Ricardo Caballero

7 Responses to Ricardo Caballero

1. jck says:

   January 27, 2009 at 9:02 am

   acc:
   thx, your post is very interesting.
   “In my {acc} opinion all policy makers need to understand one thing: The complete collapse of Western financial infrastructure, including the credit of American and European governments is possible.”
   I agree, but I think so far have done too little, toolate and have worsened the crisis at every step, this is why it is important to act on a guarantee while governments still have some credibility, that won’t last. Some countries like Ireland or Britain have already little left.
2. ccm (aka acc) says:

   January 27, 2009 at 1:48 am

   I disagree. Here’s my view.

   “The taxpayer is stuck anyway” The question surely is whether we’re better off supporting the financial firms via insurance or partially nationalizing them and slowly selling them off to someone who can manage them. The taxpayer may well suffer more one way than the other.
3. jck says:

   January 26, 2009 at 5:27 pm

   the part about operating without capital, a sovereign state with a good credit doesn’t need to put capital, a guarantee on the assets should be good enough, of course this is a temporary not a long term fix.

   as for the insurance price, there is no need for one, the state can just take the excess spread over funding for now, when things improve banks could raise capital again and then keep the credit spread for themselves as reserves rather than “profits” and the guarantee would cease.
   nb: just speculating aloud here.
4. zorba says:

   January 26, 2009 at 5:19 pm

   I don’t understand what part of his suggestions are right. If there is an efficient market, will it not price the assets effectively? If not, what are we trying to protect? Have we not bought enough time since Bear for the possibility of “fire sale” to mitigate? How much longer is actually needed?

   And what justifies the assumption that the assets are actually worth more? If it is MBS, there is high likelihood that they are not… Home prices in US are still higher than affordability per most measures.
5. Steve Darden says:

   January 26, 2009 at 4:14 pm

   Obama could have the political + rhetorical skills to sell the country on the Ricardo Caballero plan. Because it looks like more “bailout” for Wall Street the opposition will be ferocious.

   If Obama could sell Caballero + Luigi Zingales’ “Plan B” + Zingales’ capital gains tax cut –>> a way out of this mess. E.g., Obama could turn this around by selling real change
   

   How should the insurance price discovery work?
6. jck says:

   January 26, 2009 at 1:54 pm

   The taxpayer is stuck anyway, the longer the crisis and the more he is.
   Agree on the quoting of the entities, capital-less means no point in quoting.
7. Tim says:

   January 26, 2009 at 1:17 pm

   I find the last paragraph a bit glib:-

   “What about the taxpayers? The best that can happen to all of us is that the financial crisis ends as soon as possible. This is the first priority, the rest can wait. If the transfer to the financial institutions ends up being too large for society’s taste, then it is always possible for the government to undo some of it through ex-post taxation of excessive earnings. Conversely, if the transfer is too low (the price of the insurance and the first-loss threshold too high), it may well be that we do not get another chance, at great cost not only to financial institutions but also to taxpayers.”

   Given that he is proposing sticking it to the taxpayer. I am also of the view that the very fact that these entities remain quoted is a cause of instability in and of itself.