Simon Johnson finds tax-the-banks solution laughable

Barack Obama recently announced that the way to prevent future economic collapses is to put a new tax the big banks. For me, this was just one more in a long line of dreadful responses out of the White House. Who does he think is going to ultimately pay that tax? Further, how could a tax possibly keep big Wall Street banks from taking reckless gambles, and how is it that having a pool of tax money would mean that Washington DC wouldn't again jump in to "save the banks" with huge doses of tax dollars during the next cataclysmic crash? As long as there are banks that are "too big to fail," the federal government will jump in a most co-dependent of ways. I just read an FT.com article by economist Simon Johnson, who reassured me that my instincts were on target.

This week, the US Treasury pulled its latest rabbit out of the hat: a tax on the liabilities of large banks. The Obama administration argues that, by penalising large institutions with such taxes, we can limit their future risk-taking. This logic is deeply flawed. Why would higher funding costs mean you gamble less? If you know Tim Geithner is waiting to bail you out, you may gamble more heavily in order to pay the tax. The UK “reforms” look equally unpromising.
Johnson also spells out what IS needed:
First, we must sharply raise capital requirements at leveraged institutions, so shareholders rather than regulators play the leading role in making sure their money is used sensibly. This means tripling capital requirements so banks hold at least 20-25 per cent of assets in core capital. Second, we need to end the political need to bail out every institution that fails. This can be helped by putting strict limits on the size of institutions, and forcing our largest banks, including the likes of Goldman Sachs and Barclays, to become much smaller.
For reasons I truly don't understand, Obama is refusing to stand up and use his magnificent eloquence to make a case for meaningful financial reform. This has been a slow-motion train wreck for the past year, and he's about to allow the chance to create a CFPA slip away. He needs to join Elizabeth Warren in an almost constant assault on these highly monied amoral corporations (and their enablers in Congress) that it's time for real reform. As Warren (who IS out there fighting a good fight) says, "The problem is that a strong CFPA directly threatens the banks' ability to sell confusing, deceptive, fee-heavy financial products that generate huge profits, Warren said."

Continue ReadingSimon Johnson finds tax-the-banks solution laughable

Obama, Afghanistan, and deja vu all over again

First, some background:

  • May 1, 2003 President George W. Bush, while standing in front of a "Mission Accomplished" banner, declares "Major combat operations in Iraq have ended."
  • October 27, 2007 Presidential candidate Barack H. Obama, speaking on the Iraq War, declares "I will promise you this: that if we have not gotten our troops out by the time I am president, it is the first thing I will do. I will get our troops home, we will bring an end to this war, you can take that to the bank."
  • November 4, 2008 Candidate Obama is elected to the presidency.
  • January 20, 2009 Obama's inauguration.
  • January 21, 2009 First full-day of Obama's presidency passes with no sign that he intends to bring the troops home.
  • February 18, 2009 President Obama orders 17,000 additional soldiers to Afghanistan.
  • February 27, 2009 President Obama declares "Let me say this as plainly as I can: By August 31, 2010, our combat mission in Iraq will end." Ok, so it's not the "first thing he will do", but he will definitely do it. Someday. For sure, all the troops from Iraq will be out by 2011. It's hard to tell though, the 2012 elections will be right around the corner by that point...

Continue ReadingObama, Afghanistan, and deja vu all over again

The Afghanistan speech that President Obama should give

Tom Dispatch writes the Afghanistan speech that President Obama should, but won't, give. Here are three excerpts:

We have no partner in Afghanistan. The control of the government of Afghan President Hamid Karzai hardly extends beyond the embattled capital of Kabul. He himself has just been returned to office in a presidential election in which voting fraud on an almost unimaginably large scale was the order of the day.

. . . I have decided to send no more troops to Afghanistan. Beyond that, I believe it is in the national interest of the American people that this war, like the Iraq War, be drawn down. Over time, our troops and resources will be brought home in an orderly fashion, while we ensure that we provide adequate security for the men and women of our Armed Forces. Ours will be an administration that will stand or fall, as of today, on this essential position: that we ended, rather than extended, two wars.

But we must not be scared. America will not -- of this, as your president, I am convinced -- be a safer nation if it spends many hundreds of billions of dollars over many years, essentially bankrupting itself and exhausting its military on what looks increasingly like an unwinnable war. This is not the way to safety, but to national penury -- and I am unwilling to preside over an America heading in that direction.

Continue ReadingThe Afghanistan speech that President Obama should give

My recurring nightmare

What I am posting here is a gnawing, recurring and growing concern that sometimes seems like a nightmare to me. It embarrasses me that this thought keeps recurring because it makes me look like one of those crazy conspiracy theorists. What brought this “nightmare” to a head was watching Bill Moyers’ interview with U.S. Rep. Marcy Kaptur. Here’s an excerpt:

MARCY KAPTUR: Let me give you a reality from ground zero in Toledo, Ohio. Our foreclosures have gone up 94 percent. A few months ago, I met with our realtors. And I said, 'What should I know?' They said, 'Well, first of all, you should know the worst companies that are doing this to us.' I said, 'Well, give me the top one.' They said, 'J.P. Morgan Chase.' I went back to Washington that night. And one of my colleagues said, 'You want to come to dinner?' I said, 'Well, what is it?' He said, 'Well, it's a meeting with Jamie Dimon, the head of J.P. Morgan Chase.' I said, 'Wow, yes. I really do.' So, I go to this meeting in a fancy hotel, fancy dinner, and everyone is complimenting him. I mean, it was just like a love fest.

They finally got to me, and my point to ask a question. I said, 'Well, I don't want to speak out of turn here, Mr. Dimon.' I said, 'But your company is the largest forecloser in my district. And our Realtors just said to me this morning that your people don't return phone calls.' I said, 'We can't do work outs.' And he looked at me, he said, 'Do you know that I talk to your Governor all the time?' He said, 'Our company employs 10,000 people in Ohio.' And I'm thinking, 'What is that? A threat?' And he said, 'I speak to the Mayor of Columbus.'

As I watched this, I was thinking how amazing it was that a bank president would dare to treat a U.S. representative as though she meant nothing to him, even though she is a sitting member of Congress and a member of the political party that controls both Houses and the Presidency. How is it that all the big financial players such as Chase, AIG, Goldman Sachs, always get exactly what they want out of Congress? How can Congress allow these entities to continue to grow (since the meltdown), even though it is clear that the reason Congress felt that they needed to be propped up with tax money is that they were considered “too big to fail?” Name even one other industry that can snap its fingers and watch meaningful Congressional regulation completely dissolve. Name another industry that can demand hundreds of billions of no-questions-asked tax dollars from Congress. Consider the vast power and potential abuses of the Federal Reserve, which works arrogantly and opaquely. Consider Matt Tabbi’s recent articles regarding these financial giants and Congressional Corruption (and see here). We’re not even finished paying off the damage from the S&L scandal from the 80’s, and now, in the past year, we’ve taken on a new debt that dwarfs that S&L debt. And consider that when someone like federal Judge Rakoff has the integrity to stand up to speak truth to power, he seems to be a lone voice calling from a distant hilltop, not part of any sort of chorus. Consider, too, the monumental struggle faced by Elizabeth Warren, Chair of the Congressional Oversight Panel , who is facing immense opposition in Congress to establishing a strong Consumer Financial Protection Agency (CFPA) to make sure that consumers stop getting ripped off by banks through the use of unintelligible contract language (how can this possibly be controversial?). Pardon my French, but what-the-fuck? Using Occam’s Razor (the principle that the simplest explanation is usually the best), how does one explain that huge numbers of our representatives have completely tanked on The People.

Continue ReadingMy recurring nightmare