Showing posts with label Glass Steagal. Show all posts
Showing posts with label Glass Steagal. Show all posts

Saturday, April 19, 2014

Stronger Capital Required

Liberals can't seem to let go of the "Obama is really a corportist" meme just in the same way that conservatives can't let go of the "Obama is a commie" meme. Neither are right, of course, which means the president is doing exactly what he should be doing.

Yet this recent story on FDIC and the Treasury Department's new rule on capital should torpedo the idea that the president is secretly doing the bidding of our financial sector.

Regulators are acting to require U.S. banks to build a sturdier financial base to lessen the risk that they could collapse and cause a global meltdown. The eight biggest banks will have to meet stricter measures for holding capital – money that provides a cushion against unexpected losses – under a rule that regulators are adopting Tuesday.

The Federal Deposit Insurance Corp. and the Treasury’s Office of the Comptroller of the Currency voted to require those banks to raise their minimum ratio of capital to loans to 5 percent from the current 3 percent. The Federal Reserve will vote at a public meeting later Tuesday. The banks’ deposit-holding subsidiaries will have to achieve a ratio of 6 percent. Because the deposits are insured by the government, the subsidiaries are subject to a stricter ratio requirement.

The new regulation won't take effect until 2018 but it is progress. More importantly, it is exactly what I wanted to see in terms of a return to Glass Steagal-type regulation on the financial sector. The banks should not be gambling with my fucking money. Period.

Wednesday, December 11, 2013

Great News!

Two great things have happened in the last 24 hours. We have thankfully returned to a core tenet of Glass Steagal and enacted the so called Volcker Rule which prohibits banks from using customer money to trade for their own gain. I can't understate how integral this is to bringing stability to our economy and, by extension, the world economy.

And we have a deal that looks like it will pass by houses of Congress and fund the government through 2015. Republicans saw what happened when the shut down the government recently and realized it was time to put the short wave radio crowd back in the garage. They were facing disaster in the 2014 elections and now, with the help of the poor rollout of the ACA, they are doing much better. While there will likely be some return to idiocy, electorally speaking, over the next few months, GOP leaders can see a path to holding ground in the House and maybe picking up some seats in the Senate. Of course, things look pretty bad for them in 2016 as 24 Republicans look to hold on to their seats while only 10 Democrats do the same. But who knows what could happen in 3 years?

So, great times, folks in terms of our economic path. It's going to be interesting to see how our economy does now that both of these issues are out of the way. GDP is up, unemployment is down, and consumer confidence, heading into the final stretch of the holiday season, is at a five month high.

Great News!

Wednesday, May 16, 2012

What's To Be Done?

The recent shenanigans at JP Morgan Chase have revived calls to break up the banks and bring back Glass Steagal. Considering that the former is coming from the National Review should give everyone some pause. Yet Kling begins down a path here that I think is worth exploring. Actually, it reminds me of another debate which ultimately proved that having two such diametrically opposed viewpoints locked in a narrow minded ideological struggle is fruitless.

Like the seemingly endless debate between Keynesian and laissez faire economics, realism and liberalism (in terms of foreign policy) were locked in opposition as to how to deal with the Soviet Union. Realism explained the world as being in a constant state of anarchy and only through military power and constant distrust of other states will order and peace prevail. Liberalism called for international cooperation amongst the states of the world through peaceful, non-militaristic means.

Both of these ideologies completely failed to predict the collapse of the Soviet Union. One day, the Soviets simply gave up. It was not due to military pressure nor was it due to an international cooperative entity like the UN. It happened because of new thinking and out of the box ideas beginning with the simple fact the world's structure isn't set in stone and is, in fact, constantly in flux.

It is this sort of constructivist thinking that should be applied when considering the relationship between government and the financial sector...indeed, government and the free market in general. Neither Keynesian nor laissez faire economic theories (nor the various offshoots) can adequately explain the global marketplace today. Returning to the type of regulation called for Paul Krugman may not be effective for a wide variety of reasons. And clearly allowing banks like JP Morgan to continue to take the risks that they do isn't an option either. So, let's take a look at ideas from each of the pieces I've linked and see if there is a solution.

First Kling.

I believe that our best hope lies somewhere other than making our largest financial institutions impossible to break. Instead, I think we need to make our financial system easy to fix.

This would eliminate the need for more and more regulation. Kling's idea is to restrict the size of banks but I'm not sure that's the best way for it to be implemented. Wouldn't that be detrimental in the increased competition of the global marketplace?

Next we have the editorial staff at the Trib Review calling for a return to Glass Steagal. Why?

As The Small Business Authority puts it, "We ... need to get back to a capital asset pricing model where high-risk ventures are financed with a higher cost of capital and not government-guaranteed deposits ... ."

If the cost of capital were higher, wouldn't that make the system easier to fix? I honestly don't know. That's why I'm asking.

That brings us to Krugman.

It’s clear, then, that we need to restore the sorts of safeguards that gave us a couple of generations without major banking panics.

Exactly. But again, not the way he is suggesting with more government backed guarantees. Safeguards need to be in place but what sort of form should they take?

The reason why I am asking here is that I want to try to see if we can chuck the old schools of Keynes and laissez faire and adopt some new thinking and new ideas based on the identities that have been defined by the global marketplace.

Falling back into old ideological traps simply won't serve us.