How the interconnectedness of the financial sector in the lead-up to the Great Depression contributed to the propagation of systemic risk. One interesting finding: the Hoover-era Reconstruction Finance Corporation targeted loans to struggling banks that were more systemically important, making a bank’s contribution to systemic risk positively correlated with the odds of survival.
Janet Yellen’s interview with Brookings on the state of the financial system ten years after the financial crisis (with a nice shout-out to Niskanen Board Member Anat Admati!) The good news? Equity financing is up. The bad news? We’ve got a long way to go to increase these capital buffers.
News and Commentary
Medium essay by Byrne Hobart on the “toxicity” of 30 year mortgages. Intervention in the form of highly leveraged mortgage purchases by Fannie and Freddie feeds real estate booms and distorts the price of these securities. Helping Fannie and Freddie unwind their balance sheets and eliminating the government guarantee on their securities. This would do away with the artificially cheap credit and thus bring down home prices.