A Constitutional Amendment?

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.

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Steve Jobs’s Magic

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.

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A Colossal Failure Of Governance: The Reappointment of Ben Bernanke

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” →

The Next Subpoena For Goldman Sachs

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” →

Good for Goldman

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.

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The Second Clinton?

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%.

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The “Professional Investor” Excuse

On Tap takes on the often-used fiction that investment banks have done nothing wrong because they were simply dealing with professional investors who knew what they were getting into. He uses the always reliable device of taking aim at something on the Wall Street Journal op-ed page (a column by Holman Jenkins, in this case)–not only do people actually believe these things, but they get column-inches in one of America’s best newspapers.

To Jenkins, OT responds:

“Generally speaking and contrary to popular belief, caveat emptor is not a well-established legal principal . . . Professionals in other fields have many avenues of recourse when they are sold a defective product—just because you’re an expert doesn’t mean you’ve disclaimed all warranties.”

OT also takes on the argument that banks are always betting against their clients, and the clients should know that.

By James Kwak

Tim Geithner Says to Leave Your Money at Big Banks

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” →

Is The “Volcker Rule” More Than A Marketing Slogan?

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?” →

Fun Reading About Big Banks

Uncle Billy pointed out this post by The Epicurean Dealmaker, which he described as “smoking.” TED actually is an investment banker (or an excellent imitator of one, down to the expensive tastes), so he can say things in more detail and more convincingly than I. Like this:

“But the assertion that large, multi-line financial conglomerates provide customers with services no smaller institutions can deliver is pure poppycock. The mid-1990s concept of globe-striding financial supermarkets has been completely discredited, most notably by their sad-sack poster child, Citigroup. Wholesale institutional clients make a point of using more than one investment or commercial bank for virtually all their financial transactions, no matter what they are. In fact, the bigger the deal, the more banks the customer usually uses. This is because banking clients want to 1) spread transaction financing and execution risk across multiple service providers and 2) make sure none of these oligopolist bastards has an exclusive right to grab the client by the short and curlies.”

There’s more.

By James Kwak

Paul Krugman for Fed Chair: “Crazy”

Paul Krugman says that Simon’s idea that he should be chair of the Fed is “crazy.” Krugman’s point is either that he wouldn’t be confirmed or that he wouldn’t be able to bring the Open Market Committee along. Maybe he’s right about the former; a Republican filibuster does seem reasonably likely.

I don’t think he’s right about the latter; or, more precisely, I don’t think it matters. The FOMC is, on paper, a democratic body: they vote. There is a tradition that the votes are generally unanimous because of the perceived importance of demonstrating consensus. I don’t know how old this tradition is; it was certainly in place under Greenspan. But everyone knows that the members of the FOMC disagree about many things; that’s why the various bank president members go around giving speeches objecting (not in so many words) to the FOMC’s decisions. Given that we all know there are debates involved, how important is this fiction of consensus?

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Two Good Thoughts About Financial Reform

From Economics of Contempt (hat tip Brad DeLong):

“The single best thing we could do for financial reform: Triple the budgets of all financial regulatory agencies. Immediately. Regulators are woefully understaffed; this is fact.”

I’m not sure about “single best,” but otherwise dead on. The agencies that are self-funding out of their businesses (banking for the Federal Reserve, insurance for the FDIC) have been less bad than the ones that are not (OCC, OTS).

Continue reading “Two Good Thoughts About Financial Reform” →

Paul Krugman For The Fed

The case for Ben Bernanke’s reappointment was weak to start with, weakened with his hearings, and is now held together by string and some phone calls from the White House.  Bernanke is an airline pilot who pulled off a miraculous landing, but didn’t do his preflight checks and doesn’t show any sign of being more careful in the future – thank him if you want, but why would you fly with him again (or the airline that keeps him on)?

The support for Bernanke in the Senate hangs by a thread – with Harry Reid providing a message of support, albeit lukewarm, after the markets close.  The White House is telling people that if Bernanke is not reconfirmed there will be chaos in the markets and the economic recovery will be derailed.  This is incorrect.

The danger here is uncertainty – the markets fear a prolonged policy vacuum.  Fortunately, there is a way to address this.  Ben Bernanke should withdraw and the president should nominate Paul Krugman to take his place. Continue reading “Paul Krugman For The Fed” →

Obama’s First Year

It’s late January and Scott Brown will be the next senator from Massachusetts, which means it’s time for critical retrospectives on Obama’s first year in office. I’m not going to try my own, but simply point you to two I found worthwhile. One, not surprisingly, is by Ezra Klein, who says this is Obama’s problem:

“Obama’s presidency has tried to show, not tell. He’s not given speeches about how government can work. He’s not tried to change minds about the theoretical possibility of government working. He’s tried to make government work. Winning achievements, not arguments, has been at the center of the administration’s agenda.”

Klein realizes the irony, of course; a president who is doing what we say we want presidents to do–govern–is being stonewalled by a right wing intent on winning the next elections, and sniped at by a left wing for compromising too much and for not scoring enough political points. But, as Klein says, whether the fault is Obama’s, Congress’s, or ours, it’s not working.

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