Tag: investor

A Skeptical View of the Need for Special Investor Protections in the TTIP

The Transatlantic Trade and Investment Partnership has generated quite a lot of opposition – or at least pockets of very loud opposition – especially in Europe. Among the major points of contention is the matter of investment protection and, specifically, the investor-state dispute settlement mechanism, which gives foreign investors the option to bypass the domestic legal regimes of host governments and go straight to third party arbitration panels with claims concerning domestic policies, laws, regulations, or actions that have a discrimintory effect and adversely affect the value of their investments.

Like my colleague Simon Lester and I, Axel Berger of the German Development Institute is skeptical of the need and propriety of ISDS provisions.  In today’s Cato Online Forum essay, Axel raises some important points and makes a good case for excluding ISDS provisions from the TTIP.  Read it. Provide feedback.  And register for Cato’s October 12 TTIP conference.

Do Forced Mortgage Writedowns Create Wealth?

Matt Yglesias recently added his voice to the long running calls for principal reductions on underwater mortgages.  His argument is that such would create additional spending.  Or as he puts it, “I think that if people in Phoenix got a principal writedown on their mortgages, they’d have more disposable income and might go to the bar more.”

What Matt, and others calling for forced principal reductions, miss, or choose to ignore, is that while a mortgage represents a liability to the borrower, it is an asset to someone else.  Matt’s logic, which I agree with here, is that an increase in one’s net wealth (via a reduction in one’s liabilities) should increase one’s consumption.  To complete the analysis, however, we must extend that same logic to the holders of the asset, so that a reduction in the value of their asset (the mortgage) should reduce their spending.  Taking x from A and giving x to B is not going to increase A+B.  To assert otherwise is to engage in Enron-style social accounting.

Now if you want to argue that the borrower has a higher marginal propensity to consume than the investor (say, a retiree living off a pension) then provide some support for that position.  It is just as likely that those on the losing end will take efforts to protect themselves from this loss, decreasing overall social wealth.  So what one has to show is that the marginal propensity to consume for the borrower is so much larger than that for the investor that it offsets any costs from the investor trying to protect his investment from theft.

Now if you simply favor redistribution of wealth for its own sake, just say so.  If you hate investors and love defaulting borrowers, then just say so.  Personally, I don’t believe the role of government should be to take from A to give to B.  I just ask that we stop pretending, in the absence of compelling evidence, that redistribution of wealth is the same as wealth creation.