cawacko
Well-known member
I have to give my local paper props, they did a really good job on this piece talking about financial reform...
Really too big to fail
Few things are more important than getting financial reform right, as 8.5 million unemployed Americans can attest. Yet the Senate has turned the debate into a moronic contest between whether Republicans or Democrats are the bigger enemies of Goldman Sachs.
A journalistic bandwagon that prefers politics to policy has formed around this absurd morality play.
It's worth asking a couple of questions before zooming over to the echo chambers at HuffPo or National Review.
Number one: why do respected economists on both sides of the ideological divide insist that the legislation may actually encourage too-big-to-fail, the central element of the financial panic?
MIT's Simon Johnson tirelessly points out that since the crisis and its forced mergers and bankruptcies, the top banks have grown Really-Too-Big-To-Fail. Six of them control assets amounting to 60 percent of GDP: Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo. Some alone control $2 trillion in assets, or 20 percent of the economy.
The Senate legislation fails to address this. Johnson is pushing an amendment by Sen. Ted Kaufman, D-Del., to break them up. Sen. Sherrod Brown, D-Ohio, is similarly pushing for breakups. There is no question in anyone's mind that should any of these institutions fail in the future, the government WILL bail them out.
Peter Wallison, the Republican co-chair of the Financial Reform Task Force, is similarly shouting to anyone who will listen that the legislation actually will turn these banks into giant new Fannie Maes and Freddie Macs. How?
The bill would authorize the Fed to regulate systemically important banks and authorize the FDIC to take them over should they fail. Sounds reasonable, right? The problem, Wallison says, is that, "Identifying large financial institutions as systemically important and placing them under regulation by the Fed will signal to the financial markets that these firms are too big to fail."
The big banks everyone loves to hate will gain a competitive advantage thanks to an implicit government guarantee, he argues, and will only grow larger.
Which leads to question two: why are Fannie Mae and Freddie Mac nowhere in the bill? These government-sponsored enterprises were at the heart of the securitization machine that turned subprime liar loans into AAA securities. Both parties were flogging home ownership as the ultimate American ideal, and Fannie and Freddie were giving gigantic salaries to their Democratic-appointed executives and gigantic campaign contributions to Democrats.
The Obama administration argues that it doesn't have time to address Fannie and Freddie in a financial overhaul. That should make the head spin. Both remain in a government conservatorship, holding $6.3 trillion in mortgages and a $200 billion government backstop. And try to find that liability in the government's own Enron-style bookkeeping.
Such questions are too big not to answer.
http://www.sfgate.com/cgi-bin/blogs/nov05election/detail?entry_id=62331
Really too big to fail
Few things are more important than getting financial reform right, as 8.5 million unemployed Americans can attest. Yet the Senate has turned the debate into a moronic contest between whether Republicans or Democrats are the bigger enemies of Goldman Sachs.
A journalistic bandwagon that prefers politics to policy has formed around this absurd morality play.
It's worth asking a couple of questions before zooming over to the echo chambers at HuffPo or National Review.
Number one: why do respected economists on both sides of the ideological divide insist that the legislation may actually encourage too-big-to-fail, the central element of the financial panic?
MIT's Simon Johnson tirelessly points out that since the crisis and its forced mergers and bankruptcies, the top banks have grown Really-Too-Big-To-Fail. Six of them control assets amounting to 60 percent of GDP: Goldman Sachs, Morgan Stanley, JPMorgan Chase, Citigroup, Bank of America, and Wells Fargo. Some alone control $2 trillion in assets, or 20 percent of the economy.
The Senate legislation fails to address this. Johnson is pushing an amendment by Sen. Ted Kaufman, D-Del., to break them up. Sen. Sherrod Brown, D-Ohio, is similarly pushing for breakups. There is no question in anyone's mind that should any of these institutions fail in the future, the government WILL bail them out.
Peter Wallison, the Republican co-chair of the Financial Reform Task Force, is similarly shouting to anyone who will listen that the legislation actually will turn these banks into giant new Fannie Maes and Freddie Macs. How?
The bill would authorize the Fed to regulate systemically important banks and authorize the FDIC to take them over should they fail. Sounds reasonable, right? The problem, Wallison says, is that, "Identifying large financial institutions as systemically important and placing them under regulation by the Fed will signal to the financial markets that these firms are too big to fail."
The big banks everyone loves to hate will gain a competitive advantage thanks to an implicit government guarantee, he argues, and will only grow larger.
Which leads to question two: why are Fannie Mae and Freddie Mac nowhere in the bill? These government-sponsored enterprises were at the heart of the securitization machine that turned subprime liar loans into AAA securities. Both parties were flogging home ownership as the ultimate American ideal, and Fannie and Freddie were giving gigantic salaries to their Democratic-appointed executives and gigantic campaign contributions to Democrats.
The Obama administration argues that it doesn't have time to address Fannie and Freddie in a financial overhaul. That should make the head spin. Both remain in a government conservatorship, holding $6.3 trillion in mortgages and a $200 billion government backstop. And try to find that liability in the government's own Enron-style bookkeeping.
Such questions are too big not to answer.
http://www.sfgate.com/cgi-bin/blogs/nov05election/detail?entry_id=62331