Tag: politics

Welcome, Barack

So Barack Obama has come around to the idea that big banks need to be made smaller and that smarter regulation (contingent capital, enhanced capital requirements for large banks, resolution authority, etc.) just won’t cut it. Today he proposed limits on market share (measured by a bank’s share of total bank liabilities in the United States) and a prohibition on internal hedge funds, private equity funds, and proprietary trading.

This is great. It means that the administration is moving in the right direction–breaking up big banks–and the president is putting his name behind it. For more on why these are good ideas, see Mike Konczal.

OK, now for the caveats.

Continue reading “Welcome, Barack” →

Commission to the Rescue!

It looks like President Obama is going to create the bipartisan commission to cut the deficit that Kent Conrad and Judd Gregg have been pitching–except that now Judd Gregg is against it.

According to the original Conrad-Gregg plan, the commission would have eighteen members–eight named by Congressional Democrats, eight by Congressional Republicans, and two by the administration, for a ten-eight split; if fourteen of the eighteen could agree on a deficit-reduction plan, Congress would have to vote it up or down without amendments. The Conrad-Gregg proposal is expected to be voted down in the Senate. So instead, Obama would appoint a commission by executive order, with six people named by Congressional Democrats, six named by Congressional Republicans, and six named by the administration, including at least two Republicans–for a ten-eight split; if fourteen of the eighteen could agree on a deficit-reduction plan, Congress would vote it up or down without amendments; however, Congress could separately choose to amend it. According to the Washington Post, Gregg “called a presidentially appointed panel ‘a fraud’ designed to do little more than give Democrats political cover.” Huh? I’m guessing Gregg’s objection is that Obama’s plan is based on an agreement with Congressional leaders, rather than actual legislation–but if you can’t pass the legislation, what else do you want Obama to do?*

More, important, is this a good thing? My prediction is that it will amount to exactly nothing, although there is a possibility it could turn out badly. I simply don’t see how any plan can get the agreement of fourteen commission members–meaning all the Democrats and four of eight Republicans, or all the Republicans and six of ten Democrats, or something in between.

Continue reading “Commission to the Rescue!” →

So This Is What an Election Is Like

Martha Coakley just called me for, oh, the fifteenth time over the long weekend. I get multiple fliers in my mailbox every day. People from other states are calling me and asking me to volunteer. I’m sure I would be seeing nonstop ads on TV, except I don’t watch TV. All this started within the last week when, as many news outlets have noted, the Democrats woke up and realized they might actually lose Ted Kennedy’s Senate seat.

We’re not used to competitive elections here in Massachusetts, certainly not competitive elections with national implications. But this one is huge. The Republicans have been admirably or distressingly able, depending on your perspective, to hold forty votes against more or less anything the Democrats and President Obama want to accomplish, including health care reform. I think it’s a fairly easy bet that if Coakley loses, health care reform is dead until 2013 at the earliest, since there is no chance the Republicans will allow anything that looks like an accomplishment to occur if they can possibly help it. So if you live in Massachusetts, and you care about health care reform one way or the other, you should take the time to vote tomorrow.

Update: A friend emailed to point out that should Brown win, the House Democrats could pass the Senate bill, which presumably would not then have to go back to the Senate to be voted on again. (If the conference committee modifies the Senate bill, then it would have to go back.) Then some provisions could be modified through the budget reconciliation process, which only requires 51 votes. So a Coakley defeat might not be the end.

As for the comment about whether the Democrats could have negotiated with the Republicans to pick off one or two votes, they tried that for months–first via the Baucus Group of Six, then later directly with Snowe. Snowe ended up pulling out saying that the Democrats were rushing the bill, when they had spent several months talking to her specifically.

By James Kwak

Obama and FDR

Kevin Drum found a great quotation from FDR and what he thought of bankers, monopolists, and speculators. It’s so good he deserves to have you go there and read it.

Drum’s point is that while health care may have required conciliation and moderation, “When it comes to financial regulatory reform, Obama needs to let us know whose side he’s on.” So far Obama has played the peacemaker, the reasonable man in the middle, the man who bridges divides. “My administration is the only thing between you and the pitchforks,” he said last March; note that he brought up the pitchforks, but positioned himself as the center, holding back the crazies.

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Money and Financial Reform

Last week, Ryan Grim and Arthur Delaney wrote a story for the Huffington Post about the difficulty of getting substantive reform through the House Financial Services Committee. They focus on two main things. First, because a seat on the committee is valuable for fund-raising purposes, the Democratic House leadership seems to have stacked it with vulnerable freshman and sophomore representatives from Republican-leaning districts, meaning there are a lot of Democrats who are either personally inclined to vote with the financial services industry or feel a lot of political pressure to do so. Second, a lot of committee staffers end up switching sides to work as banking industry lobbyists, and some of them then come back to be committee staffers, raising the usual questions about the revolving door. Barney Frank comes off as something of a hero; the idea is that Frank and his senior staffers are so smart and skilled that they can get effective legislation through despite the cards being stacked against them.

Continue reading “Money and Financial Reform” →

Fairness

“What cannot be accepted are financial rescue operations that benefit the unworthy and cause losses to other important groups – like taxpayers and wage earners. And that, unfortunately, is the perception held by many nowadays, particularly in the United States.”

That’s Brad DeLong (regular blog here) in Project Syndicate (hat tip Mark Thoma).

But Brad, is it just a perception, or is it real? I think DeLong is saying it’s real, but I’m not certain.

Continue reading “Fairness” →

Yet Another Loophole?

Read for yourself. Basically Ed Perlmutter and Barney Frank introduced a colloquy into the record that seems to say that the legislative intent of the reform bill is that the CFPA should delegate its examination powers over a given bank (which have already been limited to banks with over $10 billion in assets) to other regulatory agencies if those other agencies deem that the bank has a strong consumer compliance record. As loopholes go, I don’t think this is anywhere near the most toxic. (I guess the justification for this would be that it allows the CFPA to focus its resources on the largest banks, rather than banks with $11 billion in assets.)

But my favorite part of the article was this:

“[Perlmutter’s communications director Leslie] Oliver said there was no connection between the campaign contributions and Perlmutter’s actions. ‘He is campaigning. He accepts campaign contributions. Look at the totality of his campaign contributions,’ she said.”Of the $28,500 committees donated to his campaign in October, more than two-thirds came from the financial services industry.”

For the current election cycle, he has received the most money from the finance/insurance/real estate sector ($160,000), with lawyers and lobbyists second ($88,000). Labor is third at $75,000.

By James Kwak

Note to Congress: You Are Not the People You Serve

From a Washington Post article on proposed legislation to regulate overdraft fees:

“Rep. Spencer Bachus (R-Ala.) said he avoided overdraft fees with a credit line and asked if many of the problems could be eased with consumer education.”

Good on you, Spencer. You have a credit line — which many of your constituents can’t get — and you have it linked to your checking account — which many of your constituents wouldn’t even know how to ask for.

Nessa Feddis of the ever-helpful American Bankers Association added that “most consumers can easily avoid the fees by keeping track of their balances.” (That’s a quote from the Post article describing her testimony, not from her testimony itself.) Hear that everyone? Keep track of your balances, and just in case, get a credit line and link it to your checking account. Problem solved.

The people who are financially sophisticated already know how to track their balances and turn off overdraft protection if they don’t want it. They are not the people that financial regulation is supposed to serve. You can’t discharge your duty as a representative of the people just by wishing that the people were more like you.

By James Kwak

Financial Regulation on the Front Burner?

Nate Silver thinks that financial regulation will be the big political issue of the first half of next year. And for better or for worse, he thinks the central political issue — the “public option,” if you will — will be TBTF and breaking up banks.

I have been skeptical of this. I have been following the conventional wisdom that public anger has receded into confusion, health care has taken over the stage, and no one can get interested in financial regulation — it’s just too boring. Also, I thought the fact that financial regulation doesn’t break down along party lines hurts its popular appeal. In particular, it leaves liberal Democrats very confused (conservative Republicans have an easier time — oppose anything Obama wants).  But I suppose I could see breaking up banks — now that it’s come back from several months in the wilderness — becoming a rallying issue. And health insurance is intrinsically boring, too. In any case, Nate Silver knows politics a lot better than I do.

(Also, according to Silver, we are “Volckerists” and the other side are the “Summersists.” We could do worse.)

By James Kwak

No, Wait! This Is What I Really Want!

I try not to comment on purely political issues, but sometimes they are just too infuriating.

Over the last few days, Max Baucus has been leaking “his” health care proposal, which should be made public. Regular readers will know I’m no fan of Max Baucus, whose main goals seem to be killing the public option (I know, it’s not as big deal as it’s made out to be, but it isn’t irrelevant) and cutting subsidies to poor people. But supposedly, the whole point of the Baucus/Group of Six approach was that it would result in a bipartisan bill that could clear the Senate. The tradeoff was very simple; a plan that isn’t as good as it could be, but one that could pass.

Yesterday, The New York Times reported two of the three Republicans in the Group of Six, Charles Grassley and Michael Enzi, are against the Baucus proposal, and even Olympia Snowe wants changes.

Continue reading “No, Wait! This Is What I Really Want!” →

Consumer Protection Redux: The Lessons of History

For your Labor Day reading enjoyment, we bring you this guest post by Lawrence B. Glickman, who teaches history at the University of South Carolina and is the author of Buying Power: A History of Consumer Activism in America.

“We’re proposing a new and powerful agency charged with just one job: looking out for ordinary consumers,” said the president on June 17th.  The centerpiece of his proposed overhaul of the nation’s financial system, the Consumer Financial Protection Agency (CFPA), is designed to end what the president called “failure of…government to provide adequate oversight” by monitoring banking transactions, including mortgages, credit cards and checking and savings accounts. It did not take long for the predictable critics to denounce the agency with predictable rhetoric.  “It’s bad for the consumers,” said Steve Bartlett, president of the Financial Services Roundtable, a lobbying group for banks.  The institution will add “yet another regulatory layer” while advancing “the agenda of activist special interests,” according to the U.S. Chamber of Commerce.  The new agency represents “an unprecedented grant of power to mandate business practices” claims the American Bankers Association.

This is the language of conservative populism, a mainstay of the Republican party from Ronald Reagan to Newt Gingrich to Karl Rove. Conservative populism, wrote Jonathan Chait in the New Republic last year, “dismisses any inference that the rich and the non-rich might have opposing interests” and defines elites in cultural rather than economic terms as  “intellectuals and other snobs who fancy themselves better than average Americans.” Several decades of repetition have made this rhetoric familiar: federal efforts to help ordinary people–consumers–will inevitably hurt them; government is the problem rather than the solution; bureaucracy is “bumbling” (to use the words of a Crain’s New York Business poll about the proposed Agency); federal agencies designed to serve the public good actually serve narrow special interests.  It has been, in no small measure, through the ready deployment of this language that the Republicans have positioned themselves as simultaneously the party of big business and working Americans while denouncing Democrats as representing both intrusive government and elitism. This meme has been devastating for liberals since any expansion of government services can be dismissed with a quip–Bureaucrat!, Red Tape!, Nanny State!– rather than an argument. Recently, for example, Senator Lindsay Graham said that the American people would never tolerate the public choice option in health insurance because “you’ve got a bureaucrat standing in between the patient and the doctor.” For similar reasons, Senator Kit Bond dismissed the CFPA proposal as a “bad idea.”

Continue reading “Consumer Protection Redux: The Lessons of History” →

The Problem with Federalism

Paul Krugman and many others have been talking about the “fifty little Hoovers” – state governments forced by balanced-budget rules to cut spending and raise taxes in the face of a recession, eliminating services when they are most needed and deepening the economic downturn. James Surowiecki (hat tip Matthew Yglesias) expands the attack by arguing that federalism (the idea that power is balanced between the national and state governments) in general is a problem, at least in these economic circumstances. In addition to counter-cyclical state fiscal policy, he cites political issues such as the disproportionate allocation of road spending to areas with few people and coordination problems such as the difficulty building national transportation or energy networks.

It may seem as if the balance is tilted heavily in favor of the national government – it has an army, it prints money, and so on – but the Constitution leans more toward protecting state autonomy (see the principle that the federal government is one of enumerated powers, and the Tenth Amendment), and the trend of the Reagan Revolution and the Rehnquist Court was to favor states’ rights. (Of course, “states’ rights” are not necessarily a Republican or a Democratic issue, but tend to be favored by whichever side finds the argument convenient at the moment.)

When I was young (like in high school) I thought states were silly and we should just have a national government, like in France, where the departments are mainly just administrative units. When I got a little older and became a qualified fan of Edmund Burke, I decided that the current system worked well enough most of the time that it would have to be seriously broken to justify a major structural change.

I’m not sure it qualifies as seriously broken at the moment, but I think the current recession counts as evidence that it sure isn’t the system you would design if you were starting from scratch.

By James Kwak

Modeling Everything, Public Plan Edition

Ezra Klein and Paul Krugman are both highlighting Nate Silver’s analysis of campaign contributions and the public health plan option. The quick summary? Campaign contributions matter – in this case, by about nine senators. Mainly I’m impressed and encouraged that people can use publicly-available data to quickly whip together plausible models answering questions that otherwise we would all just pontificate about.

Coincidentally, I was getting my car inspected this morning and picked up an October 2008 copy of New York Magazine in the waiting room, which had an article about . . . Nate Silver. The article includes a picture of the presidential electoral map as Silver predicted on October 8, in which he called every state correctly except Missouri (which, remember, took a few weeks to figure out whom it had voted for). Most of the article is about how the empirical approach to baseball turns out to be useful in other areas, like politics and public policy.

Update: Mark Thoma points out this counterargument by Brendan Nyhan (who long ago wrote a blog with the brother of one of the best developers at my company). Nyhan says “studies have typically found minimal effects of campaign contributions on roll call votes in Congress,” and cites a Journal of Economic Perspectives paper as backup.

OK, Nyhan may be right. But he may not be.

Continue reading “Modeling Everything, Public Plan Edition” →

You Don’t Get a Vote!

Barack Obama came to office as the conciliator, the bipartisanizer, the anti-Bush. But this is going too far.

The administration’s style has been to float policy proposals in public, listen to the responses (from other politicians, from the private sector, and from the blogs that Obama does not read), and adjust accordingly. When it comes to the financial regulation proposal that Tim Geithner is scheduled to deliver on Thursday, there may be little left after all the adjusting.

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The Skirmish over Credit Cards

The Senate may be voting this week on a bill to tighten regulation of credit card issuers – or not, since you can never tell with the Senate. Despite an agreement between the ranking members of the Senate Banking Committee, there is a series of amendments from both sides to go through; Real Time Economics has a summary of the issues that were open as of earlier this week.

I wrote a post on The Hearing earlier describing the debate as one between two economic perspectives: classical economics (credit card issuers should be able to offer any terms they want; if people accept them, that by definition means it increases their utility) and behavioral economics (people suffer from cognitive fallacies, like thinking that they will never pay any of those fees threatened in the credit card agreement, so regulations should help people make better decisions and protect them from bad decisions).

Looking back over that post, it was far too balanced. There is a plausible theoretical argument that tighter restrictions have the effect of limiting the supply of credit to marginal customers, but that’s not what’s going on here. First of all, there isn’t much demand for credit these days. Second, it’s really about whether credit card issuers will be able to use increased interest rates and fees to partially offset their increased default rates. And of course, this isn’t going to be decided by economics, but by power. The more relevant question is the one that Simon was asked on MSNBC: “Do the banks own the Senate?”

Continue reading “The Skirmish over Credit Cards” →