Category: Economy

On Dodd-Frank Plus One

New Deal 2.0, the Roosevelt Institute’s blog, had a series of posts up yesterday marking the one year anniversary of Dodd-Frank, legislation that was in response to the 2008 financial collapse and ostensibly sought regulatory reforms to minimize the ongoing consequences of the financial collapse and prevent such a collapse from happening again. Except it didn’t really do any of those things. Rob Johnson writes:

As Senator Durbin exclaimed in a 2009 radio program, “[Banks] frankly own the place”. The clarity of that thought was revealed by the contrast between the magnitude of the crisis and the harm that it has done, and the lack of meaningful reform in Dodd Frank. Real balanced legislation would have gone much further to curtail embedded leverage and complexity of instruments. Real legislation would have contained a mortgage modification dimension like the Home Owners Loan Corporation. We do not have those things because they would have threatened reported profits, bonus pools and campaign contributions. This is not just a problem of government, as distinct from the private sector, it is a problem of the governance of the concentrated powerful interests who spent years shaping legislation and regulatory enforcement to unshackle themselves until they imparted great harm to the rest of society and handed it a bill for the cleanup.

I think Johnson’s attack on legislative capture by the banking industry is right and he goes on to point out that this destructive phenomena isn’t limited to the world of finance – we saw the same thing during the process of passing healthcare legislation.
Matt Stoller writes:

After the immediate crisis was contained, losses were socialized, and profits returned to financial executives, Congress had to put together a “solution”. It would have a giant bite at the apple in restructuring our regulatory apparatus. But in order to perpetrate the oligarchic banking structure, it would be important that no structural changes to the industry be implemented. Not one regulator was fired for his or her part in the crisis. The Justice Department adopted a posture of legalizing financial control fraud by refusing to prosecute anyone involved in the meltdown, and continues to allow millions of cases of foreclosure fraud to continue. Ben Bernanke was renominated, and the administration fought a bitter below-the-radar battle to secure his confirmation. With a few modest exceptions, the risk-taking and leverage in our financial markets continues apace, and the deregulatory neoliberal mindset is still dominant. The Federal Reserve has been audited, but the system is now accountability-free for high level operatives in finance and politics. And now that Elizabeth Warren has been thrown overboard by the administration, the lockdown of the financial system is nearly complete.

And mostly, that’s what Dodd-Frank accomplished. It rearranged regulatory offices and delivered a new set of mandates, but effected no structural changes to our banking system. Congress never asked what happened, or why, or even, what kind of banking system do we want? And that’s because Obama’s Treasury Secretary already had the answers to these questions.

What’s particularly dangerous about this is that the financial crisis demanded structural changes. It demanded governmental responses that sought to directly benefit working and middle class consumers. It demanded a direct confrontation of the popped housing bubble and millions of underwater homeowners. It demanded investigation and accountability – of Wall Street executives, of corrupt ratings agencies, and of captured regulators. But these things didn’t happen and while Dodd-Frank contained some good things (CFPB, audit the Fed), the presence of these good things doesn’t address the things that the legislation never even attempted to do.

A Thousand Cuts


Great video of a speech by Senator Bernie Sanders on the class war being waged by elites on the middle class overlayed on a temporary art piece by artists Ligorano/Reese that was on display last month. The actual structure took 8 hours to fall apart, which is substantially longer than the current class war has been waged on the middle class.

Neoliberal vs Liberal

Mike Konczal week at Hold Fast continues…

We have a genuine, full-blown demand crisis on our hands. But our neoliberal policy advisors are looking to provide confidence to the bond market and are telling the unemployed to start taking night classes to get us out of this mess. Economic policy has conceptually been surrendered to the right, and now the Democratic administration is just arguing over how generous to be when it comes to supply-side interventions.

On the other hand, liberals know that demand needs to get moving in order to get our economy working again, and it needs to fire on all cylinders: stimulus in the form of public works and job programs, monetary policy in the form of QE3, and the writing down of bad debt. And it matters for politics – as Doug Henwood writes, recessions are better for the right than for the left.

I’m not an academic and don’t have much to add other than I think Konczal is right and there are meaningful policy differences between neoliberals and liberals. You might think that this is not be much of a statement and normally you’d be right. But there’s been a big, wonky debate the last few days on blogs and on Twitter about this.

Ignorant, Thin Skinned Billionaires

Mike Allen reports on a meeting pulled together by Home Depot CEO Ken Langone and 50 Wall Street and hedge fund millionaires and billionaires with union-busting reactionary Chris Christie in which they encouraged Christie to run for President.

Several of them said: I’m Republican but I voted for President Obama, because I couldn’t live with Sarah Palin. Many said they were severely disappointed in the president. The biggest complaint was what several called “class warfare.” They said they didn’t understand what they had done to deserve that: If you want to have a conversation about taxation, have a conversation. But a president shouldn’t attack his constituents – he’s not the president of some people, he’s president of all the people. Someone mentioned Huey Long populism.

I will never cease to be amazed at how thin-skinned and historically ignorant Wall Street billionaires are. Huey Long called for caps on annual income, total wealth, and inheritance. Obama has extended the Bush tax cuts for millionaires, but he called Wall Street executives “fat cats” once. So obviously they’re the same.

Barack Obama is many things, but a populist is not one of them. The only class warfare he is willing to wage is one against the working and middle classes of America – as exemplified by his desire to cut Social Security, Medicare and Medicaid to balance the deficit. His administration was comfortable with a 6:1 ratio of spending cuts to revenue increases in order to get a deal to raise the debt ceiling. These are cuts which effectively transfer wealth from the middle class to the wealthiest elites in America.

Seriously, the obtuseness, ignorance and absurdity demonstrated by Wall Street elites is a monument to their solipsism. The terrifying thing is that these people are the ones people like Barack Obama and Bill Daley actually listen to when considering policy questions about how best to steer this country.

Debunking the free house moral hazard

Katie Porter at Credit Slips has a good post debunking the spin from banks and many conservatives that if banks don’t continue to aggressively pursue foreclosure, regardless of their actual legal standing to do so, then a lot of undeserving people will get free houses. While Porter notes that this really isn’t happening that often to begin with, the notion that bad, non-existent, or fraudulent paperwork would prevent one bank from foreclosing on a homeowner means the person now has a free house is very, very false:

But this win is not the same as a free house. Just because a party lacked standing or statutory authority does not mean that there is not some party out there that does have the authority to foreclosure. Nor does a win on standing mean that there cannot be action taken to give the initial foreclosing party the authority that they need, which might occur by transferring possession of the note or by executing a series of assignments, to foreclose at a later date. Unless other problems exist, there is still a valid note that obligates the homeowner to pay money due and there is still a mortgage encumbering the house. The homeowner does not get a free house. Rather, the homeowner just doesn’t lose her house today to foreclosure. These are pretty different outcomes!

Porter goes on to note that there are still other meaningful consequences of foreclosure issues due to lack of standing or missing documentation. But the important thing is getting passed the hyperbolic moral hazard rhetoric coming from conservatives and banking industry shills:

A fruitful discussion of these issues needs to begin with a clear understanding of the consequences of the problem, as well as empirical evidence on how widespread these problems are. The free house is political handwringing, not legal reality.

The most successful arguments the banking industry and conservatives who support them have made are arguments that hinge on making one group of Americans jealous of another group of Americans. They want homeowners saying, “it’s not fair for my neighbor to get a free house while I work hard to stay current on my mortgage.” They want homeowners saying, “it’s my neighbor’s fault for getting more house than he can afford.” They want homeowners to turn against each other, to make sure that everyone is pulled down to the same level while not looking at the banks towering over them, raking in record profits off of first fraudulent lending and now fraudulent foreclosures. This is not dissimilar to how conservatives and big corporations have turned non-unionized working class people against their unionized neighbors and pushed them not to raise themselves up, but pull their unionized sisters and brothers down to their level of economic distress and exploitation. In short, the moral hazard argument boils down to one in which elites seek to turn members of the working and middle classes against each other, with the consequence that this distraction will prevent anyone from focusing their anger on the real perpetrators of the foreclosure crisis, the same people who are now telling Americans that they should look suspiciously and angrily at their neighbors.

Stoller on Warren & Obama

Matt Stoller has a piece that’s really worth reading up at Naked Capitalism. In it he looks at the comparative leadership styles of Elizabeth Warren and Barack Obama. What’s particular important in this piece is the elevation of Warren as an individual who not only has strong beliefs, but believes her ideas are worth fighting for and if she leads on the issues she cares about, other people will agree with her and go along with this. She pretty much out-organized the entire power structure in Washington DC during the course of the Dodd-Frank debate and the inclusion of the CFPB as part of the legislation. This despite the fact that the banks were opposed, credit card agencies and pay day lenders were opposed, in different ways Dodd, Frank, and Obama were unsupportive. But Warren out organized them and won.

Stoller writes:

Obama has constructed a Presidency around the glory of radicalism through inaction, and has dominated our politics so thoroughly it’s hard to recall any other mechanisms of governance. Still, It is important to remember what real leadership can look like, which is why Elizabeth Warren can be a pivotal figure. After all, we may need real leaders one day.

Yes, we will. And the pessimism which one feels about the performance by Obama or any other Democratic elected official shouldn’t diminish ones ability to still believe in leadership. For me, if I didn’t still believe that it was possible for individuals to take strong positions and move people to not only support them but take action to ensure they are realized, I wouldn’t be able to still work the politics and activism. Elizabeth Warren is a reminder that there are people who will lead towards good things.

Whatever Warren decides to do next, I’m sure she will continue to be a fierce advocate for what she believes in.

Konczal on GOP vs CFPB

Mike Konczal looks at why the GOP will try to block Richard Cordray as the new director of the CFPB. He notes that one of the main GOP goals for changing the CFPB is to “Replace the single Director with a board to oversee the Bureau. This would prevent a single person from dominating the Bureau and provide a critical check on the Bureau’s authority.” Konczal writes:

Breaking them down, in practice the CFPB is going to have a large operation, with people overseeing various parts of the regulatory framework. It’s not clear what problem having a board instead of a Director is meant to solve, and it is very clear that having a board instead of a Director will throw sand into the gear of the Bureau working well. Subtly, it will reduce the presence of the Bureau among all other banking regulators, as they all have a clear chief agent who coordinates the activities of the agency. Not so subtly, it’ll cause in-fighting and a lack of focus during its crucial first years.

I actually don’t think this is unclear at all. A single director is a public figure and the face for the agency. At times when policies are seeking to be changed or achieved or, most importantly, advocated forcefully for, that person is the vehicle for the bureau’s interaction with the public. Elizabeth Warren has been a highly public figure in recent months as she shepherded the CFPB in its early days. She was repeatedly called before Congress and waged pitched battles in hearings with churlish House GOP members. If the CFPB had its director replaced with a board, the bureau would lose its public figure, lose its singular point of opposition with Republicans who don’t want consumers to have financial protection, and lose the ability to effectively respond to political attacks.

One example of how panels disempower organizational standing is the NLRB. No one can name a single member of the board and since it’s bipartisan, both labor and management always have people to adopt their desired positions, making the general stance of the board itself incoherent. A different example would be the Catfood Commission, comprised of 18 members, but represented in the press as largely the project of two people, co-chairs Alan Simpson and Erskine Bowles. Does anyone know or care what Xavier Becerra did on the Catfood Commission? No, of course not, because individual leaders are much more appealing and easy to understand than participants in a larger panel. Even in a place where a group of people were supposed to come up with some conclusion, the work of each parties’ lead member was elevated, because it’s easier to understand a viewpoint advocated by a single figure or two theoretically dueling participants. In the case of the Catfood Commission the alleged novelty of a Democrat and Republican coming to a grand compromise about reducing the deficit was what was supposed to sell the whole thing. What is left behind from that work is that the Bowles-Simpson vision failed to pass the commission on whole. These examples show both the inefficacy of boards to do the work of government agencies and the tendency, when it’s relevant to elites, for the position of individual members of a board to be given primacy over the larger work of a board.

All that is to say that it’s fairly straightforward why the GOP wants to remove the director of the CFPB and replace it with a destined to be ineffective board of directors.

Krugman & Konczal on elite wealth defense

Krugman responds to Mike Konczal:

Mike Konczal ratchets up my rentier argument, arguing that what we’re seeing is

a wide refocusing of the mechanisms of our society towards the crucial obsession of oligarchs: wealth and income defense.

That has to be right. It doesn’t necessarily take the form of pure cynicism; it’s more a matter of the wealthy gravitating toward views of economic policy that make immediate sense in terms of their own interests, and politicians believing that only these views count as Serious because they’re the views of wealthy people.

There’s a certain extent that the difference between being cynical and being obtusely self-interested is meaningless. But as Krugman points out, the relevant stance is that politicians prioritize the views of wealthy elites, regardless of their merit or sense. Again, though, that point sort of misses the fact that almost all elected officials in Washington are members of the richest 1%. They share economic interests with wealthy elites and have the power to implement policies which not only defend wealth and income, but help increase it by transferring it from working people to the rich.

Countering McConnell

I think it’s worth talking more about what a counter-offer to McConnell would look like. The biggest flaw with McConnell is that it would mean Obama would be required to put up $2.5 trillion spending cuts, with no offsetting revenue increases. This gives the GOP what they wanted: deficit reduction entirely through spending cuts and it takes away the fig leaf of revenue raises (coming in large part from the rich & corporations) that the administration and congressional Democrats have sought. To me the natural counter offer from Obama would be to have the freedom to meet the tranched offset requirements through a combination of spending cuts and revenue increases, at a rate which is agreed upon now. While I’m certain that rate would be something I personally find outlandish (anywhere from 3-6:1 spending cuts/revenue increases), it would at least be an opportunity to negotiate and do so in a way that preserves some semblance of victory in terms of achieving the desired split between spending cuts and revenue increases. And as much as I think a 5:1 deal would be different from a 1:0 in optics alone, the reality is with the size of the numbers being tossed around here, getting a few hundred billion back through revenue increases is better than nothing.

I’ll be curious to see what the President’s counter-offer to McConnell looks like, but right now I’d bet that it involves carving out space for him to put in some revenue increases.

Taibbi on debt ceiling debate

Matt Taibbi:

The blindness of the DLC-era “Third Way” Democratic Party continues to be an astounding thing. For more than a decade now they have been clinging to the idea that the path to electoral success is social liberalism plus laissez-faire economics – in other words, get Wall Street and corporate America to fund your campaigns, and get minorities, pro-choice and gay marriage activists (who will always frightened into loyalty by the Tea Party/Christian loonies on the other side) to march at your rallies and vote every November. They’ve abandoned the unions-and-jobs platform that was the party’s anchor since Roosevelt, and the latest innovations all involve peeling back their own policy legacies from the 20th century. Obama’s new plan, for instance, might involve slashing Medicare and Social Security under “pressure” from the Republicans.

I simply don’t believe the Democrats would really be worse off with voters if they committed themselves to putting people back to work, policing Wall Street, throwing their weight behind a real public option in health care, making hedge fund managers pay the same tax rates as ordinary people, ending the pointless wars abroad, etc. That they won’t do these things because they’re afraid of public criticism, and “responding to pressure,” is an increasingly transparent lie. This “Please, Br’er Fox, don’t throw me into dat dere briar patch” deal isn’t going to work for much longer. Just about everybody knows now that they want to go into that briar patch.

Yes, exactly. With the noticeable exception of the Congressional Progressive Caucus and a small handful of liberal Democratic senators, basically everyone in DC has gone happily along with creating a debt ceiling crisis as a means of instituting painful austerity measures. This has been most obvious with President Obama, but as Taibbi says, it’s also the case with the entire Third Way cohort in both chambers and the administration.

The result is that we have two political parties with, at minimum, constituent parts of their party in power who share effectively the same goals. Republicans want to reduce the deficit entirely through cutting spending. The Democrats as lead by Obama share that goal, though they think a small portion of the deficit reduction should come through increased revenue. Mitch McConnell is floating a deal (which may not be that bad given where we are today) that will require 100% spending cuts for three tranches of debt ceiling increases. Given that the consequences of defaulting on our debt, here’s why McConnell’s offer may win out. It is vastly preferable to (a) hitting the debt ceiling & the consequences therein; (b) a $4 trillion “bargain” at 4-6:1 spending cuts to tax increases; (c) anything that cuts SS, Medicare, or Medicaid. The flip side of this is that it will be the President agreeing, as mentioned above, to the exact same all spending, no revenue deficit plans as the GOP. The sole difference is that he will have input as to what gets cut. And yes, Social Security, Medicaid and Medicare may end up on Obama’s cut list again.

This simply brings me back to the point that there was never any ideological difference between the GOP’s “all cuts” demands and the Obama administration’s “some taxes for rich people”. The difference is merely one of optics, they are functionally the same, especially if the cuts still end up including things like Head Start, Social Security, student loans, Medicare, and Medicaid.

We’ll see if McConnell’s solution goes through. Obviously I think there are fundamental upsides to it, namely not destroying the economy with default and not gutting three of the great programs ever produced in America. But we’re here largely because this was someplace that Obama wanted to be. More importantly, we’re here because the Obama administration pointedly choice, as Taibbi notes, not to pursue aggressive job creation, not to go after banksters, and not to make sure the rich were actually (not optically) being asked to pay their fair share. This is a sad and sorry place to be in as a party. But if we avoid another economic collapse without giving up the farm, I suppose that’s better than the alternative.