A great deal of the popular anger directed at big banks is completely legitimate, as put nicely by John Cassidy at the end of his interview with Treasury Secretary Tim Geithner,
"The hardest part of his job, Geithner often says, is getting people to comprehend the inner logic of a financial-rescue operation, and the unpopular actions it entails. In fact, his problem may be not economic illiteracy but its opposite: Americans understand all too well what has happened. Financial crises have a way of revealing aspects of our economic system that otherwise remain obscured, such as the symbiotic relationship between Wall Street and Washington, the hidden subsidies that financial firms sometimes receive from the Fed and other government agencies, and the fact that the vast profits that firms like JPMorgan Chase and Goldman generate depend in part on an implicit guarantee from the taxpayer. When ordinary Americans are confronted with these realities, they get angry."
Paul Volcker is also angry.
Of course, Paul Volcker expresses himself in the measured language of a distinguished technocrat. But he is very worried about our current financial structure and where it is heading. Speaking today at the Peterson Institute in Washington DC, Mr. Volcker made two broad points (Marketwatch coverage) - both of which we also emphasize in 13 Bankers.
1. The financial sector does not add anywhere near as much social value as its proponents claim.
"The question that really jumps out for me is, given all that data, whether the enormous gains in the financial sector -- in compensation and profits -- reflect the relative contributions that sector has made to the growth of human welfare" (from NYT story)
2. Too big to fail banks are alive and well - and this poses a major problem to our future prosperity.
"There is an expectation that very large and complicated financial institutions will not be allowed to fail," he said. "Unless that conviction is shaken, the natural result is that risk-taking will be encouraged and in fact subsidized beyond reasonable limits."
The message yesterday and from other statements made by Mr. Volcker is clear. Our biggest banks are out of control and will not be reined in by the measures currently on the table. We need a much stronger approach to big banks - an approach that will strip government-backed banks of their ability to take crazy risks and, most likely, an approach that significantly constrains (and hopefully even reduces) their size.
Cross-posted from The Baseline Scenario.
treasury and federal reserve. Smaller is better all across the board.
The Administration has indicated that they would like to have a financial reform bill passed by May. My fear is that they will pass a "partial measure" type of bill and try to say that, because of political constraints, this is the best that they could do at this time or that it is a good first start. A "good first start" approach on health care reform might be okay, but give the damage that Wall Street has done and is capable of doing in the future, it is not an acceptable approach on financial reform.
Congress should have been calling one Wall Street figure after another before various committees over the last year and exposing their dirt and encouraging the public's righeous indignation. Instead the Administration has tried to "tamp down" public outrage by talking about the fact that TARP may repaid in full, and has not talked nearly enough about the "collateral damage" (unemployment, lost tax revenue caused by unemployment, mortgage foreclosures, etc.) caused by Wall Street.
I am so serious about the need to get the word out to Americans to educate everyone so that there will be a complete revelation and understanding of how this new bill will affect our lives and livelihoods.
These too big to fail banks will not be broken up. We don't have the laws to do it.
What reforms to regulations are being debated?
Who will enforce the regulations? Will the regulatory authority be funded?
And the only ones that are rallying are the Tea Partiers. Who are in reality rallying against all those good apathetic people who have to stay home and take care of their lives.
Tea Partiers - a vastly white retired group with money and time on their hands, completely seduced and brainwashed by Fox News; merging together with the ingrained bigotry of the baby-boomer generation; has produced a swelling hate group that if it becomes organized...
"When the Nazis came for the communists, I remained silent; I was not a communist.
Then they locked up the social democrats, I remained silent; I was not a social democrat.
Then they came for the trade unionists, I did not protest; I was not a trade unionist.
Then they came for the Jews, I did not speak out; I was not a Jew.
When they came for me, there was no one left to speak out for me."
Pastor Martin Niemoller
There are millions of us normal people, and just a few of them. It's absolutely astounding.
"All they care about is the bottom line," is a good first approximation. Corporate officers are required by law to do that. Whle consideration of the 'good of society' is a consideration for many corporate officers, generally, their time must be spent keeping the business healthy and growing. That is their job.
They do this for (a) their own benefit, (b) shareholders, (c) employees, and (d) society. In that order.
To say, "They're crooks, plain and simple," is incorrect.
Some businesses are crooked, as some people are. Many businesses operate within the law. Businesses operate within the rules, whatever they are, to maximize return to their investors (and themsleves). To do this and to remain competitive, almost all businesses will take maximum advantage of whatever legal/business/social environment they exist in. That is what they should do.
Your statement that, "...big business is NEVER going to do the right think [sic] until they are FORCED TO!, " misses the mark. They will do the right thing, when it is to their advantage. We need to make sure that the rules of the game lead them to do the right thing, and that those rules are enforced.
So, instead of vilifying business, we need to understand the motivations of business and adjust the rules of the game within which they compete.
Business is great! Afterall, without it, we would all be hunters and gatherers, or farmers.
I believe by rules of the game you are speaking of are strong regulations, as the notion that 'the free market will work things out on its own" is an invitation to the worst kind of profiteering.
Charge them through the nose, and tell them repeatedly that the only way to get out of the tax is to shrink themselves.
Set the goal at 4-5% of the US GDP, tax them 5% of their assets above that point-every year! Every year they fail to shrink, they will pay about 1% of the US GDP in taxes (that is how huge they are btw), which is also over 1% of our national debt! We get a lower national debt and no banks will be "too big to fail!"
All banks and financial institutions should be taxed at 90% of their assets for 5 years - or so.
We're close to the administration's "The GOP is going to attack you anyway, might as well do what you think is right" when it comes to the financial system, "There will always be a percentage of people - egged on by banks, the GOP and the fear-filled poplulace - to cry, 'Socialism!' so drastic methods to correct our economy might as well as be taken."
For anyone saying that a 90% tax is too high: any business with $100,000,000,000 will still do very well in a more stable economy, wealth, power, lawyers, laws and - now - stability, will still be in the banks' hands.
Given that the loudest, raging segment of society including seemingly every Republican want government to disappear rather than insure a level playing field, wouldn't any of us wish for the foolishness of that position to be broadcast by the wisest, most neutral party we could find to help shame Congress into doing the right thing? Have we forgotten that the President does not make law?
The subsidy is obvious. Even Alan Greenspan has admitted it, back in April 2008.
To fail to understand this subsidy is to fail in economics and finance 101. People in leading roles who make claims incompatible with this basic fact should be fired. Immediately.
To not fire people who make claims incompatible with this basic fact is to traumatize the public. Trauma is physical pain. Hence, we're talking about bodily injury here.
America will suffer for decades due to this terrible betrayal...
Regardless, another crash is likely coming. Assets have not been marked to market, so balance sheets are not worth the electronic paper on which they are written. With derivatives-related liabilities neither probable nor reasonably estimable, the newest bubble will quickly and catastrophically burst.
Obama is insidiously crafty. He backs Volker knowing that what will end up crossing his desk will get so watered down that it protects nothing. When the crash happens, he can then say that he proposed more stringent regulation, but had to work with Congress. It's all BS!
OK, that last WAS cynical.
Look, in order to do anything at all in Washington, you have to get enough votes in Congress. Since we have a polarized Congress, with each side more interested in its own agenda, getting anything done is difficult.
If enough people want things to change and change in a Democratic fashion, they will vote a super-majority of Democrats, and the effort can proceed.
If enough people want things to change in a Republian fashion, they will vote a Republican super-majority, and the effort can proceed.
Anything in between spells either (a) stalemate, or (b) watered down compromise.
It's crude. It is ugly. It doesn't work very well.
What ia a better alternative? I tend to think 'benevolent dictatorship' is a really bad idea.
So, campaign for those you think will do the best job and vote for them. That's the best we can do.
But you have to do that, rather than sit at your computer and fulminate about lousy politicians.
So, GET OUT THERE!
It affects the employed and unemployed via monitary controls - business lending, mortgage lending, etc.
It affects our political system through massive monitary allowances freely flowing to OUR elected representatives (often greatly affecting OUR leaders' votes / policies to the benefit of corporations over individuals).
It affects the environement through, again, monitary control - Is the green industry getting all the funding it can - or are our oil-based industries being unfairly funded?
It has affected our 'industrial' system by moving our nation away from being a / THE manufacturing powerhouse of the world to being a service-oriented economy - now manufacturing very little ourselves and now very heavily reliant on the tangible resources and goods of other nations. (What do you think will happen to our service-oriented economy when other nations learn to provide such services for themselves/others? We will be left with neither a manufacturing economy - once the envy of the world - nor a service economy!)
As Johnson and Volcker are pointing out... Our fnancial sector is generating huge profits that benefit almost exclusively their firms and themselves, at almost no risk to themselves - all while bringing very, very little benefit to the overall US / global economy - and while doing so thru schemes (I'm sorry -
The most important thing we can teach our children is to question and to reserve judgement until
all the facts are in, while teaching them the importance of what should be considered a reliable
and respectable source of facts. One of the best classes I took as an undergrad was a course in logic and rhetoric, it was a blast.