Too Big to Fail and Shiller on Housing

This weekend George Will wrote a piece on the “Too Big To Fail” banks and a bi-partisan effort to evaluate if these banks receive an ‘economic benefit’ due to their size. I have long been a proponent of breaking up the biggest banks as they have long since wandered into the darkness, making it nearly impossible to measure the risks these banks are taking. The bottom line is that bank executives themselves have a hard time understanding their own complex products that have been created. This means the regulators are certainly going to have a very difficult, if not impossible, task of quantifying the risks that the large banks pose to the system in the event of another financial crisis.

One can hope that one day Congress moves to break up these Too Big To Fail banks, though the cozy relationship the bank lobbyists have with Congress make that highly unlikely.

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Last year we pointed out that the U.S. housing market was showing signs of recovery. This is good news for the U.S. economy and we anticipate the recovery will continue this year. However, while this is a positive development for the U.S. economy and homeowners, Yale economist Robert Shiller cautions against viewing housing as an investment. Shiller was co-creator of the Case-Shiller Index, which is used to track home prices in the United States. A few words from Dr. Shiller:

“Housing traditionally is not viewed as a great investment. It takes maintenance, it depreciates, it goes out of style. All of those are problems. And there’s technical progress in housing. So, new ones are better.”
“So, why was it considered an investment? That was a fad. That was an idea that took hold in the early 2000’s. And I don’t expect it to come back.”

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