Monday's Links - June 2, 2025
Thoughts on graduation speeches, Stan Fischer, the supplemental leverage ratio, Liz Magill, my last triathlon, and more.
Baccalaureate Remarks, Chair Jerome H. Powell, Princeton University, May 25, 2025
I will admit a soft spot for graduation speeches. I am one of the few people I know who feels this way. But they present such a window into how speakers think about key questions that we often bandy about with faux seriousness: who do you want to become and how do you get there? These questions tend to produce bromides, perhaps, but just as often in my experience give us some handhold, some perspective that might push us to think more critically about the fact that “the winds and waves are always on the side of the ablest navigators.”
I read Chair Powell’s Princeton speech and thought it was lovely. Not David Foster Wallace “This is Water” that makes you think about the world in a fundamentally different way. Just the candid advice from someone at the end of a career that benefitted from his integrity, a devotion to public service, and a great deal of luck (the key themes of his speech).
I recommend the speech, especially in light of the way that Powell is guiding his career toward its conclusion with impressive integrity and skill.
Trump administration prepares to ease big bank rules, Michael Stratford, Politico, May 31, 2025
In what is likely to be one of the first major policy reorientations of the Trump era, federal banking regulators—under the leadership of Treasury Secretary Scott Bessent—will take up a project left undone in the first Trump Administration: roll back some constraints on bank participation in the US Treasury market.
The mechanism of that constraint was to require banks to fund with shareholder equity (the unfortunately termed “bank capital”) 5% of all bank assets of any kind, whether or not those assets are deemed “high risk” or “low risk.” They are meant to be risk insensitive.
The logic behind the rule is to strengthen the stability of individual banks in the event of market turmoil and, through those banks, strengthen the entire financial system. But there’s a strange feature to that architecture: when the underlying asset is a US Treasury, then either it is the safest of safe assets, so it should be risk-weighted in these leverage ratios the way it is in other forms of capital regulation.
Or it can indeed become quite unstable, in which case…what exactly? We want mechanisms to stabilize Treasury markets, and banks (especially bank holding companies that are the Treasuries primary dealers) can provide that stabilization. So it is that this Supplemental Leverage Ratio (SLR), the “dumb” rule that requires 5% shareholder equity against all assets, no risk questions asked, is a bit of a confusion. We just don’t know from a macroprudential perspective which stability we want to privilege, bank stability or Treasury stability.
My low conviction view on this hard question is that the SLR is doing just fine, that the concept of risk-insensitive (minimal) equity requirements for all banks is a virtue, not a vice, and that opening the lid on risk weights for the SLR will end in tears. It’s a low conviction view because I honestly don’t think this matters very much. At least I have seen very little evidence, in either direction, that greater bank participation in Treasury markets will either harm them or help those markets.
So we’ll see.
I was sad to see the news of Stan Fischer’s passing. I would consider him one of the most important central bankers of the last fifty years, in part because he had the rare experience of viewing central bank policy through the very different lenses of academia, the Bank of Israel, and the Federal Reserve. (Don Kohn would be another on my short list, given his experience at both the Fed and Bank of England.)
Stan’s work on central bank independence was a major influence on my own work in this field. His conceptual framing of “goal independence” and “instrument independence” remains one of the most powerful formulations of the basic problem of the entire “independence” genre. Stan’s view was that central banks, as largely technocratic organizations, lacked the legitimacy (or the expertise) to choose the “goals” of central banking. But that the ability and freedom to choose the “instruments” to accomplish those goals was vital to policy success.
I recall one of his last academic presentations in the 2010s where he raised uncomfortable questions about whether the Fed should be in charge of its own targets, whether inflation targeting (the subject of his talk) or, I would argue, the policy framework that it announces every five years.
The line between “goals” and “instruments” gets very blurry at this margin. I would tilt toward less autonomy for those goals, more autonomy for those instruments, a lesson I learned from Stan Fischer.
The First Casualty in the War Against Elite Universities, Politico, June 2, 2025
In my business ethics class, I teach students two related concepts and require them to invoke those concepts during our fierce debates about what is good, just, and true in the world of business: the hermeneutic of generosity and the requirement to “steelman” any argument they want to dismiss.
I stole the first from Paul Farmer. It requires us to read any argument we encounter with generosity of spirit, looking not only at its weaknesses but for its strengths and choosing between two options the more generous interpretation. This is especially important to do to arguments that you want to dismiss. It makes it harder to score winning zingers against your enemies, but makes your counter-arguments against them much stronger.
The second, to steelman an argument, is an argumentative technique that requires you to engage not only directly with the view you would dismiss, but with the best version of that argument that you can find or possibly imagine. It is Weberian in a sense, because it requires us to frontload the “inconvenient facts” about a policy idea or argument that, if true, make your own view of the question much less tenable.
This long article on Liz Magill is worth reading in full. The war over elite higher education is one of the most important policy and cultural issues raging today. Magill was not treated with that hermeneutic of generosity during her brief tenure, those critics who dismissed her so savagely did not steelman the argument that they sought to win.
Of course, the same can be said for the opposite side. I imagine I’ll write more about this in the future. The state of higher education in the United States is not healthy, and Donald Trump is only part of the problem.
Race day was Saturday and it was a great day. Some hiccups: the sea was angry my friends, and for reasons they never explained but I suspect had something to do with the previous day’s bad weather the race organizers cut our swim in half. That meant I had to extrapolate my time, not only by doubling the swim but adding a buffer (because the second half of my swim was likely to be slower than the first and a full 1500 m would have slowed me in the first transition and on the bike).
I don’t have an official time, then, but I expect I ran about a 3:17-3:22 race, down from 3:44 six weeks ago.
And I could have done better. I felt no stiffness or soreness at all the next day. Today I feel like I could do the race all over again. I also lost my bike computer (a short story wherein your hero acted in ways inconsistent with even average-level intelligence, I deserved that idiot penalty). And I also didn’t realize that my watch heart-rate monitor was pegged to my chest heart-rate monitor, which I left in my Airbnb. All to say I was flying blind, like the captains of old, and still felt fast and light. Point is that I had a lot more to push that I would have pushed if I could have seen that my heart rate on the bike was too low, which it almost certainly was.
Next race is in two weeks, the Pat Griskus Olympic in Middlebury, CT. My goal is to break 3:00. Wish me luck.
Some additional perspectives from me in the news and some upcoming events.
Don’t forget to sign up for my book launch at Brookings on Jun 10, remote option available.
Also, pre-order the book Private Finance, Public Power: A History of Bank Supervision in America! Should ship to you imminently.
Check out Luca Fornaro on Hysteresis, Endogenous Growth, and Aggregate Demand Policies, on MacroMusings with David Beckworth. Always listen to MM, but this one is so funny in part because David really wants Fornaro to think about powerlifting as a metaphor for hysteresis—I am sold, David!—and Fornaro seems decidedly nonplussed.
Here is an interview I did with Allison Nathan from Goldman Sachs on Fed independence.
And join me on Thursday for another live discussion on this topic with Chris Hughes.