Sunday, January 20, 2019
Today, I’d planned to blog about what their early 2019 speeches suggest is on the minds of policymakers at U.S. financial regulatory agencies as the New Year begins. I decided to wait a few weeks to collect more data. However, my initial research included a visit to the Federal Reserve Bank of Minneapolis (FRBM) site and led me to the subject of today’s post.
Last week, Neel Kashkari, the President and CEO of the FRBM, participated in a live Intelligence Squared U.S. (IQ2US) debate (in partnership with Foreign Affairs) on whether Ten Years After the Global Financial Crisis, the System is Safer (Resolution). According to its website, IQ2US has now held 160 debates with 500 debaters. Before a debate, the audience votes “yes,” “no,” or “undecided” about a resolution. After three rounds of debate (opening statements, responses and audience questions, and closing statements), the audience votes again. Each debate team argues for or against the resolution of the day. The team whose numbers have increased the most in the final vote wins.
Kashkari, in addition to debate partner Jason Furman, a top economic adviser to President Obama and former Chairman of the Council of Economic Advisers, debated in support of the Resolution. Kashkari – who oversaw TARP during the financial crisis – shared his perspective that although more needs to be done, the system is now safer than it was ten years ago. Specifically, he and Furman focused in their opening remarks upon five dimensions of the financial system, arguing that three were safer (big banks have more capital and less short-term funding; activity levels have fallen in non-bank areas such as securitization and money market mutual funds; and certain positive international developments such as banking reforms in Europe, institutionalized central bank swap lines, and the U.S. now being the world’s biggest oil producer), and that two were about the same/neutral (the use of monetary or fiscal policy to respond to a crisis). Hence, overall, the system was safer even if there was room for improvement.
Harvard Professor Kenneth Rogoff and Robert Rosenkranz, Chairman of Delphi Capital Management and Founder and Chairman of IQ2US, debated against the Resolution. Rogoff’s opening remarks emphasized unknowns in the system, that the next war (financial crisis) is likely to look different from those of the past, and that a critical aspect of the financial system is leadership (seemingly a combination of competent technocrats and political leaders who support them). Rogoff has confidence in global central banks such as the U.S., U.K. and E.U., but expressed reservations about other leadership areas. Rosenkranz’s opening comments focused on the complex web of interrelationships in the system (OTC derivatives being the most important source); the arguable continued vulnerability of the system to the failure of a single, large bank; an increase in the potential for herd behaviors by “accelerators of trouble” (such as the spread of algorithmic trading and potential rating agency decisions); international frictions; and, the diminished strength of system shock absorbers such as liquidity.
All four debaters did an excellent job and a short blog post is an insufficient space for a comprehensive summary (so, view it for yourself!). However, I was previously unaware of IQ2US, intrigued by its mission, and am always interested in the financial system and past crises. Now, I know you’re wondering…so I’ll go ahead and tell you…the initial/final audience vote was: For (29%/35%), Against (49%/57%), and Undecided (22%/8%). Hence, Rogoff and Rosenkranz prevailed by a 2% margin.
Finally, if you’re like me, you probably haven’t been thinking about how you’d vote for the resolution: Don’t Bring Extinct Creatures Back to Life. Who knows, maybe I’ll tune in on January 31st, and then just maybe, I’ll let you know!