Rent Check
Do we already have adequate countercyclical capital policy in place? Contrary to a recent Bank Policy Institute article, current capital requirements like the capital conservation buffer (CCB) don’t increase liquidity specifically during economic expansions.
Ensuring that short term creditors can get their money back in the event of a bank failure isn’t the same as creating systemic moral hazard. Placing the responsibility for paying creditors on the private sector prevents the type of crony government support that breeds moral hazard.
News and Commentary
Liberty Street Economics had two posts over the past week analysing the data behind last year’s TCJA to see how it affected home ownership rates. The first one found that tax changes, particularly the cap on the mortgage interest deduction and Salt deduction have had a role in the housing market slowdown we’ve been seeing. The second saw a trend with converging price-to-rent ratios in areas that saw a fall in itemized tax returns.
Forbes’ Norbert Michel argue that the recent confirmation of Mark Calabria as the director of the Federal Housing Finance Agency provides a chance to finally implement meaningful reform. Since the Great Recession, relatively little has changed within US housing policy, and Fannie and Freddie continue to be a problem.
New Research
What determines the volatility of a stock? New research shows that the nominal price of the stock (how small it is) determines how volatile its price is.
A new Federal Reserve paper uses property level data to measure the impact of federal mortgage guarantees. They found that a significant reduction in government guarantees wouldn’t reduce home ownership rates significantly.
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