What happened to the global economy and what we can do about it
Category: Commentary
Most of the provisions of the Credit CARD Act of 2009 go into effect on February 22. Card issuers are adapting in various ways. I’ve previously written about the 79.9% APR (used to get around the limit on up-front fees for subprime cards). Now one of our readers has written in about an even more clever gimmick.
Here’s the letter:
The White House is floating, ever so gently, the notion that they are open to nominations for the position of “Tim Geithner’s Successor.”
It’s not clear if they mean this job is likely to be advertised formally sometime in 2012 or 20 minutes after the November midterms. Nor is it obvious if this is a real request for proposals – it could be just an effort to make critics “put up or shut up.”
Fortunately, there is an entirely plausible successor already in waiting, ready now or whenever the president finally realizes the need to fundamentally change banking policy. Continue reading “Tom Hoenig For Treasury”
With the submission of the Obama administration’s budget today, fiscal silly season is opening. President Obama already launched an opening salvo last week with his proposed freeze on non-security-related military spending,which amounts to a rounding error on the ten-year budget projections, which are themselves a rounding error on the long-term budget projections– at a time when unemployment is running at 10.0%. Fortunately, there is a partial saving grace, which is that the freeze does not set until until fiscal year 2011 (which begins in October 2010), and in the meantime Obama has proposed $100 billion in tax cuts and government spending to create jobs. (Whether his proposals are the right way to spend $100 billion is a debate for another time.)
The midterm elections are looming already (note: do we have to be satisfied with a political system in which the legislature is preoccupied with upcoming elections half the time?), and the two big themes seem to be jobs and the deficit. With unemployment at levels not seen since the 1980s, it’s obvious why jobs are on the political agenda. With the federal budget deficit at record (nominal) levels, it also seems obvious that the deficit should be on the agenda, but this is really an unfortunate artifact of our political system. A government deficit is the result of insufficient government saving, and a period of high unemployment is absolutely the worst time to increase government saving. The sensible solution would be to use the urgency we currently feel to put in place long-term fiscal solutions, but the political system can’t handle that (see health care reform as Exhibit A). As a result, when deficits go up, we get lots of short-term politicking about the deficit–in Paul Krugman’s words, the “march of the deficit peacocks.”
I talked Sunday about Move Your Money with Guy Raz of NPR’s Weekend All Things Considered (summary; audio from about 3:45). We covered a lot of ground, from what’s in it for individuals to shift towards community banks and credit unions (better service and lower costs, in many cases) to how this could begin to reign in Too Big To Fail financial institutions (slowly, but surely).
Unfortunately, there wasn’t enough time to discuss what comes next – i.e., what happens when the location of political candidates’ own money starts to matter. As early as this fall’s primaries, expect to hear people ask politicians in debates and through various kinds of interactions: (1) where do you, personally, keep and borrow money, and (2), in all relevant cases, where did you put public money when it was up to you?
These questions strike to the heart of democratic responses against overly concentrated financial power throughout US history – a topic we take up in Chapter 1 of 13 Bankers. Continue reading “Move Your Politician’s Money”
The coming months will tell if the Volcker Rule and the prohibition on banks getting even larger will turn out to be substance or mere spin. I’m finally getting around to reading the transcript of the pre-announcement media briefing and I found a few things that were worth a smile.
1. On the cap on a single institution’s share of liabilities: “The 10 percent cap on insured deposits exists in current law. It was put in place in 1994. And what we’re saying is that deposit cap has served or country well.” Um, then why did you waive it for JPMorgan Chase, Bank of America, and Wells Fargo?
Amidst otherwise strong coverage of the growing debate around the nature of finance and the power of big banks, a surprisingly high number of journalists continue to misuse the word “populism”.
For example, in an article on criticism of bankers at Davos, the Wall Street on Saturday morning reported that President Sarkozy of France delivered a “populist broadside” when he said,
“That those who create jobs and wealth may earn a lot of money is not shocking. But that those who contribute to destroying jobs and wealth also earn a lot of money is morally indefensible.”
The implication, of course, is that some politicians are pandering to “the people” vs. “the elites” – part of a long-standing theme in some interpretations of democratic political conflict. While elites invest and engage in productive activities, the argument goes, plebians from time to time demand excessive income redistribution or punitive taxation or other measures that would undermine productivity and prosperity.
Or, as President Obama said in March 2009, “My administration is the only thing between you and the pitchforks.”
Such language reveals a complete misunderstanding of our current situation. (Matt Taibbi has this right, but doesn’t go far enough.) Continue reading ““Populism””
In the wake of the Supreme Court’s decision in Citizens United to expand the ability of corporations* to pay for election-related communications, prominent law professor Lawrence Lessig is calling for a constitutional amendment to protect elections from the influence of money. The text of the proposed amendment isn’t done yet, but the goal is to protect Congress from the influence of money.
Lessig’s argument is simple: Congress is fundamentally (though, thanks to the Supreme Court, legally) corrupt, and most people think it is corrupt, which makes it hard for elected majorities to effect change and also undermines people’s faith in their government. Commenting on Citizens United, he said, “The surprise, and in my view, real cause for concern, however, was how little weight the Court gave to the central purpose of any fair election law: the purpose to protect the institutional integrity of the democratic process. That value seemed invisible to this Court, as if we didn’t now live in a democracy in which the vast majority has lost faith in their government.” Since the Court’s preferred stick for blocking campaign finance reform is the First Amendment, the only thing that can stop them is a new amendment.
I know that no one out there really wants to hear my thoughts on new personal technology, but no one’s forcing you to read this. So here are my first thoughts on the iPad, Apple’s new 10″ tablet.
The resurgence of Apple in the last decade has been based on its ability to simply design and build better products than anyone else, in part because it does a better job of understanding what consumers actually want than anyone else. They are also extremely good and marketing and selling; who would have imagined that Apple would also turn out to be better at retail than any other electronic company? But I wonder if, with the iPad, the Steve Jobs magic is running low.
When representatives of American power encounter officials in less rich countries, they are prone to suggest that any failure to reach the highest standards of living is due in part to weak political governance in general and the failure of effective oversight in particular. Current and former US Treasury officials frequently remark this or that government “lacks the political will” to exercise responsible economic policy or even replace a powerful official who has clearly become a problem.
There is much to be said for this view. When a minister or even the head of a strong government agency is no longer acting in the best interests of any country – but is still backed by powerful special interests — who has the authority, the opportunity, and the fortitude to stand up and be counted?
Fortunately, our constitution grants the Senate the power to approve or disapprove key government appointments, and over the past 200 plus years this has served many times as an effective check on both executive authority and overly strong lobbies – who usually want their own, unsuitable, person to be kept on the job.
Unfortunately, two massive failures of governance at the level of the Senate also spring to mind: first, the strange case of Alan Greenspan, which stretched over nearly two decades; second, Ben Bernanke, reappointed today (Thursday). Continue reading “A Colossal Failure Of Governance: The Reappointment of Ben Bernanke”
Yesterday’s release of detailed information regarding with whom AIG settled in full on credit default swaps (CDS) at the end of 2008 was helpful. We learned a great deal about the precise nature of transactions and the exact composition of counterparties involved.
We already knew, of course, that this “close out” at full price was partly about Goldman Sachs – and that SocGen was involved. There was also, it turns out, some Merrill Lynch exposure (affecting Bank of America, which was in the process of buying Merrill). Still, it’s striking that no other major banks had apparently much of this kind of insurance from AIG against their losses – Citi, Morgan Stanley, and JPMorgan, for example, are not on the list.
This information is useful because it will help the House Oversight and Government Reform Committee structure a follow up subpeona to be served on Goldman Sachs with the following purpose: Continue reading “The Next Subpoena For Goldman Sachs”
Searching through my RSS feed*, I observer that not many people have commented on Goldman Sachs’s stunning compensation announcement (except for Felix Salmon), perhaps because it came out on the same day as the “Volcker Rule,” perhaps because bloggers are not wired to say nice things about Goldman. But I’m going to make the sure-to-be-unpopular statement that Goldman did the right thing here.
We all know that Goldman made a lot of money last year: $35.0 billion before compensation and taxes, on my reading of the income statement (that’s pre-tax earnings plus compensation and benefits). Many people think that it made that money because of government support, but that’s beside the point here; right now, this is purely a question of dividing the spoils between employees and shareholders.
On the one hand, last week’s Volcker-fest signaled that the Obama administration wants to get tough on Wall Street. Given that they almost certainly don’t have the votes in the Senate (and probably not the House, either), this may have been a purely political calculation, and it remains to be seen how much substance lies behind the marketing. But even so it was probably smart politics, since it forces Republicans to either go along (which ain’t gonna happen) or come out in favor of hedge funds and proprietary trading.
On the other hand, what the —-? The New York Times reports that Obama is planning to call for a three-year freeze on non-security discretionary spending, which means everything except Medicare, Medicaid, Social Security, the Defense Department, Homeland Security, and the VA–that is, everything except the vast majority of the budget. This at a time when the unemployment rate is at 10%.
But he’s not sure why. During an interview with Mike Allen of Politico, Tim Geithner said that the Move Your Money campaign is a bad idea, but didn’t actually give a reason why. Here’s the whole segment of the interview (beginning around the 3:30 mark):
Allen: “Arianna Huffington has been urigng Americans to move money from big banks to neighborhood banks. Do you think that’s a good idea?”
Geithner: “I don’t, but I do think the following is important that people recognize.”
“But wait, why is that a bad idea?”
Continue reading “Tim Geithner Says to Leave Your Money at Big Banks”
Daniel Indiviglio did a Q&A with Simon, mainly on financial regulation. Here it is.
(Sorry there isn’t much today . . . proofreading.)
By James Kwak
At the broadest level, Thursday’s announcement from the White House was encouraging – for the first time, the president endorsed potential new constraints on the scale and scope of our largest banks, and said he was ready for “a fight”. After a long tough argument, Paul Volcker appeared to have finally persuaded President Obama that the unconditional bailouts of 2008-2009 planted the seeds for another major economic crisis.
But how deep does this conversion go? On the “deep” side is the signal implicit in the fact that Volcker stood behind the president while Tim Geithner was further from the podium than any Treasury Secretary in living memory. Where you stand at major White House announcements is never an accident.
Increasingly, however, there are very real indications that the conversion is either superficial (on the economic side of the White House) or entirely a marketing ploy (on the political side). Here are the five top reasons to worry. Continue reading “Is The “Volcker Rule” More Than A Marketing Slogan?”
The Baseline Scenario 