Soon-take Chang Describes South Korea's Countercyclical Housing Finance Policy

His paper is very interesting.  Section 3 begins:

Macroeconomic instability greatly affected the financial crisis in Korea at the end of 1997. The need for macroprudential supervision in Korea was highlighted by the bursting of the credit card bubble in 2003.

During the credit card lending boom, the supervisory authority did not respond adequately to the growth of household delinquencies stemming from the reckless behavior of credit card issuers.

The authority was not sensitive to systemic distress originating from households because its prudential oversight was primarily focused on the soundness of individual financial institutions (Lee, 2006). This case underlined the importance of placing greater emphasis on detecting early warning signs before the build-up of excessive imbalances continued for too long (Kang and Ma, 2009).

After the credit card bubble burst, there was a new, widespread appreciation of macroprudential policy. Mortgage loans had increased sharply since 2000, which undermined the stability of the overall housing market. The supervisory authority has taken steps to prevent overheating in mortgage lending and to minimize the risk of loan default.

First, the supervisory authority raised the risk weighting for mortgage loans. The authority also raised the minimum loan loss reserve ratios for banks’ household and corporate loans that were classified as normal and precautionary in November 2002 and in December 2006.

Second, in 2002, the authority started to reduce the maximum LTV ratio for mortgage loans, from approximately 75 percent to 40 percent in the Seoul metropolitan area.

The authority imposed additional measures, such as a ceiling of 40 percent on the DTI ratio for certain types of borrowers, as well as other restrictions on granting mortgage loans and maturity extensions on existing mortgage loans for properties in the Seoul metropolitan area. These various restrictions on mortgage lending were imposed on both banks and non-banking financial institutions.

Note that Korea's loan terms were conservative by OECD standards even before the tightening.   But given how well Korea's economy has survived the downturn, they may be onto something.

From The New Yorker: Wisconsin: The Cronon Affair

Wisconsin: The Cronon Affair

I was especially taken with this:

Second, the Republicans seem remarkably fragile. A professor writing a blog post gives them the shivers. It’s a good thing they chose politics, and not the kind of career where the going can really get rough. Professors, for example, teach their hearts out to surly adolescents who call them boring in course evaluations and write their hearts out for colleagues who trash their books in snarky reviews. These Wisconsin Republicans may never have survived ordeals like that. Happily, Cronon has been toughened by decades of academic life. He’ll be blogging—and teaching and writing—long after Wisconsin voters have sent these Republicans back to obscurity.

There are days when I wonder if tenure is an anachronism. The Cronon affair strongly suggests to me that it is not.

Shani Hilton on Gentrification in DC

Worth reading....

Confessions of a Black D.C. Gentrifier

The Census estimate for the US for 2009 was less than the Count for 2010

The estimate, at 307,006,550, was .6 percent less than the count of 308,745,538.  Yet for the ten largest cities, the estimate was 4 percent higher than the count.  Again, it would be nice no know whether cities were overestimated in 2009 or undercounted in 2010. 

To finish the previous post's thought.

The 2009 population estimate for Detroit was 821,792.  The 2010 count was 713,777.

Overestimates or Undercounts? Does this mean Detroit didn't lose quite so many people?

When the 2010 census count for New York City came out today, it struck me as a little light.  So I decided to compare the 2009 population estimates for the ten largest cities in the country againt that 2010 counts.  In all cases expect San Diego, the census count was lower than the 2009 estimate.  The average difference was four percent, which is four years of population growth at the national growth rate.  Here are the numbers: the first column of numbers is the 2009 estimate; the second is the 2010 count.  What is going on here?

New York City	8,391,881	8,175,133
Los Angeles	3,831,868	3,792,621
Chicago	2,851,268	2,695,598
Houston	2,257,926	2,099,451
Phoenix	1,593,659	1,445,632
Philadelphia	1,547,297	1,526,006
San Antonio	1,373,668	1,327,407
San Diego	1,306,300	1,307,402
Dallas	1,299,542	1,197,816
San Jose	964,695	945,942

Is Inside Job correct about the corrupting influence of money on the economics profession?

I think it may be, but not in the way implied by the movie.  Charles Ferguson makes a big deal out of the fact that Glenn Hubbard, Frederic Mishkin, Larry Summers and Martin Feldstein were paid well by financial institutions and governments who wound up becoming major contributors to the crisis.  HIs implication is that all of these well-known economists ignored the danger signals arising from financial deregulation because they were well paid to do so.

I really doubt this is true.  I say this because I remember thinking at the time it was passed that Gramm-Leach-Bliley was on net good policy, because is was (1) necessary in order to allow New York to compete with London and (2) I thought people at places like Goldman Sachs (especially Goldman Sachs) were smart and competent and would protect their franchise.  I was, at the time, very impressed with Alan Greenspan and Robert Rubin.    I had no financial stake at all in any of these beliefs, other than the fact that I wanted my kids' college fund and my wife and my retirement fund to do well.

And by all indications, the economy was doing well.  Unemployment fell to historically low levels, the employment to adult population ratio hit its zenith, and low wage workers were seeing increases in income.  I even remember walking to work in Madison in 1999 or so, and thinking to myself, "could the economy get any better than it is?"  I am thus in no position at call to complain about others having the same view.  All this said, Ferguson was spot on when he called for economists to disclose financial interests that might in any way be related to their research.

But the problem, I think, is far more insidious.  For people who are both successful and reflective, there must often be an undercurrent of doubt as to whether the success is "deserved:" is it a product of virtue or of luck. The neoclassical paradigm allows successful people to feel good about themselves.  It is not much of a leap to infer from it the proposition that people in a neoclassical world can make their own choices, and that when they make "good"choices, they are rewarded, and when they make "bad" choices, they are not.  The number of important choices available to us are, however, limited.  I try to remember that I did not get to choose the country where I was born, I did not get to choose that I had loving, well-educated parents, I did not get to choose that I grew up in a safe community, and I did not get to choose that I have never been seriously ill.  The problem with economics, I think, is not the money people take from various countries and companies, but a broader lack of reflection on the circumstances that produce outcomes.

To me the most disturbing aspect of Inside Job is not the revelation of consulting relationships, but the fact that the economists interviewed by Ferguson seem not to have changed their view of the world even a little.      Feldstein's statement that he had "no regrets" about AIG was the ultimate expression of this.