I talked to a lot of people tonight at Drinking Liberally, including Duncan (we didn’t wrestle), and my take on the general mood is that people’s number one priority is that we fix the too-big-to-fail problem. Most people are somewhat agnostic about the right way to proceed on the banking crisis. But the one point they’re clear on is that when this is all over they do no want to see any financial institutions still standing that are so big that their failure could produce systemic risk.
For some people, their concern about this is so great and their level of trust is so low, that they don’t want to see any rescue plan at all until the banks are broken up into smaller parts. Some people worry that a successful rescue plan will actually prevent us from doing the reform that is needed to prevent a recurrence.
Unfortunately, we aren’t going to be able to get that preferred sequence. The rescue plan is going to get started and the reform elements will follow on. But that doesn’t mean we can’t or won’t get the reforms we need. There is nothing inconsistent about saving a CitiGroup from insolvency and then carving it up anyway. We could force the breakup through some kind of a restoration of the Glass-Steagall Act, or something like it.
Some reforms can be done as pure regulation, but we probably need legislation on top of that. And legislation takes time. You have to have hearings and then you have to craft the legislation and make all the compromises needed to get it passed. It’s unrealistic to think we can get all that done in a few weeks. So, we’re going to do it this way and it will be our job to make sure that the reform has support and that it doesn’t get eviscerated by lobbyists for the bad guys.
No reforms will ever work as long as the people who created this mess are considered the answer to it. Right now they are walking around with hand grenade vests, threatening to blow the world up if they don’t get their ‘money from the sky’ dreams fulfilled.
All the ‘solutions’ are beyond my abilities to analyze. I have no idea what will or will not work. But what I CAN analyze are personalities. And if the ‘Masters of the Universe’ are allowed their way, we are doomed. Maybe not this year, or five years from now, but 20 years from now we will go through the whole thing again.
That is why average people are angry. Not because of the bonus’, or even the bail out. It’s because there are no consequences whatever for failure among the ‘elite’. It’s not the banks that are to big to fail, it’s Harvard and Yale MBA’s that are to ‘important’ to be tagged with failure.
It’s disgusting.
nalbar
“Unfortunately, we aren’t going to be able to get that preferred sequence. The rescue plan is going to get started and the reform elements will follow on. But that doesn’t mean we can’t or won’t get the reforms we need.”
I agree with this sequence and believe it’s very, very doable. Mandatory, in fact. I think in 2010 the goopers are gonna run heavily on ‘look at all that money dems gave to wall street…they are the party of the crooks’. The democrats have to be able to say, ‘bullshit, what got us into this mess is republican deregulation fetishism, and we not only saved the financial system from plunging us into depression but we fixed it so this will never happen again’.
I guess I look at this problem very differently then most on the left. I don’t think the wall streeters are stupid, nor the vast majority crooks. I do think they worked for years to get their little unregulated free market paradise. But what that did was forced even the more cautious/conservative types to do shit that was stupid in the long term because once somebody began doing it, everyone did.
For instance, what would have happened to a bank CEO that said to his board and stockholders, ‘Hey, that other firm is nuts. We are gonna settle for much lower returns and a more conservative return?’ I think it’s obvious they would have been out on their ass with a new, more compliant CEO installed in a heartbeat.
But regulating them can help them change the focus from short term gains to long term gains, from risky behavior to prudent behavior, from not having to go along with the rogues because the rogues are being stopped by good rules and punished when they break them.
Tonight after the presser I actually heard CNN analyst Alex Castelonos(sp ?) argue that the dems wanted regulation, while the gop was against it. If they want to be sure they stay the minority, all they have to do is listen to that insanity. And Limbaugh, too. We couldn’t be handed a bigger gift.
http://www.dailykos.com/story/2009/3/25/711848/-Krugmans-arithmetic-
Citizen k… is that you rootless2?
sometimes. shared with a couple of other citizens.
alright. we will refrain then from referring you case to the Committee of Affairs…
thanks be to god.
The difficulty here is that, though the country still tends to see itself that way, the US is not a closed system. By the time the restrictions on universal banking were lifted in the US and the creation of behemoths like Citigroup and JPM became legal, foreign universal banks (UBS, Credit Suisse, Deutsche Bank) had already bought US investment banks. The issue then became, “are we only going to allow foreign banks to do this?”
The self-regulating regulatory nirvana of the Basel II agreement was based on an international consensus, and regulatory remedies will have to be as well, else the US will simply become a financial also-ran.
To be clear I’ll make my point again: by the late 90s universal banking behemoths had become the international norm and the US merely aligned itself to create a level playing field for its own banks.
Had they not done that, in all likelihood a foreign bank would have cobbled together the group now known as Citi.
Under the WTO regime this goes for all aspects of finance, and all schemes thought up that don’t take this into account are not reality-based.
Summers, Greenspan and Rubin are always criticized for allowing (and even encouraging) the cancer-like growth of a completely unregulated market in OTC derivatives. But, given that an international consensus existed in banking that saw these products as highly desirable, had the US simply regulated them unilaterally, the major players would have created them in London and elsewhere and the financial sectors there would have grown at the expense of NYC.
Of course, what the US could have done back then, but didn’t, is to raise the issue of risk internationally and strive to shape to a new international consensus. That is the only realistic way forward now as well. Simply “restoring” Glass-Steagall is a non-starter.
But but but, we have procedures in place. The FDIC just needs to liquidate these companies in exactly the same way it handles Boracho Junction Credit Union in Alpine Texas. Because there is no difference between a $10M portfolio of construction loans and home mortgages and a $2Trillion international banking conglomerate.
/Progressive Anti-Obama Zealot
But I’m angry now
– Homer Simpson, objecting to a delay in gun purchase.
The new Joe Conason research piece up about the offshore subsidiaries created by the top 100 wealthy corp., which by recent accounts totals $100 billion in lost revenues to the US, leads to the question, and we all know the answer, when the TARP checks were written by Treasury did they do so on the basis of need without knowing what the subsidiaries were holding?
h/t Susie @ C&L
“Regulation” requires political will. It requires an administration committed to the policy and a Congress that will provide the resources to administer the policy. The (my) lack of faith stems from a lack of faith in the political system as much as the financial system.