Tag Archives: Kathryn Judge

The Money Problem

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Professor Ricks

I recently read The Money Problem: Rethinking Financial Regulation by Morgan Ricks (University of Chicago Press 2016).  While it is not a book for the financially faint of heart, it does provide a great introduction to what money is and what banks and other financial intermediaries do. The back matter reads,

Years have passed since the world experienced one of the worst financial crises in history, and while countless experts have analyzed it, many central questions remain unanswered. Should money creation be considered a ‘public’ or ‘private’ activity—or both? What do we mean by, and want from, financial stability? What role should regulation play? How would we design our monetary institutions if we could start from scratch?

In The Money Problem, Morgan Ricks addresses all of these questions and more, offering a practical yet elegant blueprint for a modernized system of money and banking—one that, crucially, can be accomplished through incremental changes to the United States’ current system. He brings a critical, missing dimension to the ongoing debates over financial stability policy, arguing that the issue is primarily one of monetary system design. The Money Problem offers a way to mitigate the risk of catastrophic panic in the future, and it will expand the financial reform conversation in the United States and abroad.

I particularly recommend Part I to those trying to get their hands around money (the concept, not hard currency itself) and how it is created. Ricks reviews the “standard textbook description” of bank money creation and others’ account of it before providing his own “modified story.” (58-59)

Parts II and III provides a far-reaching blueprint for reforming the monetary system.  This reform agenda is not without its critics, but I think Ricks gives a fair reading to competing views so you can make up your own mind as to who is right.

Reiss on Lawsky’s Departure from DFS

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Bloomberg interviewed me for Lawsky Leaving After $3 Billion in Fines Makes a Mark. The article reads in part,

When Ocwen Financial Corp. (OCN) shares soared on the news that regulator Benjamin Lawsky, who’s probing the company, will step down, Bill Miller shrugged.

The next head of New York’s Department of Financial Services will probably be as aggressive as Lawsky, continuing the uncertainty for Ocwen, said Miller, who runs the $2.2 billion Legg Mason Opportunity Trust. (LMOPX) Lawsky’s investigations of nonbank mortgage servicers such as Ocwen have caused their shares to plunge.

“Ocwen has been rallying on the view that with him gone that will lift the burden, but I would be surprised if the next person didn’t at least follow through in the way Lawsky was going to,” said Miller, whose fund, which invests in Nationstar Mortgage Holdings Inc., has gained an annual 38 percent since 2011.

In three years as New York’s financial watchdog, Lawsky extracted more than $3 billion in fines from global banks, called for the firing of executives and questioned whether the lightly regulated nonbank servicers are properly handling modifications and defaults. As the department’s first superintendent, Lawsky hired experienced lawyers from the New York Attorney General’s office, creating a strong enforcement culture that will continue after he’s gone, said Kathryn Judge, an associate professor focusing on financial institutions at Columbia University Law School.

“Similar to what we saw Eliot Spitzer doing as attorney general, being in New York allowed Lawsky to step in where federal regulators hadn’t,” Judge said. “By stepping into this role at a formative stage for the regulator, he created a footprint. That legacy will survive.”

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The superintendent’s work has reflected favorably on the governor, said David Reiss, a professor who specializes in real estate and consumer protection at Brooklyn Law School. That will encourage Cuomo to select a successor who’s equally dynamic, Reiss said.

Cuomo will want to build on Lawsky’s record of protecting homeowners from improper foreclosures and holding mortgage servicers accountable, said Reiss.

Chief of staff Anthony Albanese, general counsel Daniel Alter, and capital markets division head Maria Filipakis are among the top people that Lawsky brought to the department. One of them may be in a position to replace him, according to a lawyer who has had extensive dealings with the superintendent. The lawyer asked not to be named because he’s not authorized to speak publicly about the matter.

The successor will have to focus more on regulation and finding answers to the issues the department uncovered with nonbank servicers and insurers, said Eric Dinallo, who served as New York’s superintendent of insurance from 2007 to 2009.

“Each superintendent or commissioner wants to put their unique stamp on the agency,” he said.