The Edmund L. Andrews Archives
Since my last post, venting over those who blame the financial crisis on the government policies to help low-income people, Raghuram Rajan has fired back at Paul Krugman over how much blame should go to Fannie Mae and Freddie Mac.
Since I mentioned Krugman's criticism of Raghu, I want to clarify a couple of points. For starters, I think Krugman was over-the-top toward him. Rajan is most definitely not a member of the right-wing fantasy history campaign. He may be at the University of Chicago, but he is not an ideologue and he is an outstanding scholar.
Of all the canards that have been offered about the financial crisis, few are more repellant than the claim that the “real cause’’ of the mortgage meltdown was blacks and Hispanics.
Oh, excuse me -- did I just accuse someone of racism? Sorry. Proponents of the above actually blame the crisis on “government policy’’ to boost home-ownership among low-income families, who just happened to be disproportionately non-white and immigrant. Specifically, the Community Reinvestment Act “forced’’ banks to make bad loans to irresponsible borrowers, while Fannie Mae and Freddie Mac provided the financial torque by purchasing billions worth of subprime paper.
Oh my God. I never thought i would ever say this, but Warren Buffett has turned into an evasive, disingenuous, bumbling buffoon. I've just finished watching the beloved Oracle of Omaha being grilled by the Financial Crisis Inquiry Commission about the catastrophic role of credit rating agencies, and it's pitiful to watch him plead ignorance on the most elemental questions about what Moody's and Standard & Poors did wrong or how they should be changed.
This is the same Warren Buffett who has been all but canonized as a saint for his adherence to long-term value investing, his folksy candor, his opposition to Wall Street gimmickry and not the least for his memorable description of financial derivatives as "weapons of mass financial destruction."
Where have you gone, Joe DiMaggio?
To the bank, apparently. Buffett's Berkshire Hathaway owns a hefty chunk of Moody's Investor Service -- somewhere around 13 percent -- and he only appeared today after being subpoened by the commission.
Floyd Norris, the New York Times' pithy and wise observer of financial follies, reveals on his blog today that he's going through a nasty fight against cancer. The good news is that his chances of a recovery are good. The bad news is that he has to go through hell first:
I know that it is not news that radiation treatment can be miserable. I did not do all the homework I could have done, so perhaps I should have been better prepared.
But the pain involved is more than I have ever experienced. It is virtually impossible for me to eat. I am losing weight at an impressive rate, to the dismay of the radiation doctor. I have little energy, which is probably both because of the radiation directly and because of the lack of nutrition.
Not surprisingly, Floyd isn't wallowing in his misery. He says he still counts himself incredibly lucky, and he's drawn inspiration from the people he's already met during treatment.
That didn't take long. As I predicted, Simon Johnson's first word out on the Senate financial overhaul is to accuse the Dems of selling out because they dropped plans for a vote on the Merkley-Levin amendment to ban banks from proprietary trading. Paul Krugman is skeptical,saying that the resttraints on the shadow-banking system are more important than the lack of action against too-big-to-fail banks.
I applaud Simon for his tireless efforts, and I agree on the prop-trading ban -- aka the Volcker Rule, which Obama belatedly but publicly endorsed with former Fed chairman Paul Volcker at his side. But if your only take on the 1500-page bill is that one issue, you're losing perspective.
A few hours ago, the Senate did something truly amazing: it clobbered Wall Street and the banking industry, defying armies of overpaid lobbyists and passing genuine reforms for our run-amok financial system. Voting 59 to 39, the Senate passed Senator Chris Dodd's sprawling bill to clamp down on the Wall Street excesses that nearly destroyed capitalism.
Here is my initial quick take in the Fiscal Times. But let me amplify a bit here. For all its compromises and omissions and special exceptions, this is a strong bill that will make life a lot less free-wheeling and lucrative for the big banks and, with a little perserverence, a lot safer for consumers and the economy as a whole. This is a victory for the good guys.
In case you missed it, Arizona voters overwhelmingly approved Proposition 100 on Tuesday, which raises the state sales tax by one percentage point for three years. A whopping two-thirds majority voted for the move, which is supposed to bring in about $900 million a year. That's a very bitter pill for people in a conservative state with one of the lowest tax burdens in the country, and anti-tax types from outside the state are already howling.
Is this a sign that Republican voters on Main Street may be more willing to grapple with fiscal reality than Republican leaders in Washington? Not neceessarily. If anything, Arizona shows how ugly things have to get before voters will grudgingly support tax increases as well as brutal spending cuts.
Harry Reid has now filed a cloture motion to end debate on the financial overhaul bill, which means a final vote could come Wednesday or Thursday. Or not. With the Senate, you never know.
There are at least a half-dozen important amendments that will be voted before the final curtain, and I would urge people to call or email wavering senators. But one of the most easily confused battles will be about tough new prohibitions on derivatives trading by banks and bank holding companies. This would be a baffling topic under the best of circumstances, but Democrats have made it even more so by throwing up two similar-sounding proposals that are wildly different. To be blunt: one of those proposals is a really good idea, while the other one is a really dumb idea.
In response to BP's ongoing oil disaster in the Gulf of Mexico, Interior Secretrary Ken Salazar announced plans today to split the dreaded and loathesome Minerals Management Service into two separate agencies -- one to supervise offshore drilling rigs and one to collect the billions of dollars in royalties on the oil and gas pumped in public waters.
It's fine that the Obama administration wants to carry out radical surgery on an agency that is notorious for incompetence, cronyism, scandals, cover-ups and supine subservience to the oil industry. Who wouldn't want to carve the place up?
The problem is that MMS -- and Interior itself -- has a long history of criminal incompetence at BOTH supervising deep-water drilling and collecting the money. Splitting its core incompetencies into two separate agencies won't necessarily solve that problem.
Here's an encouraging bit of news: it turns out Treasury has been smarter than many had expected in pushing the banks to pay up for the privilege of being bailed out.
Oddly, the SIGTARP's main message was to whine about the lack of transparency and how hard it was for investigators to figure out how Treasury was negotiating with the banks. But the striking part is how cagey and successful Treasury officials were in persuading banks to pay top dollar to buy back stock warrants they gave the government when they got their TARP loans.
Executives from BP and its partners in the Gulf oil spill will endure a heavy round of indignant and righteous grilling at Senate hearings on Tuesday, and they deserve it.
But it's also obvious that Congress and the Interior Department failed in all sorts of ways over the years. And there's a broader lesson here: after a quarter-century of rising anti-government zeal, government is emaciated, hollowed-out and as ineffectual as Brownie during Katrina.
But back to BP. For starters, there is the matter of that $75 million limit on the liability for commercial and business losses caused by an offshore oil spill. That limit is likely to be absurdly low, given that the fishing and tourism losses alone will likely run into the billions. But the cap is in the law that Congress approved when it was trying to deal with the Exxon-Valdez disaster, and it will be hard to fix it retroactively.
Peter Orszag, the White House budget director, has added a new twist to prospects for Obama's bipartisan deficit commission: redefine "success.''
As Eric Pianin and I report in the Fiscal Times today, Orszag rather confidently predicted the other night that nay-sayers about the commission (that would include Bruce Bartlett, Stan Collender and, come to think of it, me) will be proven wrong. Despite the unflagging warfare between Republicans and Democrats in congress, he predicted, the commission Will come up with recommendations to sharply cut the deficit.
Here's the twist: the recommendations might simply come in a report by the panel's Democratic and Republican co-chairs -- Erskine Bowles and Alan Simpson -- rather than be supported by at least 14 out of the panel's 18 members.
Stan is generous to cross-post the story that I wrote with Lori Montgomery of The Washington Post on tax expenditures.
I would just add a couple of points. This piece was another example of fruitful collaboration between traditional and untraditional media -- in this case, The Fiscal Times and The Washington Post. Post editors picked the topic, which I had written about before, and Lori and I teamed up to report and write. It went more smoothly than some of in-house collaborations when I was at the New York Times.
Second, as I've written here before, the biggest but least-understood problem with tax breaks is that their cost tends to climb a lot faster than inflation. Congress sometimes has big debates about creating a particular preference. But once a tax break is law, nobody pays attention and the costs spiral up without anyone doing anything else. It just falls off the radar, and it involves trillions of dollars over a decade.
I don't claim to be an expert in politics, but I do have a rule of thumb: don't trust political advice from people who want to tear you down.
So today, Daniel Henninger of the WSJ's editorial page darkly warns that Democrats are "at the edge of the cliff'' because new polling shows that the public is bitterly horrified by everything the Dems stand for.
It's not just bad news for the Dems, he writes with grim authority. "It's Armageddon."
Golly, that does sound bad. As evidence, Henniger relies on a new Pew Research Center survey which shows that Americans are in an incredibly sour mood and that "trust in government'' has sunk to an all-time low of 22 percent.
When Mitch McConnell charged that the Senate Democrats' bill to reform financial regulation would lead to "more bailouts'' for Wall Street, I could almost imagine how GOP word-smiths had racked their brains for ways to spin the effort.
Here was a bill aimed at clamping down on the rapacious mortgages and wanton risk-taking by Wall Street firms that nearly destroyed the financial system and led to huge bailouts. It would be hard to find groups that are more detested by voters -- including populist Tea Partiers and End-the-Fed supporters of Ron Paul -- than big banks and Wall Street.
GOP leaders know exactly why they oppose the bill: it's a Democratic bill. Full-stop. But will that fly with ordinary voters? Do red-state conservatives hate derivatives regulation even more than they hate Wall Street greed, trillion-dollar bailouts and all the bad things that led to the epic meltdown? Doubtful.
Why do the spin-meisters keep doing this?
Just when Treasury Secretary Tim Geithner is enjoying a rare patch of fairly positive press coverage, the Treasury resorts to one of the oldest and hoariest ruses in the PR handbook for announcing something in a way to attract a bare minimum of public attention.
The WSJ just posted Geithner's announcement that Treasury is delaying its semi-annual report on currency manipulation, which must either accuse or acquit China of manipulating its currency, the renmimbi, to boost exports.
To his credit, Geithner is openly admitting that he's delaying the report because he doesn't want to making the Chinese mad ahead of "high-level meetings" over the next three month. That's more than the Bush Treasury did; on at least one occasion, it missed the Congressional deadline for months without even bothering to say anything.
We shouldn't be surprised that David Frum got fired from the American Enterprise Institute for violating the Republican party line on health care. Notwithstanding the Palin/McCain campaign rhetoric, the GOP has been hostile for years to to mavericks, independent thinkers and, frankly, almost any kind of thinkers.
Even so, I was struck by this post from Frum's wife, Danielle Crittenden:
We have both been part of the conservative movement for, as mentioned, the better part of half of our lives. And I can categorically state I’ve never seen such a hostile environment towards free thought and debate–the hallmarks of Reaganism, the politics with which we grew up–prevail in our movement as it does today. The thuggish demagoguery of the Limbaughs and Becks is a trait we once derided in the old socialist Left. Well boys, take a look in the mirror. It is us now.
It's not clear to whether Senate Banking chairman Chris Dodd simply lost his patience or was told by his Democratic brethren to end the fruitless attempt to negotiate with Republicans over financial regulatory reform.
It doesn't matter. The important thing is that Dodd finally called it quits and announced on Thursday that he will unveil his own bill on Monday without any Republican support.
If that means there is no financial reform this year, because Republicans block it by filibuster, it will be a setback for much-needed fixes to catastrophically broken system of regulation.
But the way things were going, this bill would have been worse than no bill. There comes a time when you need to tell the obstructionists to put up or shut up. As in health care reform, Democrats bent over backwards to lure Republican support for regulatory overhaul.