WH Begins To Draw Lines On Wall Street Reform
WH says it will fight bank lobby attempts to weaken Wall Street reform. W. Post: "[Dep. Sec. Neal] Wolin added that the administration would oppose efforts to provide exemptions for certain kinds of lenders. Regulatory reform legislation that passed the House in December, for instance, allows auto dealers to escape oversight of the consumer protection agency. He said the administration would seek to strip out that exemption ... Administration officials, who are being kept abreast of the [derivatives] talks between [Dem Sen. Blanche] Lincoln and [GOP Sen. Saxby] Chambliss, said they are trying to ensure that the two lawmakers do not increase the scope of those exceptions and create loopholes that financial firms could exploit ... [but] would be open to compromise on the issue if it hastened bipartisan consensus..."
Consumer Watchdog's Judy Dugan warns Congress against trading away strong derivatives reform in any compromise: "Consumers wouldn't care? How about if derivatives trading is explained by the example of energy commodity trading--the wild speculation that drove the price of oil to the stratosphere in 2008, and gasoline to $4.00 a gallon? Show me an American who doesn't understand $4.00 gasoline and what energy prices did to the economy ... Foreclosure, job loss and the price at the pump. Billion-dollar bonuses at Goldman Sachs. Consumers understand those all too well. And they're all linked to derivatives trading."
Naked Capitalism compiles the wide-ranging list of prominent officials who have said we must break up the banks. "Virtually all independent financial experts are demanding that the too big to fail banks be broken up ... many bank regulators say that we need to break up the too big to fails ... Even the Bank of International Settlements – the 'Central Banks’ Central Bank' – has slammed too big to fail ..."
Greenspan Testimony Roundly Mocked, Former Citi Chiefs Next
W. Post's Dana Milbank on Greenspan's blame-shifting during Financial Crisis Inquiry Commission testimony: "... he assigned fault to, among others, Congress, the Bush and Clinton administrations, Fannie Mae and Freddie Mac, the Europeans, other regulators, and one of his Fed colleagues. They all contributed to what Greenspan, in his testimony, called 'the most prominent global bubble in generations.' ... In fact, the Maestro spent a good bit of time fiddling while the bubble inflated. Here's what he had to say to Congress's Joint Economic Committee in June 2005: 'A bubble in home prices for the nation as a whole does not appear likely.'"
HuffPost's Tom Matzzie slams Greenspan claim that he was only wrong "30 percent" of the time: "When asked whether the financial crisis was one of the times he got it wrong he answered, 'I don't know.' If there is a photo in the dictionary next to the word "clueless" it should look like Alan Greenspan. These are outrageous statements by a financial regulator whose job was to protect the entire U.S. economy."
OurFuture.org's Richard Eskow sums up Greenspan's contradictory worldview: "Here's what Greenspan's saying, and it's as farfetched as it sounds: The Cold War drove down mortgage rates. Predatory lending and reckless, unregulated speculation had nothing to do with the crisis - it was the Russians. Crises cannot be predicted (although he says a regulator's role is preventive; nobody called him on that contradiction.) We need all these complicated, Rube Goldberg-esque financial products (or gimmicks) because today's 'division of labor' is so complicated ... Overall, he's saying that the world has become so complicated that regulators can't possibly predict disasters. All we can do is raise enough capital to pay for them. If you buy that, I have a few mortgage-backed securities to sell you."
ProPublica's Marian Wang notes that Greenspan's Fed didn't focus on enforcement: "The Fed had concerns about sub-prime mortgage market and 'a lot of that stuff was just plain fraud,' he said, but the Fed had expressed its concerns, and other agencies — such as the SEC, which regulates securities, and Department of Justice-could have followed up. Without an enforcement division like the SEC's, 'the Federal Reserve is not an enforcement agency,' he told the panel. And yet the Federal Reserve Board's own guidelines about the central bank's purposes and functions do include powers of enforcement."
Baseline Scenario's James Kwak finds something to like in Greenspan's testimony, an argument for breaking up the big banks: "It’s nice that, in his retirement, Greenspan has finally become humble about the prospects for regulation. I wish the current batch of government officials would share the same humility. Not because I’m against regulation ... But because I think you have to be prepared for it to fail. So .... we need to reduce the size of banks so that when they do fail, they don’t take the financial system with them."
Top Citigroup officials face Commission today. Bloomberg: "During yesterday’s session, the panel was told Citigroup routinely bought mortgages that violated the bank’s own standards."
Crisis Commission gets "preliminary working paper" Fed finding it provided lax oversight of Citigroup. NYT: "The most recent documents from 2009 portray bank examiners from the Federal Reserve Bank of New York, then headed by Timothy F. Geithner, now the Treasury secretary, as overly optimistic about Citigroup’s prospects ... They also suggest that the Fed examiners failed to move swiftly as Citigroup’s financial condition deteriorated ... the excerpts suggested that oversight of Citigroup was inadequate as far back as 2005 and remained so as recently as late December."
Zach Carter says that Treasury mismanaged the Citigroup bailout: "Treasury made a serious mistake in December 2009 when it allowed Citigroup to raise $20 billion in equity to pay off a $20 billion loan that taxpayers had extended the company in 2008. It was good to see the loan repaid, but it was not good to see it repaid with this giant stock offering. The government had two different investments in Citi under the bailout-the $20 billion loan, and a 33% stock stake that it had purchased for $25 billion. By issuing the new stock, Citi was raising money for itself, but reducing the value of the stake that taxpayers owned in the company ('diluting' the stake, in finance jargon)."
China Ready To Adjust Currency
China reportedly ready to allow currency value to float, within limits. NYT: "While there remains a possibility of a last-minute glitch that could delay the announcement, China’s central bank appears to have prevailed with its arguments within the Chinese leadership ... The model for the upcoming shift in currency policy is China’s move in 2005, when the leadership allowed the renminbi to jump 2 percent overnight against the dollar and then trade in a wider daily range, but with a trend toward further strengthening against the dollar."
The Big Picture's Barry Ritholtz is unimpressed: "Translation: Minor appeasement of those annoying Americans. Anything beyond a tiny incremental change would be surprising."
Matthew Yglesias sees success of good cop-bad cop strategy:: "...if it does end that way this will be a story in which everyone is right. The Obama administration’s refusal to loudly denounce China or threaten them with retaliation will be vindicated. But so will the loud denunciations of the Obama administration! After all, Obama’s team being able to point to growing domestic pressure is what makes the behind-the-scenes talks work."
Head of European Union Chamber of Commerce in China, Joerg Wuttke, warns China not to continue with unfair trade policies: "For the first time I hear of companies contemplating leaving the country altogether. They consider this not because they cannot compete with local rivals – but because they are weary of slogging through an unpredictable business environment where the odds seem deliberately stacked against them."
China May Build First US High-Speed Rail System
Chinese government may take lead in designing and building California high-speed rail system. NYT: "The Chinese government has signed [preliminary] cooperation agreements with the State of California and General Electric to help build such lines ... China is offering not just to build a railroad in California but also to help finance its construction ... the agreement calls for at least 80 percent of the components of any locomotives and system control gear to come from American suppliers, and labor-intensive final assembly would be done in the United States for the American market. China would license its technology and supply engineers as well as up to 20 percent of the components."
Dean Baker how China's leadership position in high-speed rail debunks "conventional wisdom" that America no longer needs to invest in manufacturing: "..., this story shows the absurdity of the assumption of the purveyors of the CW that somehow the U.S. will transfer all its grunt work (i.e. manufacturing) to the developing world and leave the high tech stuff for our smart workers. The reality is that the developing world has hundreds of millions of smart workers who are able to do everything that our smart workers do, but are willing to accept much lower wages. If we subject our more highly educated workers to the same sort of international competition as we have subjected our low-wage workers, they will also lose. This will only change when currencies adjust and wages in the developing world move closer to U.S. levels."
Krugman Draws Map To Strong Climate Bill
Paul Krugman explains that cap-and-trade makes economic sense in major NYT Magazine piece: "There is a broad consensus that we need to put a price on carbon emissions, that this price must eventually be very high but that the negative economic effects from this policy will be of manageable size ... it’s the nonnegligible probability of utter disaster that should dominate our policy analysis. And that argues for aggressive moves to curb emissions, soon ... the House has already passed Waxman-Markey, a fairly strong bill aimed at reducing greenhouse-gas emissions. It’s not as strong as what the big-bang advocates propose, but it appears to move faster than the policy-ramp proposals."
Ballot initiative to gut California carbon cap bankrolled by Texas oil. NYT: "Mr. Schwarzenegger has said he considers the climate change law one of the signal achievements of his administration and wants to see it put in place. He said recently he believed the petition drive was fueled by the 'greed' of out-of-state energy companies. 'I think that the California people are outraged about the fact that Texas oil companies, Texas oil companies, are coming to California and trying to change laws and policies in California'..."
David Roberts considers the West Virginia mine explosion impact on energy debate: "Right now the energy we use kills people. If we keep using the same kinds of energy, we're going to kill even more people. Seems to me that's germane to our energy future."
St. Louis voters approve tax increase to fund improved transit. Tea Party cries. Grist's Jonathan Hiskes: "The measure passed by a monstrous 24 point margin. The St. Louis Tea Party focused its energy on defeating the civic project, calling the campaign a test run for defeating Democrats in this fall’s midterm elections. So it’s a setback for them." Streetsblog has more analysis.
Bernanke Uses Fuzzy Math To Blame Social Security, Medicare
Bernanke speech claims aging population likely requires changes to Social Security and Medicare. NYT quotes: "The arithmetic is, unfortunately, quite clear ... To avoid large and unsustainable budget deficits, the nation will ultimately have to choose among higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above."
Mark Thoma at Economist's View says Bernanke's arithmetic is off: "The CBO has argued persuasively that demographics is not the main problem..."
Breakfast Sides
"Coburn Justifies Blocking Unemployment Benefits: It Only Affects A ‘Relatively Small Amount Of People’," reports Wonk Room's Pat Garofalo. "Because of Coburn and the GOP’s obstruction, more than 200,000 people per week will lose their benefits. About one million are slated to lose their benefits this month. And this is taking place while 44 percent of unemployed Americans (about 6.5 million people) have been unemployed for six months or more."
GM ready to pay back taxapayers, ahead of time. AP: "General Motors Co., steadily returning to health after its near-collapse in 2009, said Wednesday it plans to pay off its government loans by June — five years ahead of schedule — and could report a profit as early as this year." Economic Populist's Robert Oak enthuses: "...the bail out might turn out to be a very large investment that pays out instead."
Health reform law already saves baby in Texas. Fort Worth Star-Telegram's Mitchell Schnurman: "Soon after President Barack Obama signed health reform, a local baby with a heart condition was rejected for insurance ... The insurer quickly reversed its decision and agreed to pay for a procedure the newborn had received days earlier ... In six months, the same sequence of events won't happen, because insurers won't be allowed to reject children for a pre-existing condition ... This is the beginning of the end of an era."
