediate effects of a measure; but the task of economics is to foretell the remoter effects, and so to allow us to avoid such acts as attempt to remedy a present ill by sowing the seeds of a much greater ill for the future”

Cool quote.

 

Resource Proposal #3 (more on proposals)

Type (Biz, Gov, or Soc): Society

Name of Resource and Citation:

Baily, Martin N., Douglas J. Elliott, and Phillip L. Swagel. “The Big Bank Theory: Breaking Down the Breakup Arguments.” Bipartisan Policy Center (n.d.): n. pag. Brookings. Brookings Institution, Oct. 2014. Web. 28 Apr. 2015.

Topic for Paper: Are Federal Reserve Policies Leading Us Towards Crisis

Your proposal.

After Sandy Weill worked to repeal Glass-Steagall banks began to merge until they became “too-big-to-fail” (TBTF). This eventually resulted in a liquidity crisis and subsequent bailout of TBTF banks by the federal government. Rather than reimplementing Glass-Steagall and breaking up universal banks, the government passed Dodd-Frank. This bill created new policies to address the lack of oversight of individual banks and the financial system as a whole.

The government and federal reserve believe Dodd-Frank is the answer to our problems with TBTF banks. However, it merely provides oversight and the looming threat of TBTF banks is still there. This paper argues that Dodd-Frank is sufficient in regulating large banks and that a breakup would not do anything. It provides a contrarian viewpoint to my argument the Fed policies are insufficient. While I am not focusing on Dodd-Frank, it a useful example of a paper supporting Fed policy and regulation.

Well, why do they think these universal banks are “safe” for the overall system?  

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