MA Bitchslap Wakes Up Obama?

[TampaYankee]

Obama has passed some very significant important legislation in his first year. However, IMO he has come up short in some important ways too, most notably Wall St and Bank reform. Also, he has permitted a three ring circus with Health Care Reform, supported and even undertaken back room deals with special interests contrary to his campaigning against such practices. He has stood by while Congress has exhibited it's crassest characteristic of selling out to special interests -- again Banking and Wall St and also Big Pharma come to mind.

I'm sure some of this was done for the sake of getting an end product. I understand practical realities but this hasn't been an example of changing the way to do business in the Beltway. Rather, it has been more of the same and in the bright glare of 24/7 coverage. The electorate is not happy about the lack of reform or the way it has gone about IMO. The Massachusetts voter bitch-slap has made that clear to me and now inlight of the Massachusetts election result it seems clear to Obama too.

After a year of ignoring Paul Volcker and his ideas about breaking up Too Big Too Fail Banks, with Geitner and Summers freezing him out of the action, Obama seems to have done a 180, essentially overnight, it seems to get on the right side of Main Street. All this since the Massachusetts election, any other explanations nothwithstanding. It is high time IMO.

I'm not for killing Big Banks and Wall St Corps, we really do need them. I'm just for cutting them down to size so that they can be allowed to die from their own mistakes without taking the rest of us with them. Obama seems to be starting down that road in earnest. At least I hope so.

Ii suspect the afterburners just got turned on for the jobs creation effort too.

Simon Johnson

Posted: January 21, 2010 12:58 AM

Paul Volcker Prevails

http://www.huffingtonpost.com/simon-johnson/paul-volcker-prevails_b_430869.html

Paul Volcker, legendary central banker turned radical reformer of our financial system, has won an important round. The WSJ is now reporting:

President Barack Obama on Thursday is expected to propose new limits on the size and risk taken by the country's biggest banks, marking the administration's latest assault on Wall Street in what could mark a return -- at least in spirit -- to some of the curbs on finance put in place during the Great Depression.

This is an important change of course that, while still far from complete, represents a major victory for Volcker - who has been pushing firmly for exactly this.

Thursday's announcement should be assessed on three issues.

Does the president provide a clear statement of why we need these new limits on banks? The administration's narrative on what caused the crisis of 2008-09 has been lame and completely unconvincing so far. The president must take it to the banks directly - tracing the origins of our "too big to fail" vulnerabilities to the excessive deregulation of banks following the Reagan Revolution and emphasizing how much worse these problems became during the Bush years.

Are the proposed limits on the total size (e.g., assets) of banks, or just on part of their operations - such as proprietary trading? The limits need to be on everything that banks do, if they are to be meaningful at all. This is not a moment for technocratic niceties; the banks must be reined in, simply and directly.

Is there a clear strategy for (a) taking concrete workable proposals directly to Congress, and ( b ) win, lose, or draw in the Senate, running hard with this issue to the midterm elections?

Push every Republican to take a public stand on this question, and you will be amazed at what you hear (if they stick to what they have been saying behind closed doors on Capitol Hill.)

The spin from the White House is that the president and his advisers have been discussing this move for months. The less time spent on such nonsense tomorrow the better. The record speaks for itself, including public statements and private briefings as recently as last week - this is a major policy change and a good idea.

The major question now is - will the White House have the courage of its convictions and really fight the big banks on this issue? If the White House goes into this fight half-hearted or without really understanding (or explaining) the underlying problem of unfettered banks that are too big to fail, they will not win.

See the referenced WSJ article:

http://online.wsj.com/article/SB10001424052748704320104575015910344117800.html?mod=WSJ_hps_LEFTWhatsNews

[Guest Conway]

It seems to me that President Obama's new hard on for the banking industry is in direct contradiction to his previous statements that we need the industry to start lending again in order to get the economy moving.

First, Obama's proposed Bank tax will be levied only on banks with assets of $50 billion or more. Nearly all of those banks have repaid the taxpayers with interest for the TARP investments that we the people made in them. The largest recipients in TARP who appear to lack the ability to repay it are AIG, Chrysler, General Motors and the American Homeowner who received mortgage assistance money.

To me, it seems completely inequitable to ask the good banks that have met their obligations to pay for the bad investment that the government made in smaller less critical banks, the auto industry and the mortgage restructure money that POTUS gave to homeowners.

The saving of Big Banks was a necessary evil as we clearly saw signs of liquidity runs on our banking system in the fourth quarter of 2008. However, the economy could have continued to function without contributions to AIG and the auto manufacturers.

In essence, Obama seems to want the Banking system to pay for his bad investments in an auto manufacturing industry that failed because it had a broken labor model and still has a broken labor model today.

That's inequitable and unfair to each of us here because you can be sure that the cost of this tax will be passed on to consumers in the form of higher interest rates and higher fees.

[TampaYankee]

It seems to me that President Obama's new hard on for the banking industry is in direct contradiction to his previous statements that we need the industry to start lending again in order to get the economy moving.

From what I have read very little lending is going on with the big banks. Most of their gargantuan revenues are coming from proprietary transactions using free Fed money. Whatever is being lent is a fraction of the bonus payouts as a comparison.

First, Obama's proposed Bank tax will be levied only on banks with assets of $50 billion or more. Nearly all of those banks have repaid the taxpayers with interest for the TARP investments that we the people made in them. The largest recipients in TARP who appear to lack the ability to repay it are AIG, Chrysler, General Motors and the American Homeowner who received mortgage assistance money.

You make a reasoned and on the surface a reasonable argument. I cannot take exception with any facts as you have presented them. I cannot say the some banks may be unfairly assessed based on their own individual behavior and practice. On the otherhand, because a bank did not fail doesn't mean that they were not contributors to bad mortgages they underwrote and may have sold off or even eaten. Bad mortgages sold to, and contributing to, the failure of other institutions or retained bad mortgages of individuals who went under causing blight and cost to the communities. Consequently, where the line should be drawn is not so clear. Simply because they did not need taxpayer funds to survive does not mean that they were not contributors to the meltdown.

To me, it seems completely inequitable to ask the good banks that have met their obligations to pay for the bad investment that the government made in smaller less critical banks, the auto industry and the mortgage restructure money that POTUS gave to homeowners.

But there are also other arguments to be made.

The damage done by high risk banking behavior affected the economy far beyond the damage they did to their own particular institutions. One can argue that GM and Chrysler were unwell companies before the crash. No one can deny that the banking crash killed financing and consumer confidence, both which sent them into a coma accompanied by a death rattle and emergency surgery that wacked off limbs without benefit of any anesthesia. Tens of thousands of unemployed were created essentially overnight and local business went belly up like goldfish in a drano bath. Fear and more, lack of financing, spread to the entire consumer and business sectors causing retrenchment that threw millions more out of work causing tens and hundreds of millions of tax payer safety net dollars. Not to mention the stimulas package to stem the total crash of commerce, government services and jobs in the country.

Consider that the big banks are like a couple of foundation cornerstones of a building. Their construction was risky resulting in failed support to the overlying building. While they got funding to repair their flaws and reestablish strength, their fault damaged the whole building. Their liability is not ended with the payback of their own repair loans.

Clearly, not all banks should be painted with this brush. However, more banks pissed in the well than received cash bailouts. Where to draw the line is somewhat arbitrary with respect to individual banks but a line needs to be drawn.

However, the economy could have continued to function without contributions to AIG and the auto manufacturers.

I'm not sure that position was widely held at the time or is now. I seem to recall the thinking that AIG's fall would make Bear Stearns/Lehman Bros. look like tea party with respect to a crisis of confidence. It would have led directly to the failure of addtional companies and who knows how many more indirectly. I don't doubt saving AIG was necessary but I do think it was done badly, in an unncessarily costly way that screwed the taxpayer. I attribute that poor chapter to panic by the decision makers -- not their best moment IMO.

In essence, Obama seems to want the Banking system to pay for his bad investments in an auto manufacturing industry that failed because it had a broken labor model and still has a broken labor model today.

That's inequitable and unfair to each of us here because you can be sure that the cost of this tax will be passed on to consumers in the form of higher interest rates and higher fees.

No, we cannot levy on the banks the true cost to the nation of their irresponbile behavior in pursuit of their greed. They simply are nowhere big enough to repay the damage they have done. And in fairness, they are not soley to blame for all that has happened. However, one can make the argument that Obama's tax is not unfair, or even that it does not go nearly far enough based on the fact that it represents only a fraction of the bonuses the banks are paying out.

Ultimately, I'm less concerned about taxing the banks than I am about instituting financial reforms to guarantee this will not happen again. The latter is up in the air. Our laughing bankers are paying big bucks to lobbyists to defeat that effort. As far as the tax, I'll take it as long as bank bonuses outstrip or even remain a significant fraction of lending. I'm even for bigger taxes if effective reform fails, for a rainy day crash fund. I'm fundamentally against the rape of the taxpayer by bankers laughing all the way to the bank. And there is no denying their culpability and their laughing.