Re: OCC

["Forstater, Mathew" <ForstaterM@xxxxxxxx>]

Keynes gave another reeason for the assymmetric response to interest
rate hikes and cuts--one that follows from recognizing that it is not
only the expectations of investors, but also lenders, that affect
decisions that depend on external finance.  Investors and lenders must
both have rosy expectations to make investment a "go," while it only
takes one or the other having negative expectations to make it a "no."
Does that make sense?

By the way, I am very interested in this topic, so anyone with refs to
more on this I'd appreciate it.  Are there and PK discussions of
different interest-elasticities of investment or credit demand, kinked
schedules, etc?

-----Original Message-----
From: J. Barkley Rosser, Jr. [mailto:rosserjb@xxxxxxx]
Sent: Thursday, November 15, 2001 8:59 AM
To: Rakesh Bhandari
Cc: Post Keynesian Thought
Subject: Re: OCC


Rakesh,
      I think the inability of central banks to stimulate
economies in deep downturns goes way beyond
the peculiar institution of the OCC.  Keynes made
the old argument about "pushing on a string" in an
environment where there was no such entity, and
the general asymmetry between monetary and
fiscal policy in these matters seems very general.
      OTOH, the OCC and its policies certainly
exacerbates this more general tendency in the US.
Barkley Rosser
----- Original Message -----
From: "Rakesh Bhandari" <rakeshb@xxxxxxxxxxxx>
To: <rosserjb@xxxxxxx>
Sent: Wednesday, November 14, 2001 10:25 PM
Subject: OCC


> Barkley,
> this is very interesting indeed. there was an editorial in the wsj
about
this
> last week; emphasized that this agency was basically forcing banks to
hold
govt
> securities while in effect cutting off lines of credit to smaller
businesses
> especially.
>
> by the way,  does this automatic triggering explain why the fed is
better
at
> killing booms than reversing downturns? that is, while rate hikes cool
off
the
> economy, rate cuts are neutralized by this OCC counter-action?
>
> Rakesh
>
>
>        Another factor that is related to this although
> partly exogenous in the U.S. are regulations on
> loans quality by the Comptroller of the Currency,
> a little known agency located in the U.S. Treasury.
> This entity can declare that a bank has bad loans
> and in conjunction with the requirements to have
> not too many bad loans can force banks to reduce
> their lending.  Thus, even though the Fed is striving
> mightily to engage in stimulative monetary policy,
> it is being offset to a significant degree by the OCC
> that is ordering banks to reduce loans because of
> all the bad loans they have on their books, many of
> these in the now collapsed dot.com sector.
>       The irony is that it is an economic decline that has
> made these loans bad.  This turning of good loans into
> bad ones then essentially automatically triggers this
> regulatory reaction that induces a tendency to a
> contractionary monetary policy, despite the efforts of
> the Fed.  Some in Congress are now calling for the OCC
> to be put under the Fed exactly to avoid this kind of
> absurd impasse.
> Barkley Rosser
>
>
>
>