Unlimited Liability, Contingent Capital and Living Wills
Not what you're looking for?
Mankiw argues that if federal authorities assume responsibility, the entire financial system might well become a group of government-sponsored enterprises.
Question:
A) Explain how preventing the impact of systemic risk creates a financial sector dominated by government-sponsored enterprises.
B) Evaluate the practicality and effectiveness of proposals such as: Moving towards unlimited liability; the provision of contingent capital and living wills.
Purchase this Solution
Solution Summary
The expert explains how preventing the impact of systemic risk creates a financial sector dominated by government-sponsored enterprises. The unlimited liability, contingent capital and living wills are determined.
Solution Preview
It took me a little while to find it, but the text you're referring to was a 2010 column that Mankiw wrote for the New York Times.
It's here:
http://www.nytimes.com/2010/03/28/business/economy/28view.html
(This is the main article in question, but there are others)
And here's another, older, piece dealing with Mankiw's views on GSEs (Government Sponsored Enterprises).
http://www.marketwatch.com/story/bush-adviser-warns-of-fannie-mae-freddie-mac-risks
And his remarks on GSE's in 2003:
http://scholar.harvard.edu/mankiw/files/stbank.pdf
So the questions:
A)Explain how preventing the impact of systemic risk creates a financial sector dominated by government-sponsored enterprises.
B)Evaluate the practicality and effectiveness of proposals such as: Moving towards unlimited liability; the provision of contingent capital and living wills.
Remember, at Brain Mass, we cannot answer the questions directly, but we can give you a bunch of ideas as to how you can put together your own answer.
The above are complex questions, and Mankiw has a set of fairly complex answers. He is against the creation of a GSE, but in favor of preventing undue risk. Many of his predictions on the mortgage market turned out to be true. Mankiw does NOT hold that preventing risk with government oversight will lead to the creation of a GSE, but it can. The real variable is whether or not the regulators will have access to government money. He did believe that the structure of the GSE in the early 2000s was leading to a disaster.
Several issues need to be mentioned in your answer from the above text:
He is clearly against the government sponsored enterprise (specifically here Fannie Mae and Freddie Mac). Here, private capital is more or less 'backed' by the federal reserve and the bankers who run it (or at least there is a perception that this is the case). Mankiw ...
Purchase this Solution
Free BrainMass Quizzes
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.