A top economic adviser to the incoming Obama administration unveiled a plan today to radically rethink the global financial system, including a host of measures that would dramatically expand government control over banking and investment in the United States.
The plan — which recommends limiting the size of banks, setting guidelines for executive pay and regulating hedge funds — offers the first hint of the kind of changes to the financial system President-elect Barack Obama might push for in the coming weeks and months. Obama has pledged to present a comprehensive series of changes to prevent a repeat of the current financial crisis before world leaders gather in London for a major economic summit in April.
The report today was issued by the Group of 30, an organization of international economists and policy makers. But the recommendations were immediately seen by observers as a building block to an Obama plan because the lead author is Paul Volcker, the former chairman of the Federal Reserve during the Carter and Reagan administrations who will serve as a special Obama White House adviser. Part of Volcker’s role is to help mastermind what could ultimately be the biggest overhaul of the U.S. financial system in decades.
Maybe we should go back to barter.
The plan — which recommends limiting the size of banks, setting guidelines for executive pay– And this is supposed to a Republic that uses a democratic vote? This is more of the big tax, spend and regulate of the far left. Socialism sneaking its nose under the tent while everyone is scared and watching something else. Very slippery slope to go down.
I don’t think it will go far enough, personally. Still the powerful working in the interests of the powerful.
Its an attempt to save capitalism after it has so clearly failed.
If we’re going to cap executive pay, how about similar restrictions on pay for sports and entertainment figures? I think what Oprah, movie /TV stars, and professional baseball/basketball players make is as much out of whack as what CEO’s make. Better yet, just go back to old tax system of fifty years ago where, if you lived some place like New York City, the top marginal tax rate for federal+state+city income taxes was over 100%. That way anybody who makes too much money can be punished without limiting it to evil CEOs.
Why should Oprah make more than a school teacher? The teacher arguably makes a greater contribution to society than Oprah. Who needs free choice and free markets. They just make life unfair and reward greedy people while disadvantaging the people who really need money.
Agree with Daniel. The salaries of entertainers are disgusting.
I agree with everything you said, Daniel.
It’s going to be a looooong four years. Hopefully, the 2 year election will correct some of the loony bin mentality in Congress right now.
[blockquote]Still the powerful working in the interests of the powerful. [/blockquote]
Yeah, that poor, powerless little federal government with just a few measly trillions a year to dish out and only a few hundred thousand guns to use on folks that object. Except when you realize that the bubble that burst, causing all this chaos was government [i]policy[/i], that is.
But isn’t that the nature of the Central State? Every mistake it makes is yet another excuse to expand its power.
Yes, let’s cap the salaries of sports stars so the team owner gets the lion’s share of the gate!
This is beyond ridiculous. The loony left seems to be coming in. We have seen how liberals operate by their actions in TEC. I pray that the US Government does not suffer the same fate, that some that are allied with the Left will move more towards the center and oppose such measures. Given such ideas for the business world, we may also see “reforms” that in the name of social justice and inclusion criminalize orthodox Christianity. Remember, for liberals, the law only applies if it serves their ends; if the law doesn’t serve their ends they ignore it completely.
Why limit the size of government-insured banks? To reduce the likelihood of future government bailouts. The larger the bank, the greater the pressure policymakers face to bail out uninsured depositors and other uninsured creditors—just as we’ve seen happen over the past four months of Bush Bailouts. But don’t let facts get in the way of a good ideological tantrum.
#8 – it was government policy to be… deregulated. The Wrecking crew that argued that government is bad government. Run by the likes of Norquist and Bush, government is mean to be mismanaged.
And it was. Thus, let the capitalists run the show. They did a … job on the economy. Such that now the capitalists want the government to help them.
It was government policy, for the last 8 years, to be a bad government.
This is the dire result when the assumption of corruption exists. A moral and ethical society would never go through the stupidity that is now being visited upon us.
I wonder just how long it will be before Uganda production exceeds our own….? If it were not for the huge momentum of our technical and productive past we could never afford our current sins.
Don
Capitalism has not failed. Government has failed. Capitalism’s foundation is private ownership of the means of production, and that cannot fail, simply because if a man has his own eggs in his own basket, then he watches that basket closely, and tends to its welfare.
We will rue the day we started down this big-government road. But that day is not 2009; it is, more accurately, 1933. Good, peer-reviewed studies have shown that the Great Depression was prolonged by the government intervention of the 1930’s, and was only brought to an end by the war. This time we cannot afford a world war. And government, once it starts to grow intentionally, cannot be turned around. And we will lose the republic. The founders would spin in their graves.
#14. In reality it started under Woodrow Wilson and not Roosevelt. Wilson’s great gift to America was the Federal Reserve and until it is abolished we will continue to grow bigger and more intrusive government.
If you can ignore the propaganda, it is clear that it was not capitalism that failed, it was middle/third way Socialism that failed.
That said, it is fairly clear that investment bankers and hedge fund managers were able to manipulate the markets through schemes that amount to fraud, such as 50-1 bank “capitalization” and naked short selling. Bernie Madoff is just the tip of the iceberg.
It is time for a thorough overhaul of our financial system, but I am afraid that putting previous culprits from the Clinton and Bush administrations in charge is the wrong place to start.
Government moral hazard through the Fed, FDIC and GSE’s is what made these banks “too big to fail.” The response is, what else, more government moral hazard. We are headed back to the 1970’s, with rising prices, falling quality, and stagnant wages, something the Keynesians assure us is not possible. But I suppose we will have to abide these liars until the dollar collapses, states start seceding, banks start declining checks drawn on the Treasury, and we can begin laying the groundwork again for a free society.
The fact is that it is a multi-layered failure. We don’t have pure capitalism, and JW to the contrary, Bush did not end regulation. The failure involves the private sector, the regulators and the politics played by both parties. Don’t forget the Democrats have controlled the Congress for much of the time. And both shamelessly use tax revenues to provide largess to their constituants in order to get elected.
“It was government policy, for the last 8 years, to be a bad government. ”
John, you are becomming a caricature of yourself.
[blockquote]#8 – it was government policy to be… deregulated. The Wrecking crew that argued that government is bad government. Run by the likes of Norquist and Bush, government is mean to be mismanaged.
And it was. Thus, let the capitalists run the show. They did a … job on the economy. Such that now the capitalists want the government to help them.
It was government policy, for the last 8 years, to be a bad government. [/blockquote]
A lovely fairy tale, but characteristically divorced from reality. There was no deregulation of these banks, etc. over the past eight years and, indeed, the Bush administration pushed for the likes of Fannie and Freddie to be subject to the same, more stringent, regulation of non-GSE comapanies. He was opposed by the entire phalanx of Democrats (and some bought Republicans), not out of some die-hard commitment to the free market (Barnie Frank, a free marketer??? Insane), but because A) Democrats were using F/F as a catspaw to implement their social policy, B) their pals like Frank Raines and Jamie Gorelick were making piles of money off it and C) Democrats like Senate Banking Chairman Chris Dodd were getting parts of those piles kicked back in campaign donations and sweetheart loan terms.
Get a clue.
Jefferson, you’ve got a great narrative, but as usual, the numbers don’t place it all at Fannie and Freddie. Most accurately, they were just succumbing under the pressure placed upon them by lots of people (Dems and Republicans) who thought Mortgage based assets were neat and tidy.
I’m not sure what clue I’m missing. Credit Swaps? Greenspan’s decision to keep treasuries at near zero? The mortgage writers who promised free money to people who didn’t deserve credit? Everyone drank the kool-aid: the idea that people can be made into neat, trusting capitalists without any sense of greed because…. markets have nothing to do with greed.
No, Bush did not end regulation. We’re happy it couldn’t have been worse. But he did worship at the altar of supply side economics, and the consequence is a bailout because tax revenues simply didn’t rise the way we though they were supposed to.
#14 without the government to guarantee the deeds to property and an independent legal system to defend those deeds, and a culture that trusts government to defend those deeds fairly, and not just the wealthy, capitalism quickly evolves into injustice and servitude.
Without the government guaranteeing the dollar bill, its just a piece of paper.
I’m all for small government. I’m even a believer in a commercial society. But I think that Capitalism is an impoverished God, and not quite worth worshipping. Save that for Jesus.
John,
You seem acutely aware of man’s fallen nature. Why do you trust government over the private sector? Do you really think giving a printing press and nuclear weapons to one group of people automatically makes them more virtuous than everybody else?
Everything you’ve cited has a government externality behind it. Capitalism is absolutely ruthless in the way it punishes fraud–finance textbooks are filled with case histories of companies that investors and customers dumped overnight. In fact, it is the free market itself that measured these debt instruments and found them wanting. It is government that is attempting to prop up the price of worthless assets, and using its taxing power–backed by the most horrible weapons of destruction ever invented–to do so.
I think it might just be dawning on you, John. Let’s recap from your post:
* Politicians pressuring people to buy MBSs == non-market influence
* Fed keeping rates too low for too long == non-market influence
* Indiscriminate offering of mortgages to those unable to pay == institutions eager to comply with CRA requirements === non-market influence
* Credit default swaps == derivative of the actual problems created by government policy mismanagement and thus not relevant
All you can point to is some supposed “worship of supply-side economics” by Bush, a guy who larded up the CFR with an additional 14,000 pages of regulations, signed in the largest welfare state program since the Johnson administration and got the clumsy claws of the federal government deeper into education, much to the detriment of actual schooling of children. In other words, it every specific detail you agree with me that it was a deliberate policy choice (almost entirely that of Congressional Democrats) that brought about the real estate bubble that burst and left us with this mess, but refuse to state the obvious conclusion because of some provably bogus assertion of free-market fundamentalism on the part of the guy who is nothing of the sort.
You’re a decent sump-pumper, John, but not up to this inundation.
Frankly, other than Ronald Reagan’s presidency, there has NOT been a ‘free market’ economy president in office in the 20th Century. Every one before or since has been a tax and spend, more government, more welfare presidency.
And again, the President does not WRITE legislation, except for Executive Orders. The President does have the power of the veto, but not a line item veto, unfortunately. And this president has been very lax to use the veto on spending bills!
But The majority of the blame for the economy lies with the Congress, and there has not been a majority of ‘free market’ members of either congress or senate in may decades. All are for ‘big pork’ projects and big spending.
Jefferson, I’m not sure how politicians were pressuring people to buy MBS. The global market loved it. It was better than investing in Treasuries. Which was a decision by Greenspan, in part because he believed the market was , in principle, better than investing in the government. It was an ideological choice (perhaps a government one, which makes it a bit more complex – a government entity giving benefits to the market), but a choice nonetheless.
If there wasn’t a Fed, Jefferson, what would the interest rate be?
Most of the people offering loans were not companies interested in CRAs. The rates were so good, it didn’t matter if it were CRA based or not. You’ll have to give me more evidence before I buy the idea that it was simply the CRA that made mortgage sellers greedy. I’m sure it was a nice correlation for lazy banks. Who didn’t care because they didn’t have to worry about the government.
And of course, the kicker: credit default swaps didn’t matter. That’s funny, Jefferson. Credit default swaps were being used earlier than simply the mortgage industry. They seemed to create value where there wasn’t any. And the engine was greed – combined with a lack of transparency. Why wasn’t there a lack of transparency? No regulation.
Which is what this group of thirty wants: the last recommendation was transparency, which would have to be enforced by the government.
Because of human will, capitalists are just as broken as the rest of us.