Banks are not looking to maximize risk-returns on loans, but to maximize equity-returns of loans.

Sir, Martin Feldstein in “Why the Fed is wrong to delay the return to normality”, September 23, writes that by “promising to keep the real short-term rate below zero even the economy has returned to full economy… they distort the investment behavior of individuals and institutions, driving them to reach for higher yields by taking inappropriate risks. They lead banks to make riskier loans in order to get higher returns”

Feldstein is right about individuals and institutions, other than banks. Because, as to the banks, these are not searching for higher returns by making “riskier loans”, but to maximize the return on equity by minimizing the capital they need to hold against the loans. It is all about a flight to perceived regulatory safety

A subprime dollar? Not the end of the world; but a change of collateral may be asked for

Sir Martin Feldstein’s “The dollar may be falling at just the right time” March 28, is a timely reminder that it is not necessarily that bad for the dollar doing upon other currencies what other currencies have done to the dollar; and that there is no need to look at it all as the end of the world… even though it might be the end of that money that was backed only by the trust in the government and that has had a run for almost 40 years now, some say amazingly.

Should then the ageing population emigrate?

Sir, Martin Feldstein argues in his “Immigration is no way to fund an ageing population” December 14, that immigration would generate very little additional tax revenues as immigrants “generally earn less than native Spanish workers” but which is something that with time, and increased scarcity of younger working people, is and should not necessarily be true. That said by giving the example of Spain where “the number of working-age people per retiree is expected to fall from 4.5 today to fewer than two in 2050” he also brings forward evidence that seems to prove that without immigration there would be no way to fund or manage an ageing population… unless of course the ageing population emigrates. The way out of this conundrum that Feldstein proposes is to “supplement the tax-financed benefits with increased saving and investments” but what that has to do with immigration is somewhat hard to understand, since whether they can afford it or not, the elderly will still need help, and also someone should be doing the jobs they all do now in Spain, unless you want that nation to behave like an old soldier and just fade away.

Martin Feldstein immigration ageing population