Romney's Bad Bet
Mr. Romney? This was a two billion dollar loss, but there was a time not too long ago where this very bank lost so much on bad bets that we did have to intervene. Your wager is, and it’s more than ten thousand this time, that there won’t come a time when we have to keep this giant bank from collapsing again, so it doesn’t take the economy with it.
I don’t want to take that bet again, not with the disaster that came with it last time.
JPMorgan wasn't losing money because some business failed, or something simple like that, but because of something so complex, even a reporter with great experience with financial issues couldn't explain exactly what it was. It was called the "CDX NA IG 9 Basis"
I looked at another explanation, and still, like Austin Powers I was saying "Oh no, I've gone cross-eyed" But one thing jumped out at me:
Finally, the move doesn't seem to be all that huge -- only about 30bp in this quarter. Which doesn't seem remotely enough to cause a $2 billion loss. Still, Iksil managed it somehow.
It doesn't get any better in this other article I read from Felix Salmon.
He says this was a hedge on a hedge. A hedge, as it is, is somebody putting on some sort of insurance against an investment going south. But a hedge of a hedge? Isn't that like a double negative in the English language? Isn't the original investment good enough?
Somebody else I know basically said that these weren't hedges to begin with, since they weren't exactly safe investments to start out with. I mean, what are the buying as hedges? Credit Default Swaps. They're covering their bets with other bets, to be blunt
These people are complicating their balance sheets all over again, despite the lessons of 2008. Cross that out, the near fatal-beating of 2008, which had them on taxpayer funded life support. You think this is the only such overcomplicated animal they got in their portfolio?
Ah, but shouldn't capitalists be allowed to take risks, allowed to also feel the punishment of landing on the wrong side of those risks?
Well, as this friend of mine was pointing out, this isn't merely some investment bank taking this risk with their own money, this is an investment bank which works off the assets of a depository bank doing this. In other words, these people aren't simply risking their money with these bets they're making, they're risking ours with it.
And that's true, whether we bail them out or not. If they survive, it would be by the taxpayer's good graces. If not, then under the Federal Deposit Insurance Corporation, which we would probably end up paying for as well. And if we simply let them implode? Well, they went and swallowed up a lot of their competition, so a lot of the loans and financial services they were providing would go away, and because the banks are still promiscuously trading and counter-trading derivatives with each other, you'd be seeing a lot of the other banks at least on shaky financial footing.
Another credit freeze. Another deep, nasty drop in growth and employment.
We can pretend we can keep making these gambles, or we can face the facts: the lessons of 2008, or 1929 will never be completely learned by those who pursue the biggest, fastest buck. They think its a fluke, that it will never happen again. But it keeps on happening, in one form or another, one place or another. People simply aren't rationally working this out. People follow their emotions, their hunches, and their gut instincts. Somebody's bound to screw up.
The question is, how much is in the way of that screw-up getting bigger? If it were just the investment banks that went under, the crisis in 2008 would have been much more manageable. Unfortunately, the investment banks were wired into the banks that made loans to you and I, so when the investment banks fouled things up, they punched a hole in the bottom line of the banks that also lent to you and I. They endangered our money, and worse yet created waves of trouble on the employment side of things, as companies that needed short-term credit to meet payroll and other things didn't have it.
It's a safe bet that if we continue with the status quo, we will see the same bets fall through as before. It's basic Murphy's law. If you leave such failures to chance, chance will ensure they occur.
Mitt Romney is willing to make that bet, I',m not.
Posted by Stephen Daugherty at May 16, 2012 6:30 PM
Who broke the law; was it JP Morgan or MF Global. Holder is going after JP Morgan and Jon Corzine is still bundling for Obama. Find another subject, your grasping at straws Mr. Daugherty.
Nobody is accusing JP Morgan of breaking any law or regulation. The relevant sections of the new financial reform legislation (Volcker Rule) have not been fully implemented yet. Whether the type of trading that led to the losses would have been prohibited under the new regulations is a question of interest. However, there is no question that the trades were legal under current law and regulation.
As for MF Global and Corzine, the Justice Department and the SEC are investigating both for criminal acts and violations of SEC regulations.
Is this a straw, my almost namesake? It seems Republicans are pretty serious about leaving Wall Street unregulated, despited repeated failures to police themselves.
I do find Corzine’s bundling an embarrassing fact. If this coming to light means he’s thrown under the bus, I’m fine with that. I think it was a tone deaf thing to do to let him fundraise. I can fully admit that it’s a mistake.
But if you look closely at my argument, I wasn’t criticizing Romney for having somebody on the staff who was involved with the whole mess on Wall Street. You’ll see that I was making a policy point.
And that would be where you start grasping at straws, becasuse whoever’s bundling for Obama or Romney, I personally am expressing an opinion that says what the policy should be.
Do you have an argument against that policy position I’ve taken? That’s the funny thing, you know, because I get the impression (correct me if I’m wrong) that you support deregulation as the model. If so, then you’re probably more twisted in knots than you imagine me to be. Theoretically speaking, you shouldn’t have a problem with Corzine bundling.
Why? Because if you support deregulation of Wall Street, you support the very environment that allows a loss from hedge fund trading to be a potential threat to a commercial depository bank, and that allows a firm like MF Global to manage customer’s money in a manner that seems criminal to the casual observer. What then, do we make of an argument from you that depends on provoking outrage over MFGlobal’s financial shenanigans?
But if you don’t approve of deregulation like that, if you want more laws, and you’re on the side of greater regulation, then my argument is not grasping at straws, because I’m most definitely arguing for the same thing you want: constraint on the dangerous, risky behavior on Wall Street.
So, here are your choices: admit that your argument is disingenuous at its core and that mine is sincere, though a political choice Obama staff made let me down, or admit that we both believe pretty much the same thing, and that by your standard, that must mean I’m not grasping at straws.
It should not be a crime either to make of lose money.
I don’t suppose the Obama folks understand this, since they work in government or other enterprises that get their money from taxpayers or charity. That is why wasting OUR money on Solyndra makes more sense to them.
Re hedge - the common understanding of this as expressed in the media is wrong, or at least simplistic.
A hedge is an “insurance” only in metaphor. The idea is to balance your portfolio of assets and risks so that you don’t take big loses when something goes in ways you did not expect. Notice I use the word WHEN and not IF. The world is full of unexpected events.
A simple hedge is to match assets. You might invest in real estate or gold if you think the dollar will decline in value. MOST of the time, these things move in opposite directions, so one will compensate for the other.
HOWEVER - the purpose of being in business is NOT to break even. You hope to make money. So the idea is not to simple hedge one thing against another. You are looking to make money overall. That is why you might hedge on a hedge on a hedge.
BTW - In the English language, a double negative is a positive. In most of the world’s languages and in English as often spoken it is not. Just a linguistic point.
Anybody who is surprised by this does not understand either business or the real world. Maybe that is why they want the supposed protection of big brother.
The problem with JP Morgan may be that it has become too big or complex to manage. This is a real possibility. The U.S. government has become too big and complex to manage by actual command and control. That is one of the reasons Obama has messed up. He has failed to understand complexity.
The answer to complexity is not more control, but rather more flexibility and sometimes less control. The problem for us (taxpayers) is that we potentially have to bail out bad investments. This is exactly what happened in the Solyndra case. We privatize gain but make losses government backed. The answer is to limit the government backing.
The answer to the financial problem is not to make it fool proof. Nothing, never in the whole wide world has ever really been fool proof. (re linguistics, notice the comma and how that alters the meaning.)
What we should do is make sure the system is robust and has breaks so that bad decisions or bad luck in one part of the system doesn’t bring everything crashing down. In this situation, we don’t go on the fool’s errand of trying to prevent all mistakes or bad luck, but we adapt to the reality that includes things we cannot anticipate.
This requires a different sort of regulation and a different attitude. If you want banks and others to become of manageable size, you do indeed need a kind of Volker Rule. Of all the proposals for reform, this is the one that makes the most sense but the one the Obama folks didn’t really like. But you also need LESS government in that government needs to limit its own liability and bail out potential to the minimum. This will mean that some people will sometimes lose money. Good. They need to be more careful. It will also mean that investors will begin to steer clear of very large and complex firms that they cannot understand.
Since the crisis and WITH the reforms, banks have become even larger and more consolidated than they were. This is because we (the Obama folks) simultaneously complained about the concentration of power and ostensibly made laws against it, while creating guarantees and incentives that perpetuated and expanded the system.
In this case government regulators created a hedge against a hedge and actually did create a double negative.
It is the people who want the banks to be of a manageable size, but the government isn’t listening.
The Democrats reforms were very weak and made even weaker by Obama’s desire to get a GOP vote or two.
When you have a corpocracy, regulating the entities of the corpocracy becomes an exercise in entertainment, like putting lipstick on a pig.
It’s like Dodd said, he’d like to make the regulations tougher but you know how it is.
C&J, the Obama folks may have not liked the Volker Rule, but the tea party House GOP absolutely detests it.
Risk is a normal part of business.
I think it would shock you to learn that I respect the need for risk. If folks do not feel the sting of their mistakes, they won’t stop making them.
Except the system that they’re setting up seems aimed towards eliminating that sting artificially, and has the capacity to create even bigger moral hazards.
Your linguistic point is well taken, but if you’d read closely, you would understand that it was my point to begin with. If you’re really confident about a position on the fundamentals, then you shouldn’t be hedging your hedge, you should be taking a more confident position on your original investment. Hedging your hedge, or diversifying your position like this just makes things more complicated.
I mean, really, this was a bet on a bet, and not even JP Morgan’s own bet, but somebody else’s. They don’t even own the investment they made the bet on, and as things go with Derivatives, they’re not likely privy to the fundamentals of the investment they’re hedging on.
That sounds like a build up of risk, not a counterbalancing of it.
The answer to complexity of this kind is not one policy or another, but a number of them.
For one thing, you ought to make a choice: either you are going to run a nice, safe, low-risk bank, or you can play in this more dangerous territory. You shouldn’t be able to risk the assets of millions of depositors who are looking for something no more exciting than a savings account that gains a few percent interest. The capacity for ruin and economic devastation ought to be more contained to those willing to take the risks.
For another thing, banks should not be allowed to be so large that the mistakes of any one bank becomes a threat to the whole system. There ought to be enough players in the game that somebody can go down in flames without the economy being short of a banking system. Many natural systems deal with complexity by having more than just one strain of control. Instead of relying on the leadership of just a few men, nearly all of whome may have the same idea, we should have a greater variety of banks, each with different ideas on how to manage thing.
Having too few leaders mean the consequences of somebody being wrong are more damaging. Your policies ensure fewer leaders.
But there’s also the sort of incestuous interconnection, the hidden layers of leverage and counterparty obligation. We need to regularize the trade of derivatives, and limit the complexity of their arrangements. If human beings can’t understand the financial systems we employ, they can’t manage them, much less prevent systemic risks from arising.
As far as your shots at Solyndra go, do your convictions about risk apply to government? You are quick to point out that Solyndra failed, but quick to justify failures on Wall Street as natural. But you know what? Perhaps, inevitably, we must risk a few failures in government support of new technologies and innovation, in order to encourage growth on the whole. We shouldn’t tolerate corruption, of course, but jumping on one failure, by your logic, is being a bit hasty.
(I can say that because I never expressed the notion that failure shouldn’t be allowed in business. But in both cases, we should work to prevent abuse or loss of control in the system.)
As far as government goes, one reason why I do not balk at federalism is precisely the need for more local control, to deal with the complexity of real life. But not all complexity is a product of other complex events. Some chaos enters into a system simply because one factor or another allows it to.
Systems don’t necessarily start out chaotic, but build up to it as certain values cross thresholds. Addtionally, we see plenty of scenario where order comes back out of chaos. So, simply citing complexity does not mean that rules and regulations won’t do any good, or that there’s no place for control in the system. As a matter of fact, keeping things predictable, from crossing the threshold into chaotic behavior is a primary reason to have law and order in the first place.
If you hedge the hedge the hedge, you are just managing your portfolio. That is the nature of trying to diversify.
I think the analogy of “insurance” confuses people unfamiliar with the concept of hedging and diversification.
Re the sting - if you diversify right, you can avoid some of the sting. Of course, you are also limiting your up-side too. It is fun for some people to make the big bets. That is their business. Government should not guarantee them.
The system that has grown up - the one Obama not only did not curb but enhanced - is the idea of private profit and public risk. This is a serious problem and should be eliminated to the extent possible.
Re risk for bankers - I agree with you. But the solution is to NOT support them. Government should offer insurance only to those who are doing the less risky things. Our bankers could choose risk, but w/o taxpayer guarantees. We would have to let them and their investors lose money. This would make larger institutions less attractive to both managers and investors.
Re Solyndra - My concepts of risk decidedly do NOT apply to government. Government has no business making these sorts of investments because it gets it money through taxes, not free investment. Beyond that, government has a monopoly on the use of legitimate coercion.
I tell a story to my young colleagues. A mouse is bragging to the tiger that he is the most feared animal in the forest. The tiger laughs at him, but the mouse says he can prove it. He walks through the forest with the tiger right behind him to show how the animals fear and respect him. Sure enough, the other animals flee in terror. The tiger says, “I would not have believed it, but they flee from you just as they do from me.”
The lesson is that the government is like a tiger. When the mouse of an investor/manager/official walks with the might of the G behind him, everyone acts differently. This is the power and the danger of having the backing.
Government has an essential role in funding research and being the first customer of some innovations. It has no role at all as an investor or an implementer.
Re chaos - it always lurks. We will always have random shocks. We should not overreact to each one, but that is what bureaucracies do.
You recall what Mark Twain said about taking too much from a lesson? A cat that sits on a hot stove will never sit on a hot stove again … or on a cool one either. Government would take it a step further and ban stoves.
C&J, what Twain forgot to add was…and have the government pay for the cats injuries and discomfort while suing the stove manufacturer.
The problem with JP Morgan may be that it has become too big or complex to manage. This is a real possibility. The U.S. government has become too big and complex to manage by actual command and control. That is one of the reasons Obama has messed up. He has failed to understand complexity.
In other words, JP Morgan has gotten too big for it’s bitches. As has the US government.
I thank God I sold and removed all my business from JP Morgan several years ago. Even poor little me knew they were raising to fast and too hard. I believe you are a bit mis-informed.
As for Volker Rule:
Of all the proposals for reform, this is the one that makes the most sense but the one the Obama folks didn’t really like.
I believe you may have gotten your criticisms mixed up.
In case one doesn’t want to read the whole thing, here it is in a nutshell…
It states that the President wanted to
to end the mentality of “Too big to fail.”
The Volcker Rule was first publicly endorsed by President Obama on January 21, 2010.
This article goes on to explain how it was the Republicans that kept the bill from coming into law.
You can also check out the following site:
Republican representatives to Congress have also expressed concern about the Volcker Rule, saying the rule’s prohibitions may hamper the competitiveness of American banks in the global marketplace, and may seek to cut funding to the federal agencies responsible for its enforcement.
Just something to ponder on.
“In other words, JP Morgan has gotten too big for it’s bitches. As has the US government.”
Yes. The world has become too complex for the machine age management we still try to employ.
Re Obama - He says lots of things and does lots of other things. For all his sound and fury about the big banks, you wouldn’t think he left their leadership so much intact or that so many of his close advisers came from the very firms he rails against.
There is a significant difference between what President Obama says and what he actually does and even a bigger space between what he says he wants and what really happens. This is the whole problem with President Obama.
There was lots of hope and expectation four years ago. Today we have a record and we have experience. If Obama wins again, it will be the triumph of hope over experience. Will he be able to fool us again?
Which parts of President Obama’s achievements over the past four years are you most proud of?
What do you propose?
Do you think that the integration of financial services including insurance was a good thing upon repeal of Glass-Steagall? If not, do you propose a reinstatement of Glass-Steagall to build a firewall between commercial and investment banking? What do you think of the Volcker Rule as a compromise?
Do you think that, regardless of the integration issue, that financial institutions should be limited in size? How would you accomplish that?
I like the Volker rule.
Re regulation, we need to enforce laws against fraud etc. Generally we could do well to insist on transparency and not provide guarantees to riskier stuff.
Exact details of the reform would be beyond me. I am not a specialist and not smart enough even if I were. Generally, however, we should make the system robust with breaks that would isolate problems, rather than bring the system crashing like dominoes. This would mean creating diversity, as any smart person does with a portfolio. This would indeed require some walls between types of activity for individual firms. It is also important not to allow too many correlations to develop.
We started with hedges. The hedge works if we have assets that are not strongly correlated.
I’m positively amazed at the expertise the Republicans have now that it’s not their boy in the White House. I’m also amazed that you don’t remember taking credit for the economic expansion through the Fed actions and TARP, what you previously called “The First Stimulus”
But basically a lot of that money got used up creating that outcome that we see before us today, the bigger and more consolidated banks. I mean, the tucking of those investment banks under the the big banks, wasn’t that the Bush Administration’s doing, in the first few months of the panic?
The problem you have with convincing me of things is that I have better than average recall of events. I don’t conveniently forget the dates during which a President is in charge.
You are very free with the costly advice of the GOP, the reiteration of laissez faire policies which should, by all rights, be considered discredited. You pick on Solyndra, but always on Solyndra. Where are all the other failures? The Obama Administrations efforts involved more than just that one company, if you can believe that.
Meanwhile, we have industries that have undergone some considerable growth in that time, growth that might not have been possible with venture capital prisoner to the failure of the banks.
I am not, and never have been a proponent of indiscriminate government intervention and support. But I am a proponent of strategic support.
As for the “sting”? I think sometimes you need to make it to where avoiding the “sting” is not an option. But you can make that easier if the banks aren’t so big that you need them alive to keep the economy from cratering into a depression. You can also make it easier if the riskier enterprises are sequestered from the safer ones, so that ordinary, low-risk finance can be managed without the chaotic idiocy of the high-risk hedge fund and derivatives trading undermining them. Without such firewalls, we invite the crippling of our economy by small, often stupid causes. In 1998, our nation’s economy was almost crippled by one company making the wrong bet on Russia’s currency. Ten years later, bad bets on the bad bets (maybe even on the bad bets of the bad bets) on the housing market did cripple our economy, and we’re still limping from that.
We need an economy that can robustly handle the shocks that economies always encounter without cratering. While it’s impossible to keep bubbles from inflating and then deflating, it is perfectly possible to prevent weaknesses from developing in the system that magnify the damage they cause.
What I want to do is reduce the worst of the systemic risks, the open corridors down which the fires can rush unimpeded. It’s not coincidence that we only ended up in this mess after the banks were allowed to merge and venture outside the safe, low-risk waters. It’s not conincidence that this happened after we abandoned protections for the middle class and helped create a massive deficit in working class employment. It’s not the rich who are the real job creators, it’s the middle class, because there are enough of us to actually support a vibrant consumer economy.
The first stimulus was a necessary step and it worked. The Administration should have enacted reforms after that. The Obama folks failed to address the underlying problems.
We do indeed want to reduce the systemic risks. Too bad the Obama folks didn’t do that.
You twist your words around in knots. I know of several measures that the Obama administration has taken to constrain Wall Street.
You made a mistake in again arguing the merits of the “first stimulus”, because it is that action, which basically traded loads of money for assets of uncertain value, which is responsible for the further enlargement of the banks.
Which you blame on Obama. There have been other actions since then, and perhaps Obama deserves blame and credit for those, but at worst, what you’re describing is Obama operating by your playbook. Which means that your criticism has bitten into its own tail.
Obama is a centrist, a compromiser, so the price of the your contrarianism is that many of your criticisms land squarely on policies that are Republican in origin, and conservative in principle, even as you force Obama further and further towards your policies by filibuster, and now the fact you hold the House of Representatives.
Remember: cap and trade was your party’s answer to regulations that simply demanded reductions, the thought being that free markets would do a better job of regulating pollution. The insurance mandate was all about making sure everybody was in the market so the market efficiencies would lower prices and make service more efficient. These and other ideas have been turned on because your party has been brought by recent events to perceive any compromise, even a favorable one, as a sign of weakness.
The Republican party is effectively defeating any countermeasures against a recurrence of the recent financial disaster, sharing in the inordinate optimism of Wall Street that 2008 didn’t prove they had feet of clay. The Republicans blame everything and anybody but the Wall Street and themselves for what happened, but the plain fact is, they trusted Wall Street to police itself, and Wall Street failed.
You can make up one excuse after another, but I have my own experience to draw on. I remember the 1987 crash and the Junk bond collapse. I remember Bush 41’s recession and the S&L scandal, a taxpayer bailout of bank-like institutions whose customers lost money to the banker’s real-estate speculations. I remember the dot-com bubble and the burst, the Enron debacle, and all the companies that had to “restate” earnings (in other words, stop lying like ****ing dogs.) I remember the jobless recovery, where job losses went on for the better part of two years after the recession ended. I remember the recent crash and the flash crash, too.
If Wall Street is learning its lesson, why is it repeating these mistakes over and over again? If they won’t learn their lessons, or if society keeps on seeing this problem crop up, what is the point of allowing those practices to continue?
You might complain that Obama is allowing systemic risks to persist, but your party is working to ensure that none of those risks are really answered, while Obama’s people have actually taken some measures. So, I don’t see where your argument comes from a place of strength. I look at it and I merely see the political instincts of those who attack strength by making bold claims about how they are better at tackling problems, even as they outright refuse to deal with the problems in question.
The first stimulus was regrettably necessary to stabilize the financial system. It was a task that only government could undertake. As I understand it the money was paid back and the government even made a modest profit on the transaction.
What Obama should have done at that point was to … do what he promised. He should have enacted reasonable and flexible regulations, much of which he could have done unilaterally, i.e. w/o consent of congress, since it was administrative. Instead he went the rhetoric route and played politics.
The second stimulus was badly mis-targeted. Obama evidently really believed that there were shovel ready projects the required only his benevolence to make happen. He learned too late that this was not true.
So he spend lots of money. Much of it was ineffective. There would in general be nothing wrong with “helping people” but we went way more into debt.
We should not underestimate Obama’s achievement, however. This from AEI:
Under President Bush, the national debt increased by $4 trillion over eight years. President Obama succeeded in increasing the national debt by the same amount in just three years—and in his first term racked up almost as much debt as all previous American presidents combined.
Re memory - Your memory for facts is perhaps correct, but your understanding of what happened is not. 1987, 1991, even 2000 were part of a general good time. 1987 barely made a dent. In early 1990s, people were even more depressed than they are today (remember?). They talked about the general collapse and how it would take decades to dig out. The Dot.com at the end of the Clinton time also did not cripple us. We did have lots of political changes associated with 9/11. People who look only at the economy will not get that.
But you say we didn’t learn. You are wrong. We addressed the problems as they came up. The stock market crash of 1987 was hardly a problem. The savings and loan crisis did not repeat. The dot.com was a problem of overvaluation. It corrected. These things CANNOT be avoided. And in none of these cases did we face real systemic risk. We had a system robust enough to handle the setbacks.
I also lived and worked during those years from 1982. They were generally great times. It allowed a guy like me, working class, son of HS dropouts with no connections and not an extra dime at the start of the period, to a well off guy who managed to raise and educate three kids. In 1982, I did temporary work stuffing papers and assembling small things. It paid minimum wage.
Lots of people have the same experience. Did we accomplish everything we dreamed. Nobody ever does. But the America we spent our working life in gave us lots of chances.
So when you talk about these thirty years of hard times, I just don’t know what you mean. Starting out in work life in the early 1980s turned out to be one of the best times in world history. I expect that things will work out okay for my kids too … once we beat back the Obama doldrums the we we shook off the Carter hard times.
You did know, didn’t you, that Congress under the Republicans made further regulations of derivatives virtually illegal, right?
Answer a few questions on debt and deficit: Tax Cuts cost revenue, don’t they? And Republicans have put forward tax cuts everytime a fiscal policy has been discussed, more or less, no?
And during a time of economic downturn, don’t revenues go down, or undershoot budget expectations?
Additionally, wars cost money, don’t they? And if there aren’t taxes, don’t we see an increase in debt as a consequence, if we’re already in deficit?
Time and time again, the calculations show three things compose the bulk of the deficit. Not financial rescue packages, which only were about 400-500 Billion a year for two years, then never again, but the Tax cuts, the war, and the bad economy. They explain the vast majority of the deficit. Obama’s actually decreased spending overall, but that doesn’t get noticed.
So, let’s be blunt: would your people have allowed or advised the President to do the things necessary in order to run truly lower deficits? So far, the Republican’s answer to deficit reduction is take it out on the poor, the elderly, and the jobless. That is literally where you ask us to aim our cuts. You have, on multiple occassions pushed policies cutting short unemployment benefits on the flawed notion that unemployed in America stay that way out of laziness or a sense of dependency. Whether actual jobs were available didn’t seem to be important.
With two wars winding down, your side is resisting its side of the deal that it forced on America during the debt ceiling debacle, instead asking the government to cut entitlements like Medicare and Medicaid, among other things, to replace the cuts in the bloated Pentagon bureaucracy that were backed by the Joint Chiefs.
The right is more serious about destroying what they see as the welfare state than they are about job creation, or deficit reduction. They’re taking advantage of people’s pain and suffering to inflict more pain and suffering on the country in the name of their politics.
President Bush had good times, relatively speaking, to budget within. He didn’t have to cut taxes, pass a medicare drug benefit without taxes to pay for it, and pay for two wars on credit. He could have asked the American people to foot the bill. Instead, he chose then to run up debts, to run up a deficit that went out of control when the nation’s economy collapsed. The practical test of his fiscal policies continues despite his departure, and it remains wanting, whether a Democrat continues those policies, or cannot end them in the presence of a Republican filibuster.
As for your expectation? Lower them. The ability for the young in America to get jobs, even after a college education is startlingly bad, especially since older workers, in the wake of the financial meltdown, are working longer. There was a consequence to the bad bets made, and the fact that many of those bets were made with the money of middle class would-be retirees.
This is why we have to separate banks from hedge funds, traders from financiers. This is why we have to reform how debt and credit are rated, so there aren’t perverse incentives to sink people’s financial reputations or rate bad credit risks as good.
We need a system where there are rules that maintain the integrity of the behavior in the market, or else we’re going to see a repeat of the past troubles. Every time we’ve had another financial crisis, it’s gotten worse, and the resilience of our nation’s economy has been reduced.
We don’t need more punishment of the poor to pay the debts we built up being nice to the rich.
Tax cuts cost revenue but the growth they encourage means that the revenue losses are not as much as the total.
You are against “austerity” so why would you want to raise taxes during a downturn anyway?
Re my expectations - I started my “career level” jobs in 1984. It was a stronger recovery than we have now, but unemployment had been much higher, inflation had been much higher. In fact, we had suffered stagflation for ten years before that. Nobody really thought someone like me had much of a chance. I expected to drive truck or maybe be a city worker. I was lucky to have hard times. I know what it is like to fail and fear it less. I also learned that you can live off potatoes and beans. Beyond that, I was a history major. Since I couldn’t get a good job, I studied math and stats and got my MBA. It was a good thing.
So are you saying that Obama’s reforms are going to make this kind of recovery impossible?
I think the economy will begin to recover, even with Obama at the helm. If we get better management, it will do even better.
Re punishing the poor -We need to rationalize our expenditures. The poor suffer more from hard times than the rich. If we don’t get the economy in order, the poor will suffer more.
This brings up a little discussed benefits of very high marginal tax rates. The bankers are tempted to take enormous risk, especially with other peoples money , for huge, fast personal gain. High rates, 90% or so, on these huge gains act as a built in deterrent, not to mention the deficit reduction. Put simply, they would not get filthy rich overnight if they can pull off this one deal, no matter the risk. Serious re-regulation is part of the picture but so is diminishing the personal gains for abuses. Would it hurt the economy. Historically speaking it would not. To the contrary. During the Eisenhower years the top rates were near 90% and the economy soared. Lets make banking boring again.
I would like banking to be boring. But you recall why it became less boring. There were alternatives that paid higher interest rates and the great inflation of the 1970s.
There is also a cultural aspect. Investment banking used to be the domain of reasonably smart well-connected men. They were still imbued with the old WASP ideas (the “new” people adopted many of these at first) of restraint and most of them were already rich so they were less concerned with making big new piles. More precisely, they were more interested in their reputations and their family reputations for being part of the leading people.
In the 1960s anon, we got more merit-based. The old guy who would forgo “excess” profit in order to keep his place in community - and maybe was not quite clever enough to figure out all the options - was quickly replaced by hungry and super-smart MBAs and others. Their goal was to make a big pile of money quick as possible.
The irony is that we created this system by following our higher ideals. This was part of a general professionalization of our society. It makes us much more efficient, but it also makes it much more unstable.
Do you recall the old Andy Griffith show? It really was like that in many places, with the nice-guy but not very professional sheriff. Bankers used to be like this too. They would take long lunches and have “banker hours”. This world is gone. Some people miss it; many don’t
You forget two things: first, the rich guys did it before in the 1920s. That’s why the laws we’re discussing were implemented in the first place. Second, there were plenty of moneygrubbers back in the day, who would squeeze the average person for a dime while keeping themselves well off.
What enabled the higher pace of trading and interaction was technology. Now they have computers trading, programmed to react in milliseconds to changes in other investor’s behavior.
What also has enabled this, culturally, is that the rich in this country don’t have much living memory of the Great Depression, nor the outrage and loathing that once was directed their way. They think they can keep pushing and manipulating the average American.
But the main reason people never really rebelled against this is that they thought they were protected, that such trouble was a thing of the past. Republicans are once again trying to stuff people back into that mindset, where they don’t restrict the rich for fear of losing opportunities and paychecks themselves, but the problem is, the recent events have sort of broken down the benefit of the doubt they once enjoyed, and it won’t take much for people to overcome their doubts if there’s other major problems.
Wall Street, at best, is on probation.
Just as the days of Andy Griffith are over, the days of trusting Wall Street to police itself are over, and sooner or later, misfortune and public sentiment will put the regulations back in place.
Unfortunately, your party hasn’t realized that yet. It still thinks that the country’s on its side, and its successful midterm election, which it interpreted as people saying “welcome back” as if nothing ever happened. They never considered that while they were successful in getting people frustrated with the previous Congress, they’ve also succeeded in getting people frustrated with this one.
I am going to post this on all three columns; since no one seems to be able to contact the manager of WB, I must believe Stephen Daugherty has taken it upon himself to block me from being able to read comments. After contacting other writers on WB (privatly), it appears I am not the first to be shut down by Daugherty. So I am to believe when Daugherty hears something he doesn’t like, he just screws up the system.
The rich guys and the government did it in the 1920s and had to change some of the procedures.
BTW - You know that no serious economist anymore believes that the stock market crash caused the Great Depression. I know you are not referring to that, but some ignorant people might think that you are.
Re Andy - I don’t think you understood my point about the culture. I was not saying that we should have the Andy type control. I was explaining the cultural shift from the stolid WASP values to a more faster and more efficient, but less stable system. Since you loath rich people, this might be something you would like to embrace. Although I figure that you also dislike WASPs.
Re Wall Street - it may be on probation. What a shame, then, that the Obama folks failed to make systematic reforms when they had the chance.
I have no interest in censoring you. Most of the time, I let people know when I’m going to lower a banhammer on them. And it will be for justifiable reasons. I don’t endanger my tenure on this site, which I have largely enjoyed, and found valuable, on account of people I couldn’t care less about. I just don’t think the people I dislike that much are worth me losing this position.
As for hacking? Get serious. I’m good at formatting basic tags by rote, but I certainly couldn’t hack something as complex as a modern site. I’m not the world’s best programmer.
You can contact the administrator at firstname.lastname@example.org if you’re so inclined, but he’s probably going to tell you that I haven’t done anything, and that much of the disruption is basically your “pardon our dust” sort of renovation sort of malfunction. If you’re having trouble seeing new posts, reload (F5) or something like that.
As for those who have been shut down by me? If you’re talking d.a.n. or others like that, I reserve those for people who are really being disruptive, nasty, and whatever else, and I don’t do it myself. I don’t have the privileges. I leave that to the adminstrators, who can review the case and decide whether I’m full of it or not.
As for what I do, when I hear something I don’t like? I argue with them. You should know that by now!
Since you chose to ignore my other points about the Volker Rule, I can only assume (yes I know what it means) that you agree - it was the right that blindsided it.
As for Obama, naming one thing I agree with him about is very difficult - mainly because there are several things.
1. If a group accepts government funding, they should not be allowed to discriminate. (health insurance and churches)
2. I like knowing my nephew and niece are now HOME, not in Iraq. Invading Iraq never made much sense to me, since it was the Saudis’ who supplied the members of the group who attacked us. Yeah, I remember the so-called training camps and the supposedly WMD. Don’t misunderstand I detested Saddam, but at the time he hadn’t overtly done anything to incur our invasion. Afghanistan I understood, but not Iraq.
3. When Obama says “Mission Accomplished” it really is.
4. Dumping the pre-existing condition clause from insurance costs. Of course by the time it actually takes effect (if the S.C. doesn’t screw it all up) insurance companies will probably be welcoming those of us with pre-existing conditions with open arms — as long as we can paid the cost. Which will be astronomical. Why can’t some of MY tax dollars help me out?
5. Helping to dismantle the ‘Patriot Act” which in my mind is totally unconstitutional.
6. I even approve of the way he is handling the economy. I happen to figure that a millionaire will miss his tax money a little bit less than I do. My 24% tax rate is way more than - oh - shall we say Romney? I bet he can pay his measly 15% tax bill a whole lot easier than I can pay mine.
7. While I was skeptical of the “bailout” initially, I have now come to the conclusion Obama was correct there too. Just look at what is happening in Europe when they went the other direction - we’re all praying it holds its own. Of course I was also skeptical of the Euro dollar when it went in to effect. Seemed to me that just sort of opened the doors for a possible domino effect.
Is that enough for you to know where I stand? I might be a little less skeptical of the right, IF they ever actually gave any details of ANY of their plans. It seems to me, that just saying our goal is to remove Obama is a lousy issue. Instead tell me WHAT, WHEN, and HOW the Right purposes to handle health care reform. Or HOW, they plan to handle our oversea problems (you know the ones G W Bush left us with?) OR exactly HOW and WHEN, they PLAN to fix the economy.
You know, anything really reform that I can get behind and say - yeah the Right is going to - WHAT? Raise my taxes - just like the Left? Make me continue to pay $1369 a month for my health insurance. (MINE only) Just give me something besides, We’re going to topple Obama” ANYTHING?
RE:For all his sound and fury about the big banks, you wouldn’t think he left their leadership so much intact or that so many of his close advisers came from the very firms he rails against.
So you are saying that you think Obama should have put more restrictions on banks? Or even tried to get their leaders removed? How very liberal of you. I would have sworn you hated just the mere idea of governmental interference with capitalism.
“But the main reason people never really rebelled against this is that they thought they were protected,..”
Excellent point, Stephen. It is something that everyone should think twice about. It is a stunning reality that most Americans have not really come to grips with. How did this financial beast get unleashed and how best to bring it back under control and in the service of our economy?
“I might be a little less skeptical of the right, IF they ever actually gave any details of ANY of their plans.
Another excellent point, Highlander. Critics without an alternative plan. No health care alternatives. No financial reform alternatives. Nothing! Just obstruct and declare that they would do better. Well, how the hell are they going to do better? By trashing their own health care plan (RomneyCare)? Are they proposing to limit the size of TBTF financial institutions? Are they proposing to reinstate Glass-Steagall?
What are Republicans proposing? I suspect that it is the achilles’ heel of the Republican campaign. There is no meat. There is no substance. There is no plan. When the Republicans have been forced to actually present a plan (e.g., Ryan budget) it is DOA.
If I had one bit of advice to the Obama campaign, it would be to force specifics on the alternatives. Contrast and compare.
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