Tag Archives: financial reform

Is This What You Voted For?

By James Kwak

In What’s the Matter with Kansas? Thomas Frank described how the Republican Party was able to take advantage of the conservative, values-focused, evangelical-driven movement to come to power–and then paid lip service to the priorities of the “base,” instead pursuing policies that helped established business interests and the rich. On a national scale, this was one major reason why conservatives became so disillusioned with George W. Bush.

It’s no surprise to anyone that this is happening again, only substituting “Tea Party” for “evangelical conservatives” and “United States” for “Kansas.”

Spencer Bachus, the likely new chair of the House Financial Services Committee, has announced that he is planning to use whatever powers he can to gut the Dodd-Frank financial reform bill. Why? According to the Financial Times, Bachus “expressed concern that shareholders of Goldman Sachs and JPMorgan Chase will be hurt because the banks will be less profitable.”

So one major effect of the Tea Party movement will be to further enrich Wall Street banks and the bankers who work there. (Which, I guess, is consistent with the common Tea Party insistence on reducing taxes for the rich.)

Is this what you voted for?

(If not, Mike Konczal reminds us that tomorrow is the deadline to submit comments on the implementation of the Volcker Rule.)

Hope

By James Kwak

A number of people have asked me what I think about the financial reform bill that was finally passed by the Senate. I don’t think I have much to add to what I’ve said already, but here’s one more angle.

“We can’t legislate wisdom or passion. We can’t legislate competency. All we can do is create the structures and hope that good people will be appointed who will attract other good people.”

That’s what Christopher Dodd said about the bill, as quoted by The New York Times. It’s become a commonplace observation by now that the reform bill, instead of making structural changes to the financial sector, instead increases regulators’ discretionary powers to constrain — or not constrain — the behavior of the industry.

As a result, the success of reform, in the words of its supposed architect, depends on hoping that presidents will appoint good people and that that will be enough to attract people to being regulators.

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One Paragraph on the Financial Reform Bill

By James Kwak

From Mike Konczal:

“Examples? Off the top of my head, ones with a paper trail: [Treasury] fought the Collins amendment for quality of bank capital, fought leverage requirements like a 15-to-1 cap, fought prefunding the resolution mechanism, fought Section 716 spinning out swap desks, removed foreign exchange swaps and introduced end user exemption from derivative language between the Obama white paper and the House Bill, believed they could have gotten the SAFE Banking Amendment to break up the banks but didn’t try, pushed against the full Audit the Fed and encouraged the Scott Brown deal.”

(By the way, if you’re missing your financial commentary fix during my self-imposed hiatus, I recommend Mike’s blog highly–not that that’s news to anyone anymore.)

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After “Financial Reform”

By Simon Johnson

Informed opinion is sharply divided about how the next 12 months will play out for the global economy. Those focused on emerging markets are emphasizing accelerating growth, with some forecasts projecting a 5% increase in world output. Others, concerned about problems in Europe and the United States, remain more pessimistic, with growth projections closer to 4% – and some are even inclined to see a possible “double dip” recession.

This is an interesting debate, but it misses the bigger picture. In response to the crisis of 2007-2009, governments in most industrialized countries put in place some of the most generous bailouts ever seen for large financial institutions. Of course, it is not politically correct to call them bailouts – the preferred language of policymakers is “liquidity support” or “systemic protection.” But it amounts to essentially the same thing: when the chips were down, the most powerful governments in the world (on paper, at least) deferred again and again to the needs and wishes of people who had lent money to big banks.

[to read the rest of this article, on Project Syndicate, click here]

Wall Street CEOs Are Nuts

By James Kwak

“Geithner’s team spent much of its time during the debate over the Senate bill helping Senate Banking Committee chair Chris Dodd kill off or modify amendments being offered by more-progressive Democrats. A good example was Bernie Sanders’s measure to audit the Fed, which the administration played a key role in getting the senator from Vermont to tone down. Another was the Brown-Kaufman Amendment, which became a cause célèbre among lefty reformers such as former IMF economist Simon Johnson. ‘If enacted, Brown-Kaufman would have broken up the six biggest banks in America,’ says the senior Treasury official. ‘If we’d been for it, it probably would have happened. But we weren’t, so it didn’t.'”

Oh, well.

That’s one passage from John Heileman’s juicy article in New York Magazine. It provides a lot of background support for what many of us have been thinking for a while: the administration is happy with the financial reform bill roughly as it turned out, and it got there by taking up an anti-Wall Street tone (e.g., the Volcker Rule), riding a wave of populist anger to the point where the bill was sure of passing, and then quietly pruning back its most far-reaching components. If anything, that’s a testament to the political skill of the White House and, yes, Tim Geithner as well.

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Regulation vs. Structural Change

By James Kwak

Robert Reich discusses a theme that I think I’ve discussed before (and first heard expressed by Ezra Klein):

“The most important thing to know about the 1,500 page financial reform bill passed by the Senate last week — now on he way to being reconciled with the House bill — is that it’s regulatory. It does nothing to change the structure of Wall Street.”

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Constructive Populism

By James Kwak

I don’t expect to get a holiday card from Tim Geithner this winter. Nor do I expect one from Larry Summers. Or even Michael Barr, despite everything I’ve written in favor of consumer protection. (I probably will get one from Barack Obama, since I donated money to his campaign.) But they might want to consider putting me on their lists.

“Populist” has mainly been used as a smear over the past year and a half, to connote irresponsible pandering to . . . well, to the people, actually. Simon and I have been written off by many people as populists, as if that alone were enough to settle the argument. But if and when financial reform does finally get passed by both houses of Congress, the administration will owe a major debt to the recent resurgence of anti-Wall Street sentiment, which can only be called populist.

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