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Can the Financial Reform Bill Fix the Economy?
- Ben Bernanke
- Ben Bernanke
- Chris Dodd
- Citigroup
- Consumer Confidence
- Credit Default Swaps
- Creditors
- Dean Baker
- default
- Double Dip
- Federal Reserve
- Great Depression
- High Frequency Trading
- High Frequency Trading
- International Monetary Fund
- James Galbraith
- Keith Horowitz
- Krugman
- Main Street
- Niall Ferguson
- None
- Paul Krugman
- Paul Volcker
- Quantitative Easing
- recovery
- Timothy Geithner
- Unemployment
- Unemployment Benefits
Preface: If you've been too busy
to pay attention to the details, and if you're hoping that the
financial reform bill which has just been passed will fix the economy,
this essay will bring you up to date.
Congress,
Federal Reserve chairman Ben Bernanke, Treasury Secretary Timothy
Geithner and the rest of the folks who run the economy are patting
themselves on the back for passing the financial "reform" legislation.
Obama says it was "my policies that got us out of this mess."
The new bill is widely described as the biggest change in how the economy is regulated since the Great Depression.
Is it true?
Unfortunately, as discussed below, none of our real economics problems have been addressed.
Consumer confidence is plunging again, and yet little in the legislation really restores trust in the system.
The poker game started breaking down because the wealthiest took all of the chips, and most people have no money to play with ... but the bill does nothing to address the ever-widening gap in wealth.
The bill does little to restore the rule of law, which - as PhD economist James Galbraith notes - is a necessary ingredient in economic recovery.
Unemployment continues to plague the economy, because - even with the new bill- the government is feeding the parasite and killing the patient.
Main
street continues to bleed because - instead of breaking up the too big
to fails so that their dead weight stops suffocating the real economy
(virtually all leading independent economists have said that the too big to fails must be broken up, or the economy won't be able to recover, and see this) - the government has allowed them to get even bigger (and see this and this).
Indeed, just as BIS warned years ago, bailing out the banks has simply spread their problems into sovereign crises ... and now the banks and governments are broke, and the global strategy of printing obscene quantities of money ("quantitative easing") is debasing currencies worldwide.
"Deficit
hawks" like top economic historian Niall Ferguson says that America's
debt will drive it into a debt crisis, and that any more quantitative
easing will lead our creditors to pull the plug. See this, this and this. Indeed, PhD economist Michael Hudson says (starting around 4:00 into video):
If
the problem that is grinding the economy to a halt is oo much debt, and
if no one in the government - in either party - is looking at solving
the debt problem, then ... we're going to go into a depression as far
as the eye can see.
Yet the U.S. hasn't reined in its profligate spending. While modern economic theory shows that debts do matter (and see this), the U.S. is spending on guns and butter.
As PhD economist Dean Baker points out, the IMF is cracking down on the once-proud America like a naughty third world developing country. (As I've repeatedly noted,
the IMF performed a complete audit of the whole US financial system
during Bush's last term in office - something which they have only
previously done to broke third world nations.)
On the other hand, "deficit doves" - i.e. Keynesians like Paul Krugman - say that unless we spend much more
on stimulus, we'll slide into a depression. And yet the government
isn't spending money on the types of stimulus that will have the most
bang for the buck: like giving money to the states, extending unemployment benefits or buying more food stamps - let alone rebuilding America's manufacturing base. See this, this and this.
Nobel prize winning economist George Akerlof predicted in 1993
that credit default swaps would lead to a major crash, and that future
crashes were guaranteed unless the government stopped letting big
financial players loot by placing bets they could never pay off when
things started to go wrong, and by continuing to bail out the gamblers.
(Not only has the government rewarded the gamblers, bailed them out and let them engage in a new round of risky betting, but it hasn't even meaningfully reined in credit default swaps
.)
Paul Volcker is warning
that the watered-down Volcker rule (which won't even kick in for some
time) won't prevent the next crisis. Similarly, one of the primary
authors of the legislation - Chris Dodd - long ago said the bill wouldn't prevent future crises.
Shady accounting is part of what got us into this mess ... but as Citigroup Inc. analyst Keith Horowitz notes, banks are making huge amounts of money from an accounting rule that allows banks to book profits when the value of their own bonds falls.
High frequency trading is wrecking the markets ... but isn't addressed in the new legislation.
Neither is reforming money pits like Fannie and Freddie
The Fed is now warning that it could be 5 to 6 years
before the economy recovers, and that there is a "significant downside
risks" and a possible slide into deflation. That's not a big surprise
... Ben Bernanke doesn't understand that liquidity was never the problem, and he has continued the same behavior which got us into this mess in the first place. Bernanke and the Fed have caused widespread destruction to the economy (see this, this, this and this). And yet the financial reform bill gives the Fed has more - instead of less - power.
Timothy Geithner was largely responsible for the crash and prolonging the crisis (see this, this, this, this, this, this, this, this, this and this) ... and yet Geithner is being given more - instead of less - power by the new legislation.
Instead of becoming more democratic and more of a free market capitalist economy, the U.S. has become a a kleptocracy, an oligarchy, a banana republic, a socialist or fascist state ... which acts without the consent of the governed.
No wonder the American and world economies are falling back into the double dip of a very nasty downturn.
And see this.
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Less Is More.... More or Less
It would seem that congressmen Alan Grayson and Ron Paul and Senator Bernie Sanders have three distinct opinions on the truth behind the financial reform legislation. Is it reasonable to consider something as an "audit... more or less?" Is transparency something that comes in degrees such as more transparent or less transparent, or is transparency simply transparency?
Decide for yourself. Here's a link to Mr. Grayson's comments on HuffingtonPost, Mr. Paul's video commentary and Mr. Sander's editorial from his official Senatorial website: http://tradewithdave.com/?p=1354
Dave Harrison
www.tradewithdave.com
There is a banker acquaintance whose gorgeous yacht has just undergone a multi-million dollar refurbishment. At the depths of the crisis he was well positioned though would have taken a huge hit had his Alma mater gone down (and it was close). If the American people understood and could connect the dots that his lifestyle is directly subsidized by their tax dollars and more importantly by zirp, there actually might be change. If they understood the incredible amount of wealth; if they could comprehend or even get a glimpse of how he lives, the houses, the attendants, the jets, winters in St. Barth's, summers in the Med, kids in the best schools etc. It's a lifestyle they are helping to maintain and fund as they earn nothing on their money market funds and 201K's.
Not to take anything away from those who make and spend money and live the life, but to do so at the expense of people who are struggling to make ends or for that matter those who make a good living is simply wrong.
Not that this will do your acquaintance any good, but here is a great piece that would benefit anyone trying to find some direction in their life. World view is everything.
Easy to watch and interesting:
http://fora.tv/2010/05/06/Jeremy_Rifkin_The_Empathic_Civilization_Animated
Thanks, useful presentation. Also enjoyed, from same stable
Crisis of Capitalism
"........radical sociologist David Harvey asks if it is time to look beyond capitalism, towards a new social order that would allow us to live within a system that could be responsible, just and humane."
http://comment.rsablogs.org.uk/videos/
(link is for all RSA animations)
Thanks RR - that was a great video/lecture I will spend a bit more time with it tomorrow - not sure his premise of the human condition is something I accept e.g. he assumes folks are fundamentally good as opposed to not so good but what's interesting among folks of means is how important philanthropy is and how it functions on a number of levels, superficially e.g. social needs and psychologically e.g. guilt or a substitute for empathy. Of course philanthropy, empathy and sacrifice are different things. Solution offer a week on the yacht for a charity fund raiser and if you're feeling real guilty or generous include the keys to the G4 to get them there - dilemma solved and it's a tax write-off.
Failure Here, Failure There
(Reuters) - The IMF and EU suspended on Saturday a review of Hungary's funding program, set up in 2008 to save the country from financial meltdown, saying it must take tough action to meet targets for cutting its budget deficit.
The law is an epic win for the oligarchy, and an Epic Fail for everyone else.
The horror...the horror...
Great job as always George..thank you!
Wall Street's business model remains intact.
Failure, QED
The ponzi started to collapse after Nafta.
MFN with china ensured the collapse. Zirp just prolongs the reckoning. If we don't make what we consume, you don't have a consumer capitalist society. Right now we have a blend of corporate oligarchy slash fascist statism. It can only get worse from here.
hey moe how about some substance.
name calling is not debate;
fail or try again.
Lots to read if one includes the links. I've been reading this stuff for years, but I've failed to put together my "notes".
No surprises in your piece GW, but it's a nice compendium of items to send along to those just waking up.
Thanks for putting it together.
Of note: 8 banks closed this week? I only find 6 at
http://www.fdic.gov/bank/individual/failed/banklist.html
Mainstreet Savings Bank, FSB Hastings MI
Olde Cypress Community Bank Clewiston FL
Turnberry Bank Aventura FL
Metro Bank of Dade County Miami FL
First National Bank of the South Spartanburg SC
Woodlands Bank Bluffton SC 32571
As for those who trash GW's posts, why doncha just move on? There is plenty to read on the internets. Try the Yahoo boards; I hear trashing is the modus operandi there.
I agree. I am heading to MI next week to visit relatives who I adore, but they are inexplicably liberal despite all they have suffered as a result of unions. They have never made the connection between ridiculously overpaid assembly crews and the eventual outsourcing of those jobs. Anyway, GW's post gives me some well documented and lucid material to share around the campfire. Thank you!
So you prefer the union thieves over the fascist management thugs?
Hm. Good question. I listened to the debates all my life. I think I turned anti-union when Caterpillar workers went on strike because there were proposed changes to the vision plan (annual limits, copay, something like that). I was working for a huge insurance company at the time and didn't even have a vision plan! It seemed to me, at least back then, that many of the union workers were extremely spoiled and unrealistic about the value of their labor. Having said that I have to admit that by virtue of my current occupation I am in a union. These days we often have to fight our own union to make changes that will benefit those we serve. I'm stunned by how rigid the union leaders have become. They seem to make sweeping, arbitrary decisions that ultimately hurt people. Many of us work with the "fascist management," to use your phrase, to get around the union so we can be more effective and productive. That's the absolute truth. No exaggeration.
No offense but after suffering through your post all I have to say is what a load of scare-mongering drivel.
Here's an idea, why don't you do something useful like wedge your big keister in that gas guzzler I'm sure you drive, take a shovel and go to Florida to scrape some oil of the beaches.
You might even take some of those tea-bags your waving, make a big bucket of tea and give yourself a high-colonic or two.
Perhaps then you'll feel better.
Moe,
You are a first class douchebag. GW gave us a pretty well thought out, by the numbers, rundown on a piece of legislation. IMO it's one of the better analyses I've seen on it. It's concise, thorough and well backed.
What do you bring to the table? At least enlighten us as to what was so horrible while you throw names around.
You misspelled "you're." You wrote, "You might even take some of those tea-bags your waving..." It should be "you're" because you are using the contraction of you are in that statement. Loser.
How could that NOT offend? And it gets worse from there. How about adding to the discussion or just don't say anything? What's the use of grabbing the top spot if your contribution is of no use?
You've been here 41 weeks and made 2 comments, this being the second one.
RR
Thank you for doing as I do when I see a new face spouting off. This happens often enough on ZH that I'm beginning to see a trend. We all know that ZH and other places are haunted by trolls. But it appears a coordinated effort afflicts ZH.
Since the ZH blog comment area is essentially an unmoderated area, it's up to the ZH regulars to start pointing out the more egregious trolls and call them on the carpet. For someone to be registered for this long and only comment twice, 6 weeks ago and now, tells you that maybe a bunch of names were "registered" many moons ago and are pulled out when the trolls need to change disguises.
Just a thought on the professional troll's MO.
But he used such a pretty kitty as an avatar...
and for the curious here's the first comment
http://www.zerohedge.com/article/implications-gom-and-global-drilling-fo...