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.
Occupy Movement Gets Some Respect
Much has changed since the inception of the Occupy Wall Street movement. When the occupation of Zuccotti Park began on September 17, the initial response from mainstream news outlets was to simply ignore it – with no mention of the event whatsoever. When that didn’t work, the next tactic involved using the “giggle factor” to characterize the protesters as “hippies” or twenty-something “hippie wanna-bes”, attempting to mimic the protests in which their parents participated during the late-1960s. When that mischaracterization failed to get any traction, the presstitutes’ condemnation of the occupation events – which had expanded from nationwide to worldwide – became more desperate: The participants were called everything from “socialists” to “anti-Semites”. Obviously, some of this prattle continues to emanate from unimaginative bloviators. Nevertheless, it didn’t take long for respectable news sources to give serious consideration to the OWS effort.
One month after the occupation of Zuccotti Park began, The Economist explained why the movement had so much appeal to a broad spectrum of the population:
Reports eventually began to surface, revealing that many “Wall Street insiders” actually supported the occupiers. Writing for the DealBook blog at The New York Times, Jesse Eisinger provided us with the laments of a few Wall Street insiders, whose attitudes have been aligned with those of the OWS movement.
By late December, it became obvious that the counter-insurgency effort had expanded. At The eXiled blog, Yasha Levine discussed the targeting of journalists by police, hell-bent on squelching coverage of the Occupy movement. In January, New York Mayor Michael Bloomberg lashed out against the OWS protesters by parroting what has become The Big Lie of our time. In response to a question about Occupy Wall Street, Mayor Bloomberg said this:
The counterpunch to Mayor Bloomberg’s remark was swift and effective. Barry Ritholtz wrote a piece for The Washington Post entitled “What caused the financial crisis? The Big Lie goes viral”. After The Washington Post published the Ritholtz piece, a good deal of supportive commentary emerged – as observed by Ritholtz himself:
Once the new year began, the Occupy Oakland situation quickly deteriorated. Chris Hedges of Truthdig took a hard look at the faction responsible for the “feral” behavior, raising the question of whether provocateurs could have been inciting the ugly antics:
Chris Hedges gave further consideration to the involvement of provocateurs in the Black Bloc faction on February 13:
Despite the negative publicity generated by the puerile pranks of the Black Bloc, the Occupy movement turned a corner on February 13, when Occupy the SEC released its 325-page comment letter concerning the Securities and Exchange Commission’s draft “Volcker Rule”. (The Volcker Rule contains the provisions in the Dodd-Frank financial reform act which restrict the ability of banks to make risky bets with their own money). Occupy the SEC took advantage of the “open comment period” which is notoriously exploited by lobbyists and industry groups whenever an administrative agency introduces a new rule. The K Street payola artists usually see this as their last chance to “un-write” regulations.
The most enthusiastic response to Occupy the SEC’s comment letter came from Felix Salmon of Reuters:
John Knefel of Salon emphasized how this comment letter exploded the myth that the Occupy movement is simply a group of cynical hippies:
Even Mayor Bloomberg’s BusinessWeek spoke highly of Occupy the SEC’s efforts. Karen Weise interviewed Occupy’s Alexis Goldstein, who had previously worked at such Wall Street institutions as Deutsche Bank, where she built IT systems for traders:
Chris Sturr of Dollars & Sense provided this reaction:
If Chris Sturr’s expectation ultimately proves correct, it will be nice to watch the pro-Wall Street, teevee pundits get challenged by some worthy opponents.