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More Favorable Reviews For Huntsman

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In my last posting, I focused on how Jon Huntsman has been the only Presidential candidate to present responsible ideas for regulating the financial industry (Obama included).  Since that time, I have read a number of similarly favorable reactions from respected authorities and commentators who reviewed Huntsman’s proposals .

Simon Johnson is the former Chief Economist for the International Monetary Fund (IMF) from 2007-2008.  He is currently the Ronald A. Kurtz Professor of Entrepreneurship at the MIT Sloan School of Management.  At his Baseline Scenario blog, Professor Johnson posted the following comments in reaction to Jon Huntsman’s policy page on financial reform and Huntsman’s October 19 opinion piece for The Wall Street Journal:

More bailouts and the reinforcement of moral hazard – protecting bankers and other creditors against the downside of their mistakes – is the last thing that the world’s financial system needs.   Yet this is also the main idea of the Obama administration.  Treasury Secretary Tim Geithner told the Fiscal Times this week that European leaders “are going to have to move more quickly to put in place a strong firewall to help protect countries that are undertaking reforms,” meaning more bailouts.  And this week we learned more about the underhand and undemocratic ways in which the Federal Reserve saved big banks last time around.  (You should read Ron Suskind’s book, Confidence Men: Wall Street, Washington, and the Education of a President, to understand Mr. Geithner’s philosophy of unconditional bailouts; remember that he was president of the New York Fed before become treasury secretary.)

Is there really no alternative to pouring good money after bad?

In a policy statement released this week, Governor Jon Huntsman articulates a coherent alternative approach to the financial sector, which begins with a diagnosis of our current problem:  Too Big To Fail banks,

“To protect taxpayers from future bailouts and stabilize America’s economic foundation, Jon Huntsman will end too-big-to-fail. Today we can already begin to see the outlines of the next financial crisis and bailouts. More than three years after the crisis and the accompanying bailouts, the six largest U.S. financial institutions are significantly bigger than they were before the crisis, having been encouraged by regulators to snap up Bear Stearns and other competitors at bargain prices”

Mr. Geithner feared the collapse of big banks in 2008-09 – but his policies have made them bigger.  This makes no sense.  Every opportunity should be taken to make the megabanks smaller and there are plenty of tools available, including hard size caps and a punitive tax on excessive size and leverage (with any proceeds from this tax being used to reduce the tax burden on the nonfinancial sector, which will otherwise be crushed by the big banks’ continued dangerous behavior).

The goal is simple, as Mr. Huntsman said in his recent Wall Street Journal opinion piece: make the banks small enough and simple enough to fail, “Hedge funds and private equity funds go out of business all the time when they make big mistakes, to the notice of few, because they are not too big to fail.  There is no reason why banks cannot live with the same reality.”

The quoted passage from Huntsman’s Wall Street Journal essay went on to say this:

These banks now have assets worth over 66% of gross domestic product—at least $9.4 trillion, up from 20% of GDP in the 1990s.  There is no evidence that institutions of this size add sufficient value to offset the systemic risk they pose.

The major banks’ too-big-to-fail status gives them a comparative advantage in borrowing over their competitors thanks to the federal bailout backstop.

Far be it from President Obama to make such an observation.

Huntsman’s policy page on financial reform included a discussion of repealing the Dodd-Frank law:

More specifically, real reform means repealing the 2010 Dodd-Frank law, which perpetuates too-big-to-fail and imposes costly and mostly useless regulations on innocent smaller banks without addressing the root causes of the crisis or anticipating future crises.  But the overregulation cannot be addressed without ending the bailout subsidies, so that is where reform must begin.

Beyond that, Huntsman’s Wall Street Journal piece gave us a chance to watch the candidate step in shit:

Once too-big-to-fail is fixed, we could then more easily repeal the law’s unguided regulatory missiles, such as the Consumer Financial Protection Bureau.  American banks provide advice and access to capital to the entrepreneurs and small business owners who have always been our economic center of gravity.  We need a banking sector that is able to serve that critical role again.

American banks also do a lot to screw their “personal banking” customers (the “little people”) and sleazy “payday loan”-type operations earn windfall profits exploiting those workers whose incomes aren’t enough for them to make it from paycheck-to-paycheck.  The American economy is 70 percent consumer-driven.  American consumers have always been “our economic center of gravity” and the CFPB was designed to protect them.  Huntsman would do well to jettison his anti-CFPB agenda if he wants to become President.

Mike Konczal of the Roosevelt Institute, exhibited a similarly “hot and cold” reaction to Huntsman’s proposals for financial reform.  What follows is a passage from a recent posting at his Rortybomb blog, entitled “Huntsman Wants to Repeal Dodd-Frank so he can Pass Title VII of Dodd-Frank”:

So we need to get serious about derivatives regulation by bringing transparency to the over-the-counter derivatives market, with serious collateral requirements.  This was turned into law as the Wall Street Transparency and Accountability Act of 2010, or Title VII of Dodd-Frank.

So we need to eliminate Dodd-Frank in order to pass Dodd-Frank’s resolution authority and derivative regulations – two of the biggest parts of the bill – but call it something else.

You can argue that Dodd-Frank’s derivative rules have too many loopholes with too much of the market exempted from the process and too much power staying with the largest banks.  But those are arguments that Dodd-Frank doesn’t go far enough, where Huntsman’s critique of Dodd-Frank is that it goes way too far.

Huntsman should be required to explain the issues here – is he against Dodd-Frank before being for it?  Is his Too Big To Fail policy and derivatives policy the same as Dodd-Frank, and if not how do they differ?  It isn’t clear from the materials he has provided so far how the policies would be different, and if it is a problem with the regulations in practice how he would get stronger ones through Congress.

I do applaud this from Huntsman:

RESTORING RULE OF LAW

President Huntsman’s administration will direct the Department of Justice to take the lead in investigating and brokering an agreement to resolve the widespread legal abuses such as the robo-signing scandal that unfolded in the aftermath of the housing bubble.  This is a basic question of rule of law; in this country no one is above the law. There are also serious issues involving potential violations of the securities laws, particularly with regard to fair and accurate disclosure of the underlying loan contracts and property titles in mortgage-backed securities that were sold.  If investors’ rights were abused, this needs to be addressed fully.  We need a comprehensive settlement that puts all these issues behind us, but any such settlement must include full redress of all legal violations.

*   *   *

And I will note that the dog-whistles hidden inside the proposal are towards strong reforms (things like derivatives reform “will also allow end-users to negotiate better terms with Wall Street and in turn lower trading costs” – implicitly arguing that the dealer banks have too much market power and it is the role of the government to create a fair playing field).  Someone knows what they are doing.  His part on bringing down the GSEs doesn’t mention the hobbyhorse of the Right that the CRA and the GSEs caused the crisis, which is refreshing to see.

If Republican voters are smart, they will vote for Jon Huntsman in their state primary elections.  As I said last time:  If Jon Huntsman wins the Republican nomination, there will be a serious possibility that the Democrats could lose control of the White House.


 

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The Voting Begins

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October 30, 2008

The long-awaited 2008 Elections are finally underway.  According to the Early Voting Information Center website, 32 States allow in-person early voting.  As the voting proceeds, we are seeing an enormous number of people opting to cast their votes before November 4.  On Tuesday, October 28, Gary Langer (polling director for ABC News) reported that as of that morning, 9 percent of “likely voters” had already voted.  As reported in the October 30 Washington Post, Michael McDonald, an associate professor at George Mason University who compiles early-voting statistics, observed that his running total of early voters now tops 16.5 million.  USA Today reports that approximately 25 percent of Georgia’s registered voters have already cast their ballots.  In Florida, Governor Charlie Crist extended the hours for early voting.  Prior to Crist’s executive order, Florida law allowed for early voting 8 hours per weekday and a total of 8 hours over the weekend.  The polls in Florida will now be open 12 hours per day, through Sunday, the last day for early voting.  The Miami Herald reported that prior to Christ’s signing of the order, the long, winding lines at the polling stations resulted in waits of as long as four hours to get to a voting machine.  The Herald reported that as of Tuesday morning, 10 percent of the state’s registered voters had already voted.  On Wednesday, October 29, Susan Saulny reported in The New York Times that there have been rumors circulating in Jacksonville, Florida’s African-American community that early voting could not be trusted because the votes cast early would be discarded.

By this point, there are already reports of voting machine problems and irregularities.  Martina Stewart reported for CNN that in Jefferson County, Texas, the County Clerk admitted to receiving “about half a dozen calls” that touch-screen voting machines were recording votes inaccurately.  Apparently, the candidates’ names are so close to each other on the screen that there is a possibility of pressing the wrong name when making the selection.  The machines have a “summary screen” where the voter can verify that the correct candidates were selected before finally hitting the button to actually cast the votes.  Similar problems were discussed by a reporter named Bill Murray at WSAZ in West Virginia.  Murray’s report pointed out that long fingernails and contact with the screen by bracelets could result in erroneous votes.

On Monday October 27, The New Mexico Independent reported that in Albuquerque, the American Civil Liberties Union filed a lawsuit against a Republican state lawmaker, alleging violations of the Voting Rights Act and disclosure of confidential information about voters, including Social Security numbers.  The article discussed the efforts of a Republican State Representative, Justine Fox-Young (a defendant in the suit) to support claims of voter fraud in the state’s June election.  The Independent had previously reported that Republican Party attorney Pat Rogers had hired a private investigator named Al Romero to make contact with voters whose registrations were under scrutiny by Republican activists.  The article discussed allegations by two legally-registered Hispanic voters, that they had been intimidated by Romero.  Pat Rogers had been cited in the U.S. Department of Justice report about the firing of U.S. attorneys and was described as one of the New Mexico GOP activists who complained to the Department of Justice about then-U.S. Attorney David Iglesias.  Iglesias was one of the U.S. Attorneys fired by Attorney General Alberto Gonzales for political reasons.  The firing of Iglesias was a result of his failure to pursue a politically-motivated, bogus “voter fraud” investigation.

If Barack Obama defeats John McCain by a narrow margin, we can expect protracted recounts and microscopic inspections of voter registration documents.  My concern about this was reinforced when I read a quote from McCain speechwriter, Mark Salter, in a Washington Post article by Michael Leahy, on Thursday.  Speaking about John McCain, Salter said:

“And he’s not going to go down without a fight.  Some people mistake that for something else.  Some people believe in being gracious losers just so other people will look at them kindly.  He isn’t like that.   …  He’s going to fight hard, and if other people don’t think he’s being gracious, well, that’s the way it will be.  But he’s not alone in that.  And I’ll remind people of that, if I have to.”

So, don’t expect McCain to be a “gracious loser”.  Unless there is a landslide on Tuesday, there could be a long, ugly fight, reminiscent of the election fiasco of 2000.