The details of the new White House banking policy are somewhat vague and in places borderline incoherent – e.g., what exactly does “The President’s proposal will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms…” mean (from point 2 in yesterday’s short and poorly edited statement)?
And the size restrictions currently in pencil on the back on an envelope near the president’s desk are almost certainly too lenient; the goal should not be a return to the status quo of 2007 or thereabouts – the clock must be rolled back much further and “too big to fail” completely removed from the financial map.
But the general principle behind our “Volcker Rule” is clear. Here’s what President Obama said, “Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers.”
Whatever you think of that notion or the exact wording, this clearly implies that banks will get smaller. Secretary Geithner apparently does not get this (transcript).
There are two possibilities given that Tim Geithner is a smart person with a great deal of relevant media experience – he did not misspeak.
- Geithner is not on board with the policy shift. This would be understandable, as it directly repudiates what he has worked hard to achieve over the past year.
- Geithner does agree with the obvious interpretation – provided by the president – of the Volcker Rule and associated principles. As an expert, he is certainly entitled to his own view, but this is beyond awkward.
President Obama said, quite plainly, “So if these folks [the big banks] want a fight, it’s a fight I’m ready to have”. He cannot fight this issue and these people effectively if his Treasury Secretary is not on board.
If the Democrats go at this fundamental shift in policy in a half-hearted manner or with mixed messages, they will be hammered so badly in November that the Massachusetts special election will feel like a victory in comparison.
Kindly ask Secretary Geithner to appear on all the weekend news shows with a convincing “clarification”.
By Simon Johnson
The Baseline Scenario 
Geithner IS with the program, this is how it works: Obama comes out, says some populist rhetoric, has some people in the cabinet agree with him, but then tosses it to the policy wolves, where the reason for the bill gets removed and gets changed to the point of obscurity, and then obama talks about how this is how bipartisanship works and he’s so glad that we “passed a bill”.
Populism, rinse off, repeat.
Question: Is it too late? Last year you spoke a lot about staring down the bankers. You described the Swedish experience with their banking crisis and that it took backbone to stare down the bankers in order to take effective, corrective action. You were very compelling in your argument that Obama had a brief moment to take those actions and we are now living the disappointing outcomes of Obama’s bank-friendly decisions. So you were right. But is it too late? A tougher slog up the hill? Or not a moment too soon?
As an anecdote, while watching Geithner on the PBS News Hour last night, my wife and I remarked to each other that Obama needs someone who can explain and defend the Volker position and it is obviously not Geithner.
This Obama minion at the Fed is not on board either:
http://www.marketwatch.com/story/feds-tarullo-opposes-idea-of-splitting-banks-up-2009-10-21
Geithner needs to get with the program or needs to have his name taken off the door???
If I was Volcker I would tell Obama, “You need to tell Geithner he’s on the Volcker team or he’s NOT on the team.” Again it’s stuff like this where President Obama is going to lose my vote. God bless President Obama, you know I like the man, but he needs to grow some damned balls and quit trying to please people who aren’t going to vote for him in 2012 anyway.
That’s Volcker with a C. Try to remember please.
Mr. Geithner has appeared several times over the past year on the local weekend chat shows, and how many times has Paul Volker appeared, zero. (I don’t have a PhD, that’s why the names and typing continously get misspelled.) There seems to be a disconnect between President Obama’s rhetoric and Mr. Geithner’s policy stance on the TBTF banks. President Obama is suffering from Clinton’s “I want everyone to like me” syndrome while Mr. Geithner has maintained his personal loyalties to the banks as evidenced (as an example) in those phone contacts Baseline posted earlier last year. The post-fallout from Tuesday election should be an obvious warning and need for a dramatic paradigm shift – the need for a socio-economic based argument grounded in populist sentiments is what is being asked for, sooner rather than later (especially in light of yesterday’s court ruling).
The Supreme Court just set the country back another ten years or so with their ruling on political campaign contributions by corporations (now defined as an “individual”), so if you thought fighting the TBTF banks was hard back then, we probably haven’t seen nothin’ yet, come this November.
It doesn’t take a Phd to have a enough respect for a fellow human being as to spell their name correctly Betsy.
He is correct. sigh….
I am wondering if I can stash arms, hide men, lie to interrogators…. Hell. I am wondering if I can watch someone slash a man’s throat.
America is on the cusp of a festering revolution.
I think this is getting really bad. …Lady in Red
It’s been clear to anyone who has read their statements since the inauguration that Volcker and Geithner have goals that are at odds with each other, so continuing the argument so openly now means to me that Geithner already had his chance, and it’s Volcker whose star is finally ascending. I voted for Obama and dared to hope his “audacity” might extend to more than the campaign trail. His appointment of Geithner and Summers was like a slap in the face. It’s about fucking time someone pulled the Herman Miller Aeron Chairs out from under their damned asses.
Beth–Ten years?? More like 100. This wipes out all the progress made since the Tillman Act was passed back in 1907!
Volker, from Volk (People in German), is more accurate at this point though: Volcker defends the People position, whereas Geithner defends the plutocrats.
“If the Democrats go at this fundamental shift in policy in a half-hearted manner or with mixed messages, they will be hammered so badly in November that the Massachusetts special election will feel like a victory in comparison.”
I agree with Baseline on many things, but history here simply does not substantiate this statement. The strongest predictors of presidential success are GDP, unemployment, and scandals.
Obama already died on his sword for health reform. How many lives does he have left to give?
Then again, firing Geithner and Summers is worth a good 5-10% approval boost.
Just watched the Geithner Huff Post clip. He is clearly uncomfortable, this is apparent from his demeanour, but he is a media pro, so he sounds unflustered. This is run of the mill typical for politicians, effortlessly fluent even when they are aware of the doublethink. Blair had exactly the same facility with the same disastrous policy consequences. Geithner will have to go and I suspect that Bernanke have to follow. There has to be a team that speaks with one voice on this – it is far too important to screw up. Easily the most dangerous ploy is to make a threat that you cannot follow up with action. Already I note that this is all being cast in the Press as – very complex and will require a deep understanding of the algorithmic relations of market trading. This is merely throwing sand in the eyes of the public. A blunt message has been delivered and rather than have regulators crawl over the mega balance sheets- put the shoe on the other foot and have them JUSTIFY their activities to the regulators. This is a far more efective approach
The details of the new White House banking policy are somewhat vague and in places borderline incoherent – e.g., what exactly does “The President’s proposal will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms…” mean?
Yes, it’s strong evidence that a policy proposal is full of it when they can’t explain it clearly. I couldn’t figure out exactly what it was supposed to mean, but what comes through loud and clear is that this is a bogus “cap” they intend never to have actually cap anything.
BTW, from the “talk is cheap” department, since Obama says it’s Congress is who really has to do all this, and since we know there’s exactly zero chance Congress will do anything of the sort (OTC they’re heading hard in the opposite direction, about to completely throw out the already-defanged CFPA), doesn’t that, if nothing else, prove how hollow everything he’s saying is?
As for Geithner, is he more of a bootlick or an ideologue? It’s hard to tell with these criminals, but he looks more like the former.
If so, I guess he’d suffer whiplash if the administration really did want to stick it to the banks, since carrying the banks’ water and spit-shining their shoes is all he’s ever known.
I doubt he needs to worry much about it being an old-style totalitarian ideology reversal like in 1936 or 1939. He should just shut his mouth and stay the course. Obama seems to want to hang onto him just as desperately as Bush clung to Brownie.
Here’s my own little bloggie post on the subject:
http://attempter.wordpress.com/2010/01/22/obamas-ploy/
Presidential Approval Ratings and Unemployment:
http://www.tnr.com/article/job-one?page=0,1
At some point a regime becomes so corrupt that individuals in charge of decisions think of themselves first. That is what tends to happen in Muslim countries when they are theocracies, that is what happened to Haiti, or to the Roman republic.
Many individuals are in the White House not because of a mission bigger than themselves (as is the case in republics when they are healthy). They are there to become way richer when they get out, following in this the Clintons’ example. And the way to do is to save Wall Street’s present outrageous defects.
As the first commenter suggested, it’s all a comedy. Financial reform will go the way of health care: Obama could have set health care on a way to improvement by making Congress approve a few executive orders that everyone would have approved, except the health care raptors. But the bottom line is that the real policy pursued is the exact opposite of the official verbiage.
The White House is only interested, truly, in making gifts to the financial and health raptors, lest they can’t join tomorrow’s feast get, or, worse, feel like they could get devoured too. Being corrupt is bad, but being that scared is ridiculous.
Meanwhile Peace Prize Winner boosted the military budget from the 537 billion dollars the Bush hawk gave, up to 625 billions. It’s all very Orwellian: bad is good, up is down, silly is clever, etc.
You may be right.
This could just be a calculated kabuki show in response to the Mass. special election results, with signals being sent to the banks not to take it too seriously and keep the donations coming.
If that’s the way it is, I think Obama is a one term Pesident, unless the looter party nominates someone truly appalling (like a male nude model, for instance..).
Who let the boor in?
Two points:
1. The legislation doesn’t go far enough. All of this talk about returning to the “spirit” of Glass-Steagall is silly. We need to split these firms up and return to the actual hard distinction between commercial banking and everything else, not merely restrict how the mega conglomerates can use funds from their commercial banking operations.
2. The shadow banking system needs to be brought out of the shadows and regulated as banks. Everyone knows that in the event of another crisis, money market funds (for example) will be granted FDIC protection. So stop the charade and declare them to be banks and subject to the same regulation as any depository.
In the background, a high pitched whiny singing, sudden dramatic gesticulations from the players – a clash of cymbals (or should I say symbols….) – followed by more high pitched whiny singing…
Have i got it right? ;-)
Ready to have a fight?
If I get to see SEC and DOJ investigations leading to proseuctions for criminal behavior and fraud, then I will believe there is a fight going on that does not involve pillows.
Isn’t ALL politics calculated Kabuki?
Great time for a changing of the guards and show the
‘Wall Street’ conmen, .ie Geithner, Summers, Rubin the door, since they won’t resign, unless indicted.
Will HBO have the balls ?
SEC doesn’t get called in until Federal Reserve lawyers say it’s ok for them to leave their cubicle and read the morning newspaper.
This is absolutely correct. They did not come out with a detailed plan because this is purely a political stunt.
How could anyone not be skeptical that the administration has been working on this for weeks? What has Obama done in the last few weeks? He’s thrown more taxpayer money at that national treasure GMAC, and defended Geithner when it was revealed that the NY Fed concealed the terms of the AIG bailout. This is some conversion.
But maybe Americans’ memories really are that short. Maybe they cannot actually tell when they are being managed. Government-by-platitude has worked well for Obama so far.
I feel “in my bones” festering wounds.
….Lady in Red
I’ll be surprised if anything changes. Geithner is a fox, in the hen house.
No, they aren’t. Some political movements have explicit goals that they pursue through logic and hard core actions – not calculated sham imagery. How do you think Social Security or Medicare came into being?
More smoke and mirrors is all this is. The President says this is change I can believe in, the Treasury Secretary says no need to worry about all that cause this is what we’re going to do.
There is a real swing voter revolt underway or there is only the usual anger flash until the next entertainment /sports season kicks in. Coakley lost by a 5 % voter swing. What are the real political facts emerging? That is , around 5 % of the vote on the fence is upset enough to vote against insider Democrats in special elections.
If there is a real actionable anti incumbent feeling it will be expressed at the first opportunity.. the primaries. Incumbents must make a judgement about the reality of actionable voter dissent . That judgement will be a win/ lose proposition first in the primaries. Every Congressperson and Senator up for re-election is faced with this decision on a win/ lose basis. Each district or state will have different parameters. Political operatives for the incumbent must get figure out the facts in their district or state.
We will know if the independent swing vote is active or passive in the first big primary vote date. The non voter is ignorable. The removal of swing voter opposition is everything if it is real.
Every politician knows the bulk of the populace are blowhards in the tavern types. The big problem is changing doer minds and politicians concentrate on these people in elections. It is their business to know this better than just about anyone. The win or lose on the correctness of their conclusions.
It must be very disconcerting to understand that the cause of voter angst are the very people they normally depend on for election cash.
Obama looks a bit nervous. Unsure, maybe very unsure. Maybe Obama should study the Kingfish or Pappy Daniels? The Kingfish and Pappy had a vastly different voter. Voters both understood. Does Obama really understand the swing voter? He should. By nature and wealth most of the independent swing vote must be fellow Yuppies. Here Obama’s real political skill is proven or else. His presidency rests on being correct in the next two months. I hope President Obama has his Louis Howe and a politically smart Missus.
Oops. I was referring to Wilbert O’Daniel of Texas, known as Pappy. Political circles often corrupt his name to Pappy Daniels after a half century.
Please note that being ready to have a fight is not actually the same as fighting.
sigh…. smile.
Every once in a while the blowhard-types really shake things up. And not through elections.
Not very often and only when the elites have nearly committed suicide. If the current incumbent’s are not capable of separating fact from fiction in the near term re-election process they would never figure out political collapse let alone systemic collapse.
Are we at the cusp of a ” laborer” revolt. I use the term in the sense that P R Sarkar does in his “Social Cycle Theory”. These kinds of theories have been around since the time of Hesiod and probably before that. They are useful though as tools for the working politician. Ruling classes do exhaust themselves. What I find so interesting is that the present elites so vehemently causing tavern blowhard gnashing of the teeth are for the most part those that came up from tavern blowhard origins. Maybe, the shortest term ruling class ever?
A great time for an American Duce to pull it all back together? Ruling classes that do not lead do fall although it takes a very long time historically. I wonder if the ” Age of Software” and asymetrical political opposition to ” trinitarian” states may just be the accelerant few elites see. But that has nothing to do with the immediate problem of incumbent’s retaining their position individually.
Why would this surprise anyone? Geithner has been proving since he first hit our radar screens that he’s in Goldman’s hip pocket. The only thing worse than having an ex-Wall Streeter in his position is having a Wall Street wannabe in his job, which is exactly what he is.
Patrice is all so correct.The USSR fell apart from the disparity between the governors and the governed, the internal contradictions of the “empire” and the inability of the governors to hide the reality of the situation driven by corruption.
I agree.
Time to read Thomas Carlyle’s History of the French Revolution…
Volcker is no trojan horse. A look back on history can be brutal, Ever wonder how Regan Economics went mainstream? Paul was the first Chairman to pay US debt by printing money. Simply put, he was a counterfitter, and what began as an early attempt to jetison the stagnet pay as you go days prior to Regan into the global spending spree that followed was born.
And now you all think this man is your savior?
This is too ugly, but too “right on.
I do not know what to do….
I am troubled, in the extreme.
……….Lady in Red
Thanks so much Ted K. I suspect my chronological contemporary Paul Volcker whose career and insights I have followed throughout much of his career would have forgiven a “whoops” for which I would have immediately apologized.
I must confess that I do not think I owe you an apology.
Do you have anything substantive to add?
I hope we are watching him grow a pair now. Better late than never.
Ted – people are human and there isn’t an “edit” option. A mistake isn’t necessarily disrespect.
Savior? No. Vast improvement over the status quo? yes.
We need a new Treasury Sec. It’s looking likely that we’ll need a new Fed Chairman. I’d like to see Jamie Galbraith in one of those jobs. Actually, Simon, I’d be happy to see you in one of those jobs.
Simon, as you have argued in the past, Geithner suffers from Wall Street intellectual capture, and so he is their lead wonk in the administration. Sooner or later, I predict that both he and Summers will be gone, and Bernanke is now standing on a last leg.
Is it too late? If strong actions are taken, time will tell. Otherwise, it is all hypothetical.
Nah! As I remarked (into the ear of my senators) a year ago, Obama has three major problems with the economy: illiquidity, Larry Summers and Tim Giethner.
The approach to providing liquidity was, in my view, far less than optimal. The solution to the last two problems is a gentle shove into the outbound revolving door.
True anti-incumbent feeling can only be known and potentially relevant and useful if the incumbent will actually be challenged in the primary. (I assume we all really mean Democratic incumbents in this case.) It seems a bit late for the protest seat-seekers to get into the game, and the incumbents and party powerful will be arguing to be allowed to enter the general election without a fight so they can conserve energy (read, money) to fight the right. Rarely are there “elections” or circumstances in which an outlier candidate can swoop in and win an election (thinking Scott Brown and Schwarzenegger here). But maybe there’s enough anger/anxiety out there to fuel last minute candidacies and upsets in the primaries. I think the dems will get their (arguably) deserved comeuppance in the general election, not the primaries. It would be nice if a lot of the issues got a good airing out in the primaries so the public could go into November with a clear picture of their choices. Unfortunately I think it will be another summer of misplaced and misguided vitriol and hysteria. If it all gets dealt with in November it means real political “change”, as opposed to figuring out the best way for the country to proceed.
Not to mention the added variable of above-board, spend-it-if-you-got-it-and-we’re-the-only-one’s-who-have-it (cause you gave it to us) corporate money that can be dumped into “free speech” to elect the like-minded.
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