The Perils of Chasing Higher Yields [Wall Street Journal]

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By KAREN BLUMENTHAL.
Bob Pozen, chairman of MFS Investment Management in Boston and author of a new book, “Too Big to Save?”, argues that increasing the insured amount to such a high level discourages companies and wealthy individuals from studying which banks are worthy of holding their money.

That essentially removes one of the private-sector checks in the system, he says.

Individuals who chase the higher yields offered by weaker banks could be taking an unforeseen risk. If the bank fails and is acquired by another bank, the principal invested will be protected, but the acquiring bank can cut the interest rate offered to market rates, the FDIC says.

Inventing a Better Patent System [New York Times]

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Op-ed by Robert C. Pozen.
Congress shouldn’t make the best the enemy of the good. If it avoids the tricky question of damages measurement and adopts these five amendments, it would weed out low-quality patent claims, reduce the number of expensive lawsuits and reward our best innovators.

A “Public Option” That Would Work [HarvardBusiness]

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A critical issue in the Congressional debate on healthcare is whether the new legislation will include a “public option.” Part of the problem is that there is little agreement about what the public option should be. Some see it as having the government act as a provider of last resort. Others mean a national one-payer system based on the Medicare model. Still others mean healthcare cooperatives, though they do not exist in most of the US.

6 Smart Books: An Economic Roadmap [SmartMoney]

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Reviewed by Robert J. Hughes

To everyday consumers, “too big to fail” has become a dubious mantras. Where is the fairness in a government bailout of large banks and corporations that leaves regular people wondering when things are going to turn around for them.

Here, author Pozen, chairman of MFS Investment Management, a lecturer at Harvard Business School and a contributor to The Wall Street Journal, provides an analysis of the financial arrangements the government has used to bolster the economy, with proposals for shaping the economic landscape, all of which may help investors better understand the shifting marketplace. (SmartMoney is a joint venture between Dow Jones and Hearst. The Wall Street Journal is a unit of Dow Jones.)

In four parts and 14 chapters, Pozen details complex economic issues in clear prose: the U.S. housing slump and its affect on the global financial crisis; the slump’s impact on stock and bond markets; last year’s bailout of financial institutions, and the future of the American financial system.

This is a book for investors who want to understand the details of our financial landscape, and who also want to consider arguments on restricting mortgage-lending practices, whether financial derivatives and hedge funds should be regulated or the revival of loan securitization, among others. Pozen also includes a helpful glossary of terms that should help even seasoned investors.

How to fix the US financial system [Felix Salmon, Reuters Blogs]

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by Felix Salmon

“I had a very interesting conversation with Bob Pozen yesterday evening; his new book is out now, and I highly recommend it. It’s the first crisis book to make a detailed series of specific recommendations about what needs to be done going forwards — or, in the words of the book’s subtitle, ‘how to fix the US financial system’.”