Policing The Financial System
In the current issue, Time magazine profiles three of the federal officials responsible for reforming the financial system: Shelia Bair of the FDIC, Mary Schapiro of the SEC, and Elizabeth Warren of the TARP oversight panel. From the cover story:
Unlike many of the men they oversee, the new sheriffs of Wall Street never aspired to eight-figure compensation packages or corporate suites. Bair, Schapiro and Warren all made their careers far from Manhattan, taking on new jobs during pregnancies and outhustling the men around them. But it is their willingness to break ranks and challenge the status quo that makes these increasingly powerful women different from their predecessors. As Washington gets down to the hard work of putting laws into place that are designed to prevent another crisis, they are shaping the way government will protect investors and consumers for the next generation. Under financial regulatory reform, which all three women support, both the SEC and the FDIC stand to win powerful new authority to limit and dismantle offenders. The Consumer Financial Protection Agency, a proposed body now working its way through the Senate, is the brainchild of Warren and is envisioned as a bulwark against what she calls the “tricks and traps” that banks hide in credit-card agreements and mortgages.
The Politics of Health Insurance Reform
Writing in The Huffington Post, Sam Stein reports on the role that the Obama White House played in the passage of health reform. Notes Stein:
Removed from the heat of the battle, the question is easier to answer. Obama, at his core, saw and continues to see legislating as a distinctly political process: one in which goals are imparted, building blocks are set, and compromises are fair game on everything but success itself. His legislative doctrine is not static. As Dunn acknowledged, it became a “more aggressive operation” over time. But it is firmly rooted in the ethos that guided the presidential campaign — an ethos that one administration official described as “The Art of the Possible.”
Meanwhile, the PBS series Frontline recently devoted 60 minutes to explaining the bill’s passage.
Around The Dial – May 17
Economic policy reports, blog postings, and media stories of interest:
- “Dr. Doom” worries that we’ve returned to the “abyss.”
- Economix asks what companies are goof for.
- The New York Times profiles Ben Bernanke.
- Both The News and Record and Triangle Business Journal report on NC’s “JobsNow” program.
How Does It Measure Up?
The PBS News Hour asks how current attempts to regulate financial firms compare to past efforts.
We’re Not Greece
In recent days, the idea that the United States has economic problems similar to those of Greece has gained traction in the mainstream media. The only problem with this comparison is that it is wrong.
Let’s repeat this for the 100th time: the US government, the Japanese Government, and the UK government, among others, do NOT face a Greek style constraint — they can just credit bank accounts for interest and repayment in the same fashion as they would buy some helmets for the military or some pencils for a government school. True, individual American states do face a fiscal crisis (much like the EMU nations) as users of the dollar. That is why some 48 out of 50 now face fiscal crises (a problem that could easily be alleviated were the US Federal Government to undertake a comprehensive system of revenue sharing on a per capita basis with the various individual states). But, if any “lesson” is to be learned from Greece, Ireland, or any other euro zone nation, it is not the one that Mr. [Meryn] King [of the Bank of England] is seeking to impart. Rather, the lesson is the futility of imposing arbitrary limits on fiscal policy devoid of economic context. Unfortunately, few are recognizing the latter point. The prevailing “lesson” being drawn from the Greek experience, therefore, will almost certainly lead the US and the UK to the same miserable economic outcome, along with higher deficits in the process. As they say in Europe, “Finanzkapital uber alles”.
Do you see how these situations are different? Greece needs to make massive, immediate budget cuts all without plunging its economy into a recession so deep that the cuts generate a larger deficit as revenues tumble. It’s quite possible that there is no way to make this happen without massive external assistance. America, by contrast, simply needs to slow the rate of growth of government spending. That’s it. An increase in revenues would help, too, but what we’re basically talking about is slowing spending growth by enough that economic growth can generate the revenues to fund the government’s budget.
In short, we’re not Greece. We may currently be running deficits of comparable size, but our economic position — and, as a result, our fiscal outlook — is vastly better.
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That said, we do have a long-run budget problem. But what’s the root of that problem? “We demand more than we’re willing to pay for,” is the usual line. Yet that line is deeply misleading.
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Meanwhile, when you look under the hood of those troubling long-run budget projections, you discover that they’re not driven by some generalized problem of overspending. Instead, they largely reflect just one thing: the assumption that health care costs will rise in the future as they have in the past…..
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So here’s the reality: America’s fiscal outlook over the next few years isn’t bad. We do have a serious long-run budget problem, which will have to be resolved with a combination of health care reform and other measures, probably including a moderate rise in taxes. But we should ignore those who pretend to be concerned with fiscal responsibility, but whose real goal is to dismantle the welfare state — and are trying to use crises elsewhere to frighten us into giving them what they want.
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