The latest issue of Regulation magazine carries my joint review of Fault Lines by Raghuram Rajan and Jimmy Stewart is Dead by Larry Kotlikoff.

Excerpts from the section on Rajan’s Fault Lines:

When he sticks to what he knows best–international financial markets–he is usually clear and often insightful. When he ventures beyond his expertise–in discussing such topics as income inequality, education, and health care–he fails to go back to basics and thus repeats many of the myths that have been propagated by “progressives.”
. . .
To buttress his income inequality concerns, Rajan throws in the emotion of envy. Even if the apparently immobile are buying more and better items, they compare themselves negatively with those who have even more and better items. “[M]y Chevrolet becomes much less pleasurable when my neighbor upgrades from a Honda to a Maserati,” he writes. I think that is Rajan’s problem. If the apparently immobile are getting nicer and nicer cars–yes, even Chevrolets are getting better–then it is up to them to control their own green-eyed monster. It is hardly an indictment of the system if wealthier people can afford Maseratis.

And on Jimmy Stewart is Dead:

Laurence Kotlikoff’s book Jimmy Stewart Is Dead gives an excellent, dramatic play-by-play on many of the policies that led to the financial crisis of 2007-2008 –or should I say, 2007-201?–and on many of the participants. You will not read this book and come away feeling secure about our financial future.

Later, Kotlikoff advocates a huge regulatory agency that forbids financial firms from being anything other than middlemen:

When the potential borrower applies for the loan, the bank sends the paperwork on to the FFA, which would use private rating agencies to assess the loan’s risk. Then the FFA would reveal this information online (hiding the borrower’s identity) and open it up for bids on the mortgage.
Do you see the problem here? The same government that failed to catch Bernie Madoff and that takes months to get back to people about their applications for Social Security Disability Income is suddenly competent and able to get information about a specific person quickly to a bank. I think this makes Kotlikoff’s proposal a non-starter, and I have not even discussed the fact that various financial firms will try to find ways around his proposed draconian restrictions on corporate risk-taking.