A Thin “Veneer of Volckerism”
I found myself in an interesting debate this week after reading Noam Scheiber’s Is Obama Really Breaking up the Banks?:
“Many of the press accounts describe how Volcker persuaded members of the Obama economic team to back his approach-most famously during a two-hour Christmas Eve lunch with Treasury Secretary Tim Geithner. There’s an element of truth to this. But when you ask administration officials exactly what they were persuaded of, it’s not that their theory of reform was wrong–that, say, bank size was a major cause of the financial crisis, or that proprietary trading did the banks in. They were mostly persuaded that they could append Volcker’s ideas to their original approach while keeping its essence intact. “Our view is it’s not counterproductive,” says an official.
Ironically, then, the practical upshot of the Volcker rule may be to advance the administration’s original reform agenda.”
Maybe it was wishful thinking on my part, but I hoped that wasn’t the case.
I pinged Scheiber back: “Adjustment at the margins? Have been living in a cave for the past year the “status quo duo” has been in charge? The Summers/Geithner policy has been dominant, and Volcker was banished from the White House grounds. Sorry, this is a FAIL — You are rationalizing a year of bad policy decisions.
To his credit, Scheiber patiently walked me through his thinking: He suggests the people in the White House and Treasury have no intention of making the Volcker plan — or any other structural change — the centerpiece of their regulatory reform effort. Its not that Volcker has triumphed over Geithner and Summers; rather, this is a thin coating of Volckerism stained over their original proposal.
This makes me wonder: Has Volcker been coopted?
Scheiber argues that Tall Paul is not suddenly at the center of administration conversations over economic policy. Volcker was a periodic visitor to the White House and Treasury before December — but with the exception of the one or two presentations he made about spinning off proprietary trading, he’s still not a regular participant in high-level meetings of the administration’s economic team or the president’s senior aides.
And, he believes Geithner’s safe at least through the midterms; that Obama likes him personally, and thinks he’s gotten a bad rap after pulling the financial system back from the brink. Also, it’s not Obama’s style to give critics someone’s head.
If that is the case, color me hugely disappointed . . .
UPDATE 10:17am:
Noam adds the following:
I did go back and forth with Barry about this, and I think his description of our back-and-forth is generally accurate, but it slightly mischaracterizes my take in spots. My view on this is four-fold:
1) While the administration economic team has embraced Volcker’s proprietary trading idea, they haven’t abandoned their original approach to reg reform, and don’t plan on it.
2) They still don’t think proprietary trading was a major cause of the crisis, and don’t think it’s central to preventing the next one.
3) Having said that, as I write in my piece, they were largely persuaded that the *principle* the idea represents is sound, so it’s worth doing anyway in some form.
4) Volcker has not become a central player in administration internal debates about economic policy, although he is respected by the president, vice president, and many senior officials in the administration.
>
Source:
Is Obama Really Breaking up the Banks?
Noam Scheiber
TNR, January 27, 2010
http://www.tnr.com/article/economy/obama-really-breaking-the-banks
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January 29th, 2010 at 9:35 am
Also, it’s not Obama’s style to give critics someone’s head).
Noam is wrong. How soon he forgets about Van Jones. Or the guy that Obama picked to run the TSA. The real reason is that Obama isn’t willing to piss off Bob Rubin.
January 29th, 2010 at 9:51 am
Has Volcker been coopted?
If that is the case, color me hugely disappointed . . .
–BR, above..
BR,
please take this the right way, but someone has been trying to tell you..~
along the lines of–
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Volcker+Trilateral+Commission+Council+on+Foreign+Relations
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Volcker+Pilgrims+Society+Trilateral+CFR
“..rather, this is a cynical political stage dressing — a thin coating of Volckerism stained over their original proposal..”–from above Post
Volcker has, always, been used as a Codpiece, by Team 44..
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Codpiece
January 29th, 2010 at 9:53 am
I suspect Noam’s read is correct. I doubt serious reform is coming from this administration.
January 29th, 2010 at 9:53 am
Bah… TBTF is a myth created by the media. 1) They FAILED! 2) If we had 2x as many smaller institutions, we would’ve justed had 2x the failures. Small banks did very poorly in the crisis.
Its a hurtful myth, because it distracts from the “housing bubble” as the SOLE driving cause of the crisis — not ARMs, subprime, structured derivatives, and certainly not prop trading at big firms. It was just a housing bubble, get it? Banks lend on home values, duh!
January 29th, 2010 at 10:02 am
>> Its a hurtful myth, because it distracts from the “housing bubble” as the SOLE driving cause of the crisis — not ARMs, subprime, structured derivatives, and certainly not prop trading at big firms.
Is it your belief that “ARMs, subprime, structured derivatives, and … prop trading” neither created nor increased the size of the housing bubble?
January 29th, 2010 at 10:10 am
@wunsacon: Don’t…..feed…..
January 29th, 2010 at 10:11 am
Surely you jest…leveraged risk was not a primary contributing factor to the current and future economic malaise? From the RRE/CRE buyers and lenders to the monolines, insurance co’s, municipalities, HF’s, prop desks, Fed et. al….it is leveraged credit that is at the heart. Volcker thesis of separating and regulating this risk would have contained the bubble to a more manageable degree.
January 29th, 2010 at 10:16 am
@wunsacon: Don’t bother.
Here’s a fact-based piece (as opposed to an unsupported statement pulled out of a shill’s arse) on “too big to fail” by William Seidman, former FDIC chair:
http://www.fdic.gov/bank/historical/history/vol2/panel3.pdf
See, especially, pp. 57-60 (.pdf pp 3-6)
When I was chairman of the FDIC, we held a world conference on “too big to fail.” This meeting was something of a failure because a conference is in trouble when no one wants to talk about its major subject, the reason for the gathering taking place. But that was the situation at our conference in 1990. Uniformly, regulators hesitated to talk about rescuing failing institutions because even to speak about rescuing institutions might affect the way their management behaved. Thus, I labeled the “too big to fail” doctrine as an “unwritten code of international conduct.”
That was 20 years ago. Call me crazy but I’ll take Seidman’s word over cognos’. Will somebody please send us a shill-troll who remotely knows WTF s/he is talking about???
January 29th, 2010 at 10:19 am
And the tech bubble was what.. the first backward derivative of the housing bubble.
The CRE bubble was what .. the first forward derivative of the housing bubble.
The oil bubble was what .. the second backward derivative of the housing bubble.
And of course the first Global Recession ever was due solely to a housing bubble in the US from conventional bank lending on homes?
January 29th, 2010 at 10:28 am
cognos Says: January 29th, 2010 at 9:53 am
this dude, above, “cognos”, should do the Marketplace a favor, step forward, and make himself known.
LSS: He’s a Moron.
and, w/that, that’s enough of that..
January 29th, 2010 at 10:42 am
It can be neither and both. I think the administration believes it’s Consumer Protection Agency is essential and that’s the priority, and with the banks in full court press to block it Obama launched a shot across the bow. If the banks play nice on the CPA they might get a pass on the full Volcker plan, but if they continue with their opposition they can count on it.
Congress will HAVE to address TBTF this year – Bernanke and Geithner have embarrassed them enough by pointing out that all the posturing about TARP still hasn’t produced legislation that gives any regulator the power to unwind another AIG, etc. Either the TBTF insurance act (pay into a fund to provide liquidity in the event of a bankruptcy) or straight up FDIC or whatever, they have to address it.
I think a lot of finance writers are missing the behind the scenes action in congress. The house already passed a bill; Dodd is mucking about but something will happen, it’s just a matter of exactly what and when. There will be some substantial regulatory changes soon. They won’t make everyone happy and some will scream it’s kid gloves and some will say it’s anti-american socialist power grab or whatever but something’s coming, and it will change the playing field.
Obama just showed the banks how easy it would be for him to do it using the populist message. You are with us or against us, banksters, and you don’t want to be against us….
January 29th, 2010 at 10:44 am
Duplicate comment detected; it looks as though you’ve already said that! – if that’s the case, where the hell is it?
January 29th, 2010 at 10:45 am
@MEH: Agreed. Mute button on.
Here’s my .02 on this whole Volcker/not-Volcker, Wall Street/anti-Wall Street stuff.
Obama needs to play his cards close to the vest here vis a vis financial reform. I support a lack of transparency when it comes to negotiations. Lack of reform is not an option. There will be reform. Ultimate result will be a compromise, meaning nobody is going to be happy.
But sussing out who has the president’s ear and who doesn’t is a sucker’s game. It’s closely held, as it should be. There are wide parameters within which the executive operates. Do we trust the gov’t? No. Should we? No, at least not completely.
SOTU was interesting. Obama gets it. He knows the Mass. election means we the people don’t trust any of them for shit. He knows he’s been an ineffective president and is lined up to be a historical patsy, along with BB and TG.
We’re all going to have to take to the streets to take this country back. Not under any Tea Party or other bullshit banners. Just the people. In the streets. Not saying a god damned thing. Silent.
They’ll get the fucking message.
January 29th, 2010 at 11:13 am
@Transor Z : In total agreement with taking to the streets.
January 29th, 2010 at 11:49 am
Thanks, Transor, MEH, Mannwich… I took cognos’ troll-bait because I read that sentence and kept thinking “I must be misinterpreting this”. But, I can’t think of an alternative interpretation.
January 29th, 2010 at 11:58 am
@transor Z
i generally agree; however, the ‘take back the country’ mantra depends on from whose set of rose colored glasses we’re looking.
January 29th, 2010 at 12:00 pm
Correct me if I am wrong… Could we not claim .. changing the mark to market rules pulled the financial system back from the brink? Are we not rewriting history by supporting all other competing claims? What do we define as pulling the financial system back from the brink? When the stock market turned around? Or the other time in 2008, the day after Lehman Brothers filed for bankruptcy and one money market fund fell to 97 cents of which was under Paulson?
Volcker’s policy may not do much in reform but at the minimum hopefully our money will not be used to take risky trades and pay huge bonuses to the bankers. Even if the banks deserved their bonuses there is just something very wrong with the whole picture.
January 29th, 2010 at 12:09 pm
Paul Volcker cannot re-boot the economy. All he can do is manage commercial banking, necessary, but insufficient.
Restructuring the job certification system from a barrier to entry, which is currently locking up the economy, to an invitation to participation, expanding democracy, is the immediate concern.
Building a topographical map that will enable these participants to effectively target their entry point into the economy will catalyze the reaction.
There is no test for passion to learn, and passion to learn is much more important over time than knowledge.
Capital looks at an economy as a zero sum game, because it is immobile, which can only lead to economic slavery with increasing population. Rather than bringing up the rear, capital is expending itself to remain stationary, fighting evolution, which is a battle it always loses, taking down the immobilized portion of the middle class with it.
You may not have seen this:
UFE Data Structures / Traversing the Time Constant
You have circles (helices) inside of circles, with spokes between them. You travel across a bridge to a circle, and traverse the circle to another bridge to another circle, acquiring the tools necessary to solve the problem. Another algorithm is to turn the circles to align a primary tool with the required extensions. Random solution paths are provided by placing many links on the outside circle.
For example, algebra is fundamentally about fulcrum balance. Place different numbers on each side of a scale and balance it with basic mathematical operations. If the operations are not done correctly, reduction will not result in balance. Then replace one number on one side of the scale with a variable and solve. With two sets of scales and the same two variables on each, complete a reduction. Algebra in a day, a tool.
Or this:
Start with a GIS foundation with a river flow analysis overlay. Color the rivers for goods & services; cash flow; etc. You can tweak the GIS to give you asset ponds, lakes, and oceans. You will quickly find that the nation/state boundaries are no longer relevant. Have the window pop-ups feed you whatever characteristic data you care to investigate, and the momentum of the river, along with its source and destination will give you what you want. The new statistical method allows you to calculate spring tension.
If a picture is worth a thousand words, the video stream is worth a million.
January 29th, 2010 at 12:16 pm
“The Unions” will be dead and buried within the next ten years, so that’s a moot point.
January 29th, 2010 at 12:16 pm
Whoops, wrong thread. Wake up Mannwich!
January 29th, 2010 at 12:39 pm
So ? – how do you stop a housing bubble? (or any bubble for that matter)
You ask for more margin, downpayment, etc.
It has nothing to do with all the complexities (although consumer protections would be a good role for govt to play).
The problem is simple — housing bubble.
The solution is simple — regulate for increased downpayment (when the bubble is ON!?, not now, please!)
China is actually handling their bubble mainly this way. They are asking for 30-40% downpayment on project lending.
January 29th, 2010 at 12:44 pm
Furthermore, dont expect this to completely STOP the bubble. Speculation and speculative bubbles are a NATURAL part of the human, capitalist, risk/reward phenomenon. It is not the govt roles to stop regular citizens or even bank execs from making bad investments. Thats not possible. Bad investors will always be with us, just as people like casinos.
The govt and regulators should just try and moderate it a bit from becoming quite so large, widespread, systematic. Regulating the downpayment would do just that.
PS – higher interest rates are exactly wrong. These punish other sectors of the economy that are under-invested and add to the deflationary effects of the bubble burst. Bubbles are net-net a deflationary, not inflationary phenomenon. (See commodities, CPI, real estate, USD, Tbills, etc).
January 29th, 2010 at 12:52 pm
the ‘take back the country’ mantra depends on from whose set of rose colored glasses we’re looking.
Point taken. “Take back the country” can be a minuteman/crazy militia/skinhead mantra as much as anything else.
I’m shooting for a simple consensus 90% of the public can agree upon:
1) Political power derives from the consent of the governed.
2) The governed are watching you and paying attention.
3) The governed expect you to do your fucking jobs, you fucking assclowns.
4) Don’t make us come out here again.
That about covers it for me.
January 29th, 2010 at 12:57 pm
We shouldn’t have been surprised when Bernie was re-upped and we shouldn’t be surprised when Timmeh serves through Obama’s entire term.
It was laughable to point out that Bernie was re-upped by only 70 votes instead of 100, the narrowest margin evar!
The government is _completely_ bought and paid for. Don’t get your expectations up. Aim low. :(
January 29th, 2010 at 1:26 pm
Daily Show with Jon Stewart did a great bit on the “take back the country” deconstructing various cable personalities and their longing to return to a better day.
The conclusion – since they all grew up in different decades – was what they really wanted was things to be like when they were six years old.
One person’s decade of fond memories is another person’s nightmare decade – depending on how old you were during that time.
There is no going back!
Gordo
January 29th, 2010 at 1:37 pm
“Has Volcker been coopted?”
Good assessment. The fact is that the interweave of banking and government in the US started in earnest 30 years ago a response to growing economic power of the Zaibatsu, and a change of the players (China replacing Japan) only reinforced the strategy. The US banking system has in essence been nationalized, though the planners have screwed up somewhat in being unable to manage the PR problems created by offensive executive compensation levels.
From a bigger picture perspective, what does this all mean ? Do budget deficits actually matter, given that the Fed somehow gained the authority to purchase arbitrary amounts of Treasury issues, mortgage debt, etc ? Interest rates have to stay low to keep a lid on Treasury debt service. Affordable housing is still a national mandate, though things got a bit out of whack over the past few years.
Money is a very abstract concept when the currency isn’t tied to something tangible (i.e. gold or oil). Government can print as much as it wants within a closed system and define more-or-less how it converts, since government spending represents approx 50% of GDP -
http://www.usgovernmentspending.com/us_20th_century_chart.html
Conversion value of money only becomes important when you want to exchange it outside the closed system (import/export), and exchange rates do fluctuate, but that seems to be more-or-less manageable.
So yes – Volcker is window dressing, and the system isn’t likely to see major changes.
January 29th, 2010 at 3:16 pm
Scheiber–especially Barry’s first “take” on Scheiber–is right; Barry will have to be disappointed. Tall Paul is merely filigree on the “populist card” that the Obama adm’n is mendaciously pursuing in response to the Massachusetts senatorial outcome and other indicators of electoral weariness with the faux “change” of Obama. Never forget that these are folks who think they can palm off corporate welfare as health-care “reform”: The conceit of their deceitfulness is unbounded.
January 29th, 2010 at 3:32 pm
Do budget deficits actually matter?
Insightful question, hgordon!
January 29th, 2010 at 4:10 pm
wtf is obama’s reform??????????? jeeze it’s only been 18 months since tarp
i’ve said it once i’ll say it again, two weeks for tarp, and 18 months, no reform, administrations are there actions
the goal is too save housing, save the banks, we will not get any scintilla of reform until all the 4 million forclosures go kaput this year, and the banks have obscene profits from the spread, and hft
January 29th, 2010 at 4:42 pm
@transor: More fundamentally, what do GDP or any other economic measure actually mean when Government represents 50% of your economy (or maybe more once you count state and local govt spending) ? At those levels, how can Banking not be intimate with Government.
When Keynes developed his stimulus models in the early 1900′s, Government was 10% of GDP. I wonder how he would have revised his models based on current Government size.
If you take this to a logical conclusion, you have to ask how we could end up with so many people out of work with a Government that has so much influence over flow of funds in the economy. I don’t claim to have any answers, but the questions are interesting.
January 31st, 2010 at 12:07 am
The Volcker rule is Obama’s cunning Republican trap, set out just after the Brown victory in Massachusetts. If he can get Republicans to oppose him on this, Obama can claim to have been on the side of Main Street, only to have been thwarted by Wall Street friendly Republicans. If the Republicans were to give the Volcker rule their support, Obama would probably stroke out.