Simon Johnson: Dead On Arrival -- Banks Win, Wall Street Reform Fails, Obama & Geithner Deserve Blame
Brand new op-ed from mega-bank antagonist Simon Johnson.
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Video and links are at the bottom of the story.
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Reprinted with permission.
The House-Senate reconciliation process is still underway and some details will still change. But the broad contours of “financial reform” are already completely clear; there are no last minute miracles at this level of politics. The new consumer protection agency for financial products is a good idea and worth supporting – assuming someone sensible is appointed by the president to run it. Yet, at the end of the day, essentially nothing in the entire legislation will reduce the potential for massive system risk as we head into the next credit cycle.
Go, for example, through the summary of “comprehensive financial regulatory reform bills” in President Obama’s letter to the G20 last week.
The president argues for more capital in banking – and this is a fine goal, particularly as the Europeans continue to drag their feet on this issue. But how much capital does his Treasury team think is “enough”? Most indications are that they will seek tier one capital requirements in the range of 10-12 percent – which is what Lehman had right before it failed. How would that help?
“Stronger oversight of derivatives” is also on the president’s international agenda but this cannot be taken seriously, given how little Treasury and the White House have pushed for tighter control of derivatives in the US legislation. If Senator Lincoln has made any progress at all – and we shall see where her initiative ends up – it has been without the full cooperation of the administration. (The WSJ today has a more positive interpretation, but even in this narrative you have to ask – where was the administration on this issue in the nine months of intense debate and hard work prior to April? Have they really woken up so recently to the dangers here?)
“More transparency and disclosure” sounds fine but this is just empty rhetoric. Where is the application – or strengthening if necessary – of anti-trust tools so that concentrated market share in over-the-counter derivatives can be confronted. The White House is making something of a show from Jamie Dimon falling out of favor, but all the points of substance that matter, Dimon’s JP Morgan Chase has won. The Securities and Exchange Commission is beginning to push in the right direction, but the reconciliation conference looks likely to deny them the self-funding – CFTC and FDIC, for example, collect fees from the industry – that could help build as a regulator. At the same time, the conference legislation would send a large number of important questions to the SEC “for further study”. None of this makes any sense – unless the goal is to block real reform.
The president also asks for a “more effective framework for winding down large global firms” but his experts know this is politically impossible. The G20 (and other) countries will not agree to such a cross-border resolution mechanism – and this was an important reason why Senators Sherrod Brown and Ted Kaufman argued so strongly that big banks had to become smaller (and be limited in how much they could borrow). Now administration officials brag to the press, on the record, about how they killed the Brown-Kaufman amendment. These people – in the White House and around the Treasury – simply cannot be taken seriously.
And as for “principles for the financial sector to make a fair and substantial contribution towards paying for any burdens”, this is a sad joke. This is not an oil spill, Mr. President. This is the worst recession since World War II, a 40 percentage points increase in government debt (attempting to prevent a Second Great Depression), loss of at least 8 million jobs in the United States, and a painfully slow recovery (in terms of unemployment) – not to mention all the collateral damage in so many parts of the world, including Europe. Could someone in the White House at least come to terms with this issue and provide the president with a sensible and clear text? Honestly, as staff work, this is embarrassing.
There is great deference to power in the United States, and perhaps that is appropriate. But those now calling the shots should remember that they will not be in power for ever and – at some point in the not too distant future – there will be a more balanced assessment of their legacies.
Simply claiming that the president is “tough” on big banks simply will not wash. There are too many facts, too much accumulated evidence, pointing exactly the other way. The president signed off on the most generous and least conditional bailout in world financial history. This is now widely understood. The administration has scrambled to create some political cover in terms of “reform” – but the lack of substance here is already clear to people who follow it closely and public perceptions will shift quickly.
The financial crisis of fall 2008 revealed serious dangers have developed in the heart of the world’s financial system. The Bush-Obama bailouts of 2008-09 confirmed that our biggest banks are “too big to fail” and the left, center, and right can agree with Gene Fama when he says: “too big to fail” is perverting activities and incentives.
This is not a leftist message, although you hear people on the left make the point. But people on the right also increasingly understand what is going on – there is excessive and abusive power at the heart of our financial system that completely distorts markets (and really amounts to a hidden, unfair and dangerous taxpayer subsidy).
This administration and this Congress had ample opportunity to confront this problem and at least wrestle hard with it. Some senators and representatives worked long and hard on precisely this issue. But the White House punted, repeatedly, and elected instead for a veneer of superficial tweaking. Welcome to the next global credit cycle – with too big to fail banks at center stage.
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Video: Moral Hazard Bonanza -- January, 2010
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Jun 21, 2010 at 12:27 PM
Reader Comments (20)
http://baselinescenario.com/2010/06/21/dead-on-arrival-financial-reform-fails/
For the 24th straight year, California legislators have failed to deliver a state budget to the governor by the constitutionally-required deadline of June 15. This year, the date came and went without so much as whimper.
It's become business as usual in the not-so-golden state.
The danger in this delay will increase dramatically a few days from now, when the new fiscal year begins on July 1.
That's the time when the state starts spending money from the new budget, purportedly in accordance with how much money will be coming in. Meanwhile, the Big 5--the governor and the four major leaders in the legislature--have done nothing to build a balanced state budget. In fact, they have had exactly one meeting on the subject.
(CNSNews.com) - Middle-class Americans--not the rich or the poor--pay the majority of annual tax revenues taken in by the federal government, according to data released in a new Congressional Budget Office study. Households earning less than $34,300 per year, meanwhile, actually pay a negative average federal income tax rate.
Middle-class households that earned between $34,300 and $141,900 paid 50.5 percent of all federal tax revenues in 2007 (the most recent year analyzed), according to the CBO study released Thursday, and households that earned between $34,300 and $352,900 paid 66.7 percent of all federal taxes.
http://cnsnews.com/news/article/68094
A House member questions BP's honesty about how much crude could leak in a worst-case scenario.
http://www.latimes.com/news/nationworld/nation/la-na-oil-spill-20100621,0,972771.story
A new report from the U.S. Government Accountability Office (GAO) on federal tax money funneled into Planned Parenthood and similar organizations raises more questions than it answers about the nation's largest abortion chain.
Planned Parenthood Federation of America's (PPFA) audits show the organization spent just $657.1 million between 2002 and 2008 from federal government grants and programs, but the abortion behemoth's own annual reports show that it took in $2.3 billion from government grants and programs during the same time period.
That's not pocket change. Why the discrepancy?
http://online.wsj.com/article/SB10001424052748704895204575320582816388848.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsForth
Awesome...wonder how many heads will roll...literally...kim jong il can't be happy...
http://www.breitbart.com/article.php?id=CNG.fbcf8186298b2e778498b791229a7397.351&show_article=1
http://www.google.com/hostednews/ap/article/ALeqM5hM5MvpNJ2D2tMn8sVqk_qKObY8DwD9GF5JBO0
http://edition.cnn.com/2010/WORLD/africa/06/20/south.africa.female.condom/
Check out the picture...
Ryan Danoff was fishing with two friends about four miles off Hollywood beach Sunday when he spied what appeared to be a mast on the horizon.
Funny thing: There was no boat underneath it.
Danoff, a Fort Lauderdale fish farmer who's on the water at least three days a week, aimed his 31-foot center console Fishy Business at the mysterious upright and found himself eye to eye with a periscope.
"It was crazy," he said. "If it was just myself out there I wouldn't believe what I saw."
Danoff moved closer. "It took off," he said. Very fast, about 20 knots. The periscope sank beneath the waves, and whatever was below the surface blew its ballast, sending aloft a mighty hiccup of bubbles. After five minutes the sea lay once again undisturbed.
Danoff, 30, reported the episode to the Coast Guard. They said they'd get back to him, but never did.
http://www.palmbeachpost.com/news/state/boater-chases-mysterious-periscope-off-hollywood-beach-752917.html
Tells of $9B he socked away with friends before Ponzi arrest: prisonmate
Read more: http://www.nypost.com/p/news/local/madoff_HD9ShMJK26jjNYTFSO7LpJ#ixzz0rVTvfGuy
http://news.yahoo.com/s/csm/309451;_ylt=AmKGF7CdeJaIpkYvZ9qXk94UewgF;_ylu=X3oDMTJzNnI1dHFmBGFzc2V0A2NzbS8yMDEwMDYyMC8zMDk0NTEEY2NvZGUDbW9zdHBvcHVsYXIEY3BvcwM2BHBvcwM2BHNlYwN5bl90b3Bfc3RvcmllcwRzbGsDdGhlMTB3b3JzdGJw
http://news.yahoo.com/s/time/08599199807600;_ylt=AsZEVh_7qj.sckDhHLZQGqMUewgF;_ylu=X3oDMTM1aThjdGY4BGFzc2V0A3RpbWUvMjAxMDA2MjEvMDg1OTkxOTk4MDc2MDAEY2NvZGUDbW9zdHBvcHVsYXIEY3BvcwM3BHBvcwM3BHNlYwN5bl90b3Bfc3RvcmllcwRzbGsDdGV4YXNkZW1zZ3Jh
http://news.yahoo.com/s/ap/as_nkorea_nuclear;_ylt=Akn8RQiNVbqyDBp_zH_fr2EUewgF;_ylu=X3oDMTM2Z2JwMG5uBGFzc2V0A2FwLzIwMTAwNjIxL2FzX25rb3JlYV9udWNsZWFyBGNjb2RlA21vc3Rwb3B1bGFyBGNwb3MDNARwb3MDNARzZWMDeW5fdG9wX3N0b3JpZXMEc2xrA2Fibm9ybWFscmFkaQ--
http://news.yahoo.com/s/ap/us_gulf_oil_spill;_ylt=Akf2GAAQXHdGptPHYyOYy_sUewgF;_ylu=X3oDMTM2N3N2cGNkBGFzc2V0A2FwLzIwMTAwNjIxL3VzX2d1bGZfb2lsX3NwaWxsBGNjb2RlA21vc3Rwb3B1bGFyBGNwb3MDMgRwb3MDMgRzZWMDeW5fdG9wX3N0b3JpZXMEc2xrA2JwZ3VsZnNwaWxsYw--
The court ruled 6-3 Monday that the government may prohibit all forms of aid to designated terrorist groups, even if the support consists of training and advice about entirely peaceful and legal activities.
Material support intended even for benign purposes can help a terrorist group in other ways, Chief Justice John Roberts said in his majority opinion.
http://news.yahoo.com/s/ap/us_supreme_court_anti_terror_law;_ylt=AtO1EC4eJrDul9iX_2Tgln4UewgF;_ylu=X3oDMTNsYmdyZjgzBGFzc2V0A2FwLzIwMTAwNjIxL3VzX3N1cHJlbWVfY291cnRfYW50aV90ZXJyb3JfbGF3BGNjb2RlA21vc3Rwb3B1bGFyBGNwb3MDMQRwb3MDMQRzZWMDeW5fdG9wX3N0b3JpZXMEc2xrA2hpZ2hjb3VydHVwaA--
Gee, like I couldn't see this coming...
"Material support intended even for benign purposes can help a terrorist group in other ways, Chief Justice John Roberts said in his majority opinion."
You mean like agricultural aid? Like ammonium nitrate "fertilizer" to Nicaragua years ago.
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good point...
"Maywood to hire others to run the city
The L.A. County community, facing a $450,000 budget deficit, plans to lay off its employees, disband its Police Department and contract its operations to the Sheriff's Department and the neighboring city of Bell. Experts say it is the only city in the state to take such drastic action."
(http://www.latimes.com/news/local/la-me-0623-maywood-20100623,0,7006423.story?track=rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+latimes%2Fnews%2Flocal+%28L.A.+Times+-+California+%7C+Local+News%29&utm_content=My+Yahoo)
Let the COLLAPSES BEGIN!
"Alcohol-related incidents involving L.A. County Sheriff's Department employees increase"
(http://www.latimes.com/news/local/la-me-sheriff-drinking-20100623,0,7251572.story?track=rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+latimes%2Fnews%2Flocal+%28L.A.+Times+-+California+%7C+Local+News%29&utm_content=My+Yahoo)