dagblog - Comments for "Fight the Fed"

I disagree with Bernie on

Michael Wolraich — Fri, 25 Dec 2015 17:31:05 +0000

I disagree with Bernie on this one. His proposal calls for board members to nominated by the President and confirmed by the Senate like cabinet secretaries and federal judges. We all know how well that system is functioning. I shudder at the thought of Congress paralyzing the Fed by holding up President Sanders' nominations or worse, rubber stamping President Trump's nominations.

For all the Fed's flaws, it has been much smarter and less inflation-obsessed than Europe's central banks, which lack its independence. It's far from perfect, but Bernie's cure is worse than the disease.

If you want to stimulate

Peter — Thu, 24 Dec 2015 15:32:24 +0000

In reply to Raising the minimum wage to

If you want to stimulate demand you need to increase the wages of skilled workers who are the actual consumers, minimum wage workers even at $15 are still subsistence workers.

The only way to finance these worker gains is through increased productivity, Capitalists don't share their profits, and with most low skill and even many high skill jobs there is no easy way to increase productivity except to remove the workers and replace them with machines or increase prices.

The minimum wage should be about $18 but there has to be a prosperous skilled worker class above it to absorb the higher costs and that class has been dismantled in the US and many of those jobs shipped to low wage countries. The ones that remain have seen decades of stagnant wages and even rollbacks so selling minimum wage increases as a way to income equality or economic stimulus is a pipe dream.

There is no magical government fix that will change the fact that our economic system is moving ever more rapidly to the state where it needs less and less actual workers, low, medium or high skilled and that is not reversible, we need a new system not some campaign promise patch that will do nothing to change the direction we are headed.

Correction: I erroneously

HSG — Thu, 24 Dec 2015 13:04:01 +0000

In reply to It is true that many

Correction: I erroneously referred to mortgage backed securities as derivatives. I realized this morning that they are not truly derivatives as such securities have intrinsic value - the right to collect (or sell) the expected stream of interest payments from the homeowner.

In any case, whether Krugman

Michael Maiello — Thu, 24 Dec 2015 03:21:56 +0000

In reply to It is true that many

In any case, whether Krugman is right with respect to the 2008 crisis, his broader point remains that repealing Glass-Steagall

The word "repealing" is interesting. As if having the law and then removing it created a release that may never have happened had the spigot been open all along...

It is true that many

HSG — Thu, 24 Dec 2015 02:51:53 +0000

In reply to I admit to not having a deep

It is true that many economists argue that repealing 'Glass-Steagall didn't cause the financial crisis in 2008. Here's hedge fund manager James Rickards explaining clearly, concisely, and persuasively why it did:

It was Glass-Steagall that prevented the banks from using insured depositories to underwrite private securities and dump them on their own customers. This ability along with financing provided to all the other players was what kept the bubble-machine going for so long.

Nobel prize-winning economist Paul Krugman disagrees. He wrote in 2012:

The dominance of Rubinits in the new administration shocked many progressives, since for many the Clinton-supported repeal of the Glass-Steagall Act, advocated by Robert Rubin but opposed by Paul Volcker, symbolized the extent to which the financial crisis of 2008 was hatched in the overly friendly relationship between the Clinton administration and Wall Street. It’s true that Glass-Steagall, a Great Depression–era law that forbade the mixing of securities trading and accepting FDIC-insured deposits under the same corporate roof, wouldn’t have prevented the 2008 implosion of Wall Street. Instead, it was extraordinarily high levels of leverage at investment banks like Lehman and Merrill Lynch, as well as the holding of huge portfolios of toxic subprime mortgages by deposit-taking banks like Bank of America, that were the fuel for the conflagration. But progressives were right to feel that Wall Street had been dangerously underregulated for too long and that the entire country was now paying the price.

But Krugman ignores the fact that the "leverage at Lehman, Merrill Lynch" and the "huge portfolios of toxic subprime mortgages by deposit-taking banks" happened because the repeal of Glass-Steagall freed up banks like Bank of America to use insured deposits (or money borrowed on them) to scarf up the toxic derivatives and incentivized the investment banks to keep packaging them and selling them in vast quantities.

In any case, whether Krugman is right with respect to the 2008 crisis, his broader point remains that repealing Glass-Steagall helped create the deregulated environment which led to the casino-style capitalism practiced by investment/commercial banks throughout the early 2000s. It was therefore a terrible mistake.

Raising the minimum wage to

HSG — Thu, 24 Dec 2015 02:40:43 +0000

In reply to ...businesses were not

Raising the minimum wage to $15 as Bernie urges would stimulate demand. Also, we are starting to see increased consumption but until we put money in the hands of poor, working, and middle-income people we won't get a true broad-based recovery. Obviously, Bernie's proposals will accomplish this to a much greater extent than Clinton's.

I admit to not having a deep

ocean-kat — Wed, 23 Dec 2015 21:27:22 +0000

In reply to Thanks Michael good catch.

I admit to not having a deep understanding of Wall Street but I read enough to follow the story. Over the years I've seen numerous articles that claim the repeal of Glass Steagall had nothing to do with the financial collapse and would not have prevented it. I've seen no convincing argument explaining how Glass Steagall would have prevented the collapse. In fact quite often supporters of Glass Steagall admit it wouldn't have prevented the last collapse and sometimes call reinstatement a symbolic gesture, something easy to understand and useful to rally people.

From the link:

When I called Ms. Warren and pressed her about whether she thought the financial crisis or JPMorgan’s losses could have been avoided if Glass-Steagall were in place, she conceded: “The answer is probably ‘No’ to both.”

I don't want symbolic gestures that are easy for people to understand and rally behind. The world is a complex place and needs complex solutions. I don't know if Hillary's plan is better than Sanders', but Krugman thinks it is. Hillary is addressing the issue in a way that is more congruent with my view of the situation than Sanders.

...businesses were not

Michael Maiello — Wed, 23 Dec 2015 20:36:08 +0000

In reply to You've got to love The Bern

...businesses were not borrowing, even at their attractive rates because there was no growth.

I'd also add that they don't borrow because we have made it exceedingly risky to owe anybody money.

Well, the LIBOR scandal was

Michael Maiello — Wed, 23 Dec 2015 20:35:09 +0000

In reply to Thanks Michael. I'm curious

Well, the LIBOR scandal was really the result of how LIBOR is calculated (by polling the banks rather than by an independent committee) so that was inevitable.

European banks aren't perfect and some (including me) have speculated that the massive payments into the US financial system were meant to be a politically palatable way to prop up entities like Deutsche Bank and SocGen.

However, the European banks never had this hard separation and many of these institutions have lasted a century without it. I just don't see Glass Steagall as the only way and since one stop financial shopping does have some advantages for investors, why get rid of it all together?

You've got to love The Bern

Peter — Wed, 23 Dec 2015 20:17:46 +0000

In reply to Fight the Fed

You've got to love The Bern and his Socialist sounding Reforms. He recommends turning over the running of our most important Bank to farmers(agribusiness) and Mobbed up Union leaders, what could go wrong? What he is really offering is political patronage appointments that would reflect the whims of the Party in power.

The prattle about loans for small business and the poor consumers just shows he is detached from the reality of our economy, job creation is the last thing business, small or large, is planning for the future.

When i joined my local credit union a few years ago i was surprised they only paid .01% on savings because their interest rates were based on their loan performance and businesses were not borrowing, even at their attractive rates because there was no growth.