What You Need to Know About the State of Our Financial System
September 14, 2009
Financial markets have stabilized--people believe that the U.S. and West European governments will not allow big financial institutions to fail. We have effectively nationalized any banking system losses, but we’ll let bank executives enjoy the full benefits of the upside. How much shareholders participate remains to be seen; there will be no effective reining in of insider compensation (my version; Joe Nocera’s view). Small and medium-sized banks, however, will continue to fail as problems in commercial real estate continue to mount.
Blanche Lincoln As Ag Chair? Say It Ain't So.
September 09, 2009
Now that Chris Dodd has decided to keep his chairmanship of the Senate banking committee, it looks like Tom Harkin will leave his agriculture post to go take Ted Kennedy's former spot atop the HELP committee. To the dismay of a lot of food-policy reformers, this means the more conservative Blanche Lincoln of Arkansas will be next in line for the Ag Committee gavel (there are more senior members on that committee, but they all have other, more powerful chairmanships already). It's not unreasonable to ask if this will really make a big difference as far as agricultural policy's concerned.
What Was Sheila Bair Getting At?
September 06, 2009
I'm coming a little late to Sheila Bair's intriguing Times op-ed from last week, but I think Tim Fernholz basically got it right over at The Prospect: Bair wasn't kvetching about the administration's regulatory proposals--the kind of thing that got her in Tim Geithner's crosshairs a few weeks back. She was taking aim at even more radical proposals for regulatory consolidation, like what Sen. Mark Warner lays out here. Basically, the administration wants to fold the underwhelming Office of Thrift Supervision (OTS) into the Office of the Comptroller of the Currency--the two agencies that regula
Bankers, Retribution, Justice and Jails
September 04, 2009
I am loathe to think that one solution to the problem of the credibility of bankers and the banking system is prison. Yes, I know Bernie Madoff is in prison and there are a few more Ponzi schemers who will join him there.
Why Taxing Trades Could Make Sense
August 27, 2009
The UK's top financial regulator, Adair Turner, has suggested a tax on all financial transactions around the world. The purpose of this tax, he argues, would be to prevent the return of "business as usual" for the banking sector: "If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit." Transaction taxes -- better known as Tobin taxes after Yale economist James Tobin -- have been proposed and implemented in the past to discourage speculative short-term trades and reduce market volatility.
August 24, 2009
SYDNEY, Australia--The hardest slogan to sell in politics is: "Things could have been a whole lot worse." No wonder President Obama is having trouble defending his stimulus plan. If governments around the world, including our own, had not acted aggressively--and had not spent piles of money--a very bad economic situation would have become a cataclysm. But because the cataclysm was avoided, this is an invisible achievement. Many whose bacon was saved, particularly in the banking and corporate sectors, do not want to admit how important the actions of government were.
Who's Afraid Of Consumer Financial Protection?
July 28, 2009
The debate over re-regulation of the financial sector has finally, and irreversibly, turned partisan. This helps define issues in ways that may be more familiar and thus easier to understand. In the blue corner we have Treasury Secretary Tim Geithner. Secretary Geithner's overall banking policy continues to be problematic, and his broader re-regulation effort is hampered by all the free passes he gave to bank CEOs earlier this year. But on consumer protection he has the right message and he delivered it forcefully to Congress last week: we need a Consumer Financial Protection Agency (CFPA) and
Jamie Dimon Vs. Larry Summers
July 19, 2009
Jamie Dimon has won big. JP Morgan Chase now stands alone, both in financial position and political clout--including special access to the White House and, as explained in today's NYT, Rahm Emanuel's likely attendance at his next board meeting tomorrow. Dimon's semiotics have been brilliant throughout the crisis--it wasn't his fault, he was forced to take TARP money, and--in phrasing that will make the history books--bankers should not be "vilified." But now he has a problem. Larry Summers forcefully stated Friday that high recent profit levels for big banks (i.e., JPMorgan and Goldman) are b
The New Banking Order
July 17, 2009
Hank Paulson's testimony yesterday was informative, if only because it illustrated that he himself still understands little about the origins and nature of the global crisis over which he presided. Perhaps his book, out this fall, will redeem his reputation. A fundamental principle in any emerging market crisis is that not all of the oligarchs can be saved. There is an adding up constraint--the state cannot access enough resources to bail out all the big players. The people who control the state can decide who is out of business and who stays in, but this is never an overnight decision written
What Hath The Stress Tests Wrought?
July 15, 2009
The issue of the day is obviously CIT. It's hard to sort out the real news from clever PR/planted stories in this situation, but it looks like the FDIC is coming out strongly against being involved in a rescue package. Given Sheila Bair's successful political positioning and strong popular appeal, it's hard to see how--once dug in--the FDIC can be moved. The lobbying frenzy has concentrated on CIT's role in financing small and medium-sized business; "the recession will be deeper if CIT fails" is the refrain. This is a weak argument--it would be straightforward to refinance this part of CIT's b