Explaining Southern California's economy

U.S. Treasury says Wall Street reform won't hurt small banks

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File: A Bank of America branch is seen in Times Square October 19, 2010 in New York City.

Financial regulation of Wall Street matters in Washington. The U.S. Treasury thinks so and has begun to blog about why. Yes, blog. In its most recent post, the Treasury debunks the idea that bank reform is somehow bad for small banks:

Myth #1: Wall Street Reform Hurts Small Banks

Fact:  

This claim is particularly dubious given strong support for enactment of the Dodd-Frank Act by the Independent Community Bankers of America.  Wall Street Reform helps level the playing field between large banks and small ones, helping to eliminate distortions that previously favored the biggest banks that held the most risk.

The operative concept here is risk. It isn't small banks that pose systemic risk to the banking system — it's the too-big-to-fail banks that ignored prudent risk models in the lead-up to the financial crisis. Robert G. Wilmers — a banking executive who runs M&T Bank, one of the few large banks that more or less sailed throught the financial crisis — provides a very succinct take on the problem at Bloomberg:

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Is Calpers ready for riskier investments?

Calpers, the giant California state pension fund currently valued at $219 billion, is in a difficult position. This is from a Bloomberg story about the fund struggling to hit its 7.75 percent expected yearly return for 2010:

“That’s going to be tough this year and maybe for the next few years,” Calpers Chief Investment Officer Joe Dear said in a Bloomberg Television interview today. “This low-return environment is structurally driven, and there’s not a lot of policy to move it.”

In fact, it could be tougher than Dear is letting on. Calpers is only 70 percent funded, according to Bloomberg. That doesn't mean the fund can't pay out benefits. But it does mean that there's a mismatch between how much it has and how many employees are and will be relying on it. Calpers was fully funded in 2007, but the financial crisis has been hard on it. 

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Solyndragate: Picking winners will always be risky business

There's now pretty much a frenzy of Monday-morning quarterbacking going on with the Solyndra controversy. It boils down to essentially two core positions:

  • Solyndra was too risky a bet for the DOE to pony up a $535-million loan guarantee. The Atlantic's Megan McArdle has been grappling with this one, in strenuous detail, while somewhat evading the question of whether Solyndra needed to spend as much money as possible in a short period of time, to both achieve economies of scale and outrun a collapse in the price of silicon (Solyndra's solar panels didn't use this material).
  • Solyndra was a risky bet, but in the face of $30 billion in Chinese solar investment, the U.S. needs to leverage its innovation advantage to capture its share of the solar market. The government needs to subsidiize some of the risks and be willing tolerate failure in and effort to build up a new Green energy sector. I'm on this side, as is Wired's Jonah Lehrer and the New York Times' Joe Nocera. 

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