Thursday, November 14, 2013
But the idea that somehow this growing reputation translates into a competitive bid for the 2016 presidential nomination—The New Republic recently suggested on its cover that Warren represents the "soul" of the Democratic Party more than Hillary Clinton—is pretty over the top.
Wednesday, October 23, 2013
Picture credit: http://pogoblog.typepad.com
Over the weekend JPMorgan Chase, the world's largest bank, reportedly agreed to fork over $13 billion in what will be the world's largest corporate settlement. Although the penalty, in proportion to JPMorgan's multi-trillion-dollar balance sheet, will merely dampen its annual earnings, some commentators said they felt bad for CEO Jamie Dimon. Calling the not-yet-announced agreement a "shakedown," the Wall Street Journal opined: "Federal law enforcers are confiscating roughly half of a company's annual earnings for no other reason than because they can and because they want to appease their left-wing populist allies." The Washington Post, lamenting the "persecution" of Morgan, quibbled that the Justice Department should not be so "backward-looking" as to slap the bank "for allegedly misleading investors about the quality of [subprime] securities it marketed before the crash." After all, the editors said, "roughly 70 percent of the securities at issue were concocted not by JPMorgan but by two institutions, Bear Stearns and Washington Mutual, that it acquired in 2008" under government pressure.
Poor Jamie. We do feel his pain. But all this empathy misses the point. What the historic deal demonstrates, beyond any reasonable doubt, is that the biggest banks are so big today that almost no wrongdoing can threaten their existence. They have become, in effect, something close to sovereign powers. Yes, if you're a bigger power, like the United States, you can extract "tribute" from them occasionally, as the Romans used to do to vassal states. But you don't liquidate sovereign powers or put their officials in jail.
Consider the odd spectacle of Dimon reaching out like a potentate to Eric Holder, asking for a personal meeting in which the two of them could hash out the penalty in private. The head of a bank and the attorney general of the United States held, in other words, a kind of personal "summit" meeting. Such a pact would only have been possible if the government of the United States is itself afraid of disturbing the operations of the bank—and in fact Holder admitted just that back in March when he warned that the biggest banks have grown not only too big to fail, but too big to prosecute. (In testimony before the Senate Judiciary Committee, Holder delivered an implicit rebuke to his former Cabinet colleague, Treasury Secretary Timothy Geithner, who permitted Wall Street to resurrect itself in what is largely its former image.)
As MIT financial expert Simon Johnson, the former chief economist of the International Monetary Fund, observed, "If Dimon's bank didn't have $4 trillion in assets (measured using international accounting standards), but rather a much more moderate $250 billion or $500 billion, do you think he would have the same access?"
Dimon is apparently taking this deal as a large-scale cost of doing business, and he's still fighting Justice's demand that his bank admit some culpability or wrongdoing. Which is the same pattern we saw in previous cases with Goldman Sachs and others: in one case, against Citigroup in 2011, U.S. District Judge Jed Rakoff rebuked the Securities and Exchange Commission and refused to approve a $285 million settlement with the bank because the SEC failed to gain any admission of wrongdoing or liability. To his credit, Holder is reportedly still pursuing a criminal case against JPMorgan involving allegedly fraudulent mortgages in California; in previous instances, banks have successfully bargained for the dropping of criminal charges in exchange for substantial settlements.
But for those who are tut-tutting that poor JPMorgan is giving up some half its profits, consider these figures from Andrew Haldane, head of the Bank of England's financial-stability department. He wrote that the financial crisis of 2008-09 produced an output loss equivalent to between $60 trillion and $200 trillion for the world economy. Assuming that a financial crisis occurs every 20 years, the systemic levy needed to recoup these crisis costs would be in excess of $1.5 trillion per year, Haldane says. What that means is that overall, our unrestrained financial sector does not add any net benefit to the economy -- its repeated crises cost us far more than Wall Street brings to overall economic growth.
JPMorgan, in effect, is giving up what amounts to a medium-sized penalty fee so that it can perpetuate Wall Street's pattern of occasionally blowing up and costing the rest of society its pursuit of happiness. And despite crying now that 70 percent of the bad mortgages were accumulated by Bear Stearns and Washington Mutual—which the government pressed on Dimon in the heat of the crisis—in fact he made out very well. "He got a 'Jamie-deal' on both Bear (the U.S. government guaranteed $30 billion of mortgage assets) and WAMU (the FDIC put WAMU in bankruptcy and let JPMorgan buy it for peanuts)," says Jeff Connaughton, author of the book "The Payoff: Why Wall Street Always Wins." "So in some ways the fine is a belated increase in fair purchase price."
Dimon has often behaved like the latter-day potentate he is. In the years since the crash, no one has worked harder than Dimon to resurrect the debunked idea that Wall Street can regulate itself. He has publicly disparaged Paul Volcker, the legendary inflation-fighting Fed chief and namesake of President Obama's still-unimplemented "Volcker Rule," which prevents federally insured banks from acting like risky hedge funds. Volcker has taken to telling audiences in recent years that the big, complex trades earning billions for firms like JPMorgan Chase add little growth to the real economy, just as Haldane's paper concludes. And despite the evidence that not a single Wall Street CEO really understood the trades that would doom his firm in the months leading up to September 2008, JPMorgan and the other global banks have still sought to keep derivatives and swaps trading in the dark and out of regulatory control as much as possible, so as to keep their vast profit machine (which relied on a lack of transparency) going.
The latest deal? Just the cost of doing business.
Friday, October 18, 2013
Wednesday, October 16, 2013
Thursday, October 10, 2013
Friday, October 4, 2013
Reprinted from National Journal
During his five years in office, President Obama has often blamed his problems on what George
W. Bush left him with: two wars, a historic recession, an out-of-control financial system and a
huge budget deficit. But W.’s most enduring legacy to his successor may have been the tea party
movement, and the political dysfunction that it has brought.
That may seem an odd conclusion. Today Obama is the central villain in tea-party rhetoric, and
Bush is hardly ever mentioned. Yet the rebellion against Big Government that the tea party has
come to embody really began more than a decade ago with a growing sense of betrayal among
conservatives over Bush’s runaway-spending habits. Conservatives were angered by his refusal
to veto any spending bills, especially in his first term, not to mention what happened during
the nearly six years of GOP control of the Senate and House from 2000 to ’06, when federal
spending grew to a record $2.7 trillion, more than doubling the increase during Bill Clinton’s
two terms. The final outrage that lit the brushfires of tea-party fervor was Bush’s sponsorship of
the $700 billion Troubled Asset Relief Program in the fall of 2008, just before he left office, in
order to bail out Wall Street.
It is arguably true that President Obama’s decision in 2009 to pile a giant stimulus and a new
national health-care program on top of TARP transformed those brushfires into a true national
conflagration—and a movement. But in reality Obama’s actions were more like a tipping point,
many conservatives say. “This social and political phenomenon of the tea partiers was burning
all through the Bush years,” Reid Buckley, brother of the late William F. Buckley and the self-
appointed keeper of his flame as a father of modern conservatism, said in a 2010 interview.
“It’s a long-term slow boil that has disaffected most people who call themselves conservatives.
There’s nothing I have against President Obama that in this I wouldn’t charge Bush with.”
It wasn’t just spending of course. Bush also built the intrusive post-9/11 national-security state
that Obama has embraced, and which a growing number libertarian tea partiers have come to
hate, including National Security Agency surveillance and a program of frequent but secret drone
True, on many issues, Bush gained enthusiastic conservative support. Among them were his
hawkish response to the 9/11 terrorist attacks; his abandonment of the Kyoto Protocol and
resistance to domestic efforts to reduce the carbon emissions linked to climate change; his
conservative nominees to the Supreme Court; the two large tax cuts he passed in 2001 and 2003
(the latter was the first tax cut approved during wartime in American history); and above all,
his 2005 attempt to restructure Social Security, the pillar of the public social safety net, into a
program that relied less on government and more on markets to deliver economic security.
Yet throughout his presidency, Bush was far more comfortable with an assertive role for
Washington than many conservatives were. They recoiled from his proposals to expand the
federal role in education, create a prescription-drug benefit under Medicare and establish a
pathway to citizenship for millions of illegal immigrants.
On some of these issues—especially the post-9/11 response and the war in Iraq—a sense of
patriotism and party loyalty papered over growing conservative discontent with Bush’s fiscal
irresponsibility and national-security recklessness. But the fissures in the party were quietly
widening. Among the conservatives who cooled on Bush were some of today’s intellectual
champions of the tea party, such as Jim DeMint, the former senator from South Carolina who
now heads the Heritage Foundation and is a leading player in the Obamacare standoff; and Tom
Coburn, the zealously fiscally conservative senator from Oklahoma. For DeMint, Bush’s TARP
and stimulus in the fall of 2008 were “the last straw” in his disaffection from Bush, an aide to the
senator said. “There’s a lot of affection for Bush because of how passionately he fought the war
on terror. But as far as domestic policy goes, conservatives felt betrayed.” Coburn, in a speech
on the Senate floor in October 2005, inveighed against the remorseless earmarking of his fellow
Republicans and the spending of the Republican-controlled White House. “All change starts with
a distant rumble, a rumble at the grassroots level, and if you stop and listen today, you will hear
such a rumble,” he said.
Coburn spoke then of “committees full of outraged citizens” forming in the heartland. He
supported the Porkbusters movement led by Glenn Reynolds, a blogger (Instapundit) and law
professor from Tennessee, which resembled a dress rehearsal for the tea party movement. “It
started when Republicans were in charge,” Coburn told National Journal a few years ago. He
added that Bush’s “Medicare prescription drug plan—that was the worst thing imaginable, $13
trillion in unfunded liabilities.”
George W. Bush left behind many baleful legacies, among them a $3 trillion war in Iraq that
didn’t need to be fought, and the worst financial crisis since the Great Depression. But he also
helped to fracture his own party—and thus Washington.
Thursday, August 15, 2013
To be sure, there was never any easy course—no obvious choice between an alarmingly Islamist president, which Morsi was becoming, and the military junta that succeeded him. But for months critics of the administration's approach have been urging it to at least speak loudly and clearly, using the $1.3 billion in U.S. aid and military supplies as leverage, in demanding that first the Morsi government and then the military junta uphold democratic principles. That did not happen. And it may be too late now to alter the terrible path that Egypt is on.