I can't think of a good title
I'm really curious to see how the politics of this financial sector reform play out. On the surface, you would think the Republicans would be insane to risk being seen as friendly to Wall Street. They seemed to have some political momentum going after health care, which contrary to my expectations, does not appear to be getting any more popular. But then to turn around and side with the people who jolly rogered the economy into its worst shape in 70 years? After 30 years of sustained de-regulation? On the surface, that would appear to be the political equivalent of recovering a fumble and then immediately doing a hail mary flea flicker.
On the other hand, republicans are good politicians, and they're particularly good at issue framing. Maybe they think they can paint democrats as being tyrannical socialists or something. Who knows...I would say this would be impossible, but this country elected George Bush twice, so who fuckin knows.
posted by Joe @ 10:04 AM
3 Comments:
Oh come on now do you really believe all that claptrap about this Dodd bill sticking it to the Man? For every regulation, tax and sanction there is a greater or equal subsidy, benefit or protection to the financial industry. The bailout fund that is to be assessed on the “too big to fail” banks will be funded by pre-tax dollars and the existence of this fund will further the extend the advantage the biggest banks have in access to cheap capital by reducing their loan risk. In addition, this bailout fund will be able to be used at the discretion of the Treasury Secretary through the FDIC and therefore subject to political pressures. It’s arguable that favorites have already been played with bailout funds through GM and Chrysler’s unusual bankruptcy process which gave disproportionate benefits to UAW retirees.
This bill does nothing but move the country closer to corporatism and does nothing to address the issues that created the crisis.
But putting “Reform” at the end of something makes it good though right?
The phrase "do you honestly believe" is a pretty annoying rhetorical device. I'm really not in the business of saying shit I don't believe, unless I'm telling a joke, which is usually obvious by the presence of curse words or references to bodily functions.
I think I should start using tags or color coding to differentiate when I'm talking about politics vs talking about policy. This post was about the former.
Substantively, I don't know much about the bill, but the particular part of it you're talking about (basically an emergency fund, funded by the banks...why do you care if it's pre-tax?) is basically window dressing. The underlying problem with the system is that there are so few institutions that when one fails, they can't help but take out a few city blocks with them. The Volcker proposals to limit the size of the institutions seems to me to be the best way to tackle this problem of system-wide risk. Regulating derivatives and all the detailed work there might be helpful to prevent as much Bubble investing and irrational exuberance, but the POLICY problem is to protect the public from having to bail these fuckers out again. Basically, the public needs to diversify its portfolio..not in stocks, but in stockbrokers.
I think you may have first blended politics and policy in your original post when you suggested Republican policy both looked and was bad. I'm sorry if I misunderstood that you only intended to discuss the former.
That corporations have so many options available to them to re-characterize away income to avoid paying income taxes is an endless source of vexation to the political left. This is just one more. In effect 35 cents of every dollar that goes into this fund will come from lost tax revenue that needs to be made up somewhere else. Now if you're in the business of borrowing money from someone and then re-lending it at a higher interest rate and pocketing the difference the existence of this risk-reducing, subsidized fund will make this spread - and therefore profits - potentially bigger or allow you to under-price rivals. This could prevent smaller financial institutions from being able to provide competitive financing and force even further consolidation in this market already filled with too many "too big to fail" participants.
The Volcker proposals limited size and scope make perfect sense but it is odd that they completely exclude the biggest offenders. Fannie Mae and Freddie Mac which still hold 60% of all mortgage debt. A better way to encourage more participation in a market is to avoid policies that shift benefits disproportionately to the most established participants. This bill does exactly that.
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