dagblog - Comments for "THE SHORT GAME AND THE LONG GAME"

Correction--earlier in this

AmericanDreamer — Fri, 10 Dec 2010 00:11:52 +0000

In reply to Well, we'll see. (The motto

Correction--earlier in this thread I'd written:

FWIW and IIRC Stiglitz's understanding, which he wrote in Freefall, was that Obama had concluded that bank size/too big to fail per se was not the main problem, but rather the nature of the products they were selling, reflected in the derivatives provisions that made it into the law passed earlier this year.

What I read on this was in Michael Hirsh's excellent Capital Offense. The statement "if they're too big to fail, they're too big" is attributed to...Alan Greenspan! The relevant parts (pp. 299-300):

Now the biggest issue was the too-big-to-fail problem. The major players had all been saved (with the exception of Lehman and Bear Stearns), and Washington's policies were communicating this implicit message both to investors and to the rest of the world: we'll save them again someday. Why shouldn't they all start taking risks with the world's savings once again? Greenspan himself, his ideology shattered, was so bothered by the implications of the too-big-to-fail problem that he repudiated utterly what he had written nearly forty years before, as one of the contributors to Ayn Rand's 1961 book, Capitalism: The Unknown Ideal. Then he had derided antitrust law--"the entire structure of anti-trust statutes in this country is a jumble of irrationality and ignorance," he wrote--and he praised Standard Oil's dominance of 80 percent of refining capacity at the turn of the century as something that "made economic sense and accelerated the growth of the American economy." Now Greenspan called for a breakup of the biggest banks for fear that, otherwise, the market system couldn't function. Greenspan was grappling with the same dilemma that Rubin had in the aftermath. "If they're too big to fail, they're too big," Greenspan said. "In 1911 we broke up Standard Oil--so what happened? The individual parts became more valuable than the whole. Maybe that's what we need to do."

Yet somehow the fundamental questions were never addressed. Obama appeared to be channeling Geithner, for the most part. "The president and his economic team explicitly decided not to break up all big financial institutions," Goolsbee said. Obama decided that the cause of the crisis "wasn't primarily about size. The most dangerous failures--Bear Stearns, Lehman--were not even close to being the biggest. You could have broken the largest financial institutions into, literally, five pieces and each of them would still have been bigger than Bear Stearns. The main danger to the economy was interconnection, not raw size."...[By the fall of 2009] The horror movie that the financial system became seemed to be over. But as in one of those cliched Hollywood endings, the monster in the story wasn't really dead, even if most people had forgotten about him.

The one man who seemed to understand this, if only sporadically, was Barack Obama himself..."Wait, let me get this straight," Obama said at a meeting in December. "These guys are reserving record bonuses because they're profitable, and they're profitable only because we rescued them," according to an economic advisor. "He was incredulous."...

Obama was increasingly perceived as being on the wrong side of the issue...

I just wrote a considered

Oxy Mora — Wed, 08 Dec 2010 23:06:35 +0000

In reply to Well, we'll see. (The motto

I just wrote a considered answer but my comment box is acting up and deleting my comment, then telling me I didn't have a comment. UGH. maybe it's a sign. But I did read your comments and let's journey on. The NYT articles are great, referenced below by AT. My objective was simply to see if the Bank downsizing could represent a focus for Democrats, one that would be more intuitive than taxing the wealthy and which might accomplish many of the same ends.

Star, so Summers is out there

Oxy Mora — Wed, 08 Dec 2010 22:30:15 +0000

In reply to My particular favorite of the

Star, so Summers is out there selling the package. That should be enough to kill it.

Apparently Swiss regulators

Oxy Mora — Wed, 08 Dec 2010 22:18:35 +0000

In reply to Maybe tax policy would

Apparently Swiss regulators plan on increasing capital requirements of UBS and Credit Suisse. Capital must increase to 19% by 2019. Nine percent of that would be in mandatory convertible debt should the bank get in trouble. In effect this lessens the requirement to be "bailed out".

Recommend the NYT articles. Lots of great ideas.Remove the "implicit subsidy" and encourage them to shrink.

My particular favorite of the

we are stardust — Wed, 08 Dec 2010 22:10:38 +0000

In reply to THE SHORT GAME AND THE LONG GAME

My particular favorite of the Obama economic team, Larry Summers, is out screaming that the sky is falling, and warning of a double-dip recession if his boss's tax plans ain't passed. Now, given that lots of economists are predicting the same thing because of state defaults, sovereign debt boomerang, and failure to fix all the clouded MERS mortagages, take your pick...it's pretty funny that this is part of the team that Obama credited with 'fixing the financial crisis for just a portion of what the S&L crisis cost' (which is to my mind the most fucked of the many fucked things he's said).

I was trying to find a Black/Wray plan that addressed the TBTF banks, and prescribing an orderly was to straighten things out, while they werre still open for commercial business, where necessary, but i couldn't find it. But I did find this, wich at least slightly on topic.

http://neweconomicperspectives.blogspot.com/2010/10/no-mr-president-larry-summers-did-not.html

I was going to comment on Obey's well-thought piece on Obama, and who he serves and all that, but bugger if i could remember whose blog it was on. I just have been thinking about it, and ended up going back to the idea that we hired him to do a job for us. Now it was by committee, or whatever, but we interviewed him, made him debate his fellow applicants, dug into his life and his family's lives, interviewed him again, and then cast our votes because of what he said he believed, and what he'd do in office. Much of the team that backed him gave our time and our dollars and our writing and our sweat to get him the job. No matter that latecomers may have voted against McCain and Palin; OUR TEAM WON.

Our team's guy won because a plurality of us decided that the guy before had priorities that sucked, and had done away with regulations even more than the guy before him; his team defunded regulatory bodies in which there were still regulations in place, and involved us in bogus wars that weren't about keeping us safe. They broke the laws of our land, and broke international law, and screwed up education for our kids.

And here came Our Guy, and we expected him to do things as he said he would. We didn't worry that he wanted to be the President for all Americans, because he had told us he knew how best to do that, to enact fair trade laws, and pass EFCA, and enact bold fin-reg laws. He told us he'd be the Education President, and the Sustainable Energy President, talk to our enemies in a bold new non-confrontational way. We cheered him, and said we'd help.

He disabled the network for his election, and didn't allow us to help push for things that would bring the country back to health. We didn't name the things Left, Moderate, Libertarian, but SANE.

And even when he chose Clinton retreads for his cabinet, and left lots of Republicans in his cabinet, we were sure he'd add some opposing viewpoints into his team. The ones he did add, he allowed to resign if anyone objected to them from the Right. Collectively, as time went on, most of us gave him a pass, full of the knowledge that he was playing chess, always a longer view in mind. We collectively criticized the ones on our team who cried, "Whoa, Nellie; what's up with that?" We enabled him for two years collectively. And here we are today, pissed that he's still negotiating with the visions in his head, or now fully integrated into neo-Liberal economics frame of mind; who the hell knows?

But the guy we hired just hasn't performed well for the nation, he hasn't used the crisis well. And that's just wrong. IMO, of course. ;o)

p.s. I don't know what a banana hammock is, but I'd love to see obey do any sort of chicken dance, especially Chicken-Scratch.

AT, great reference and

Oxy Mora — Wed, 08 Dec 2010 22:10:14 +0000

In reply to I agree. Somehow we need to

AT, great reference and answers some questions we have been discussing here. I recommend this series of articles.

That's probably an argument

AmericanDreamer — Wed, 08 Dec 2010 21:37:02 +0000

In reply to I think I've figured out why

That's probably an argument the big banks would make and it seems not obviously wrong, albeit self-serving, to me. So--just a thought--perhaps Obama could talk to the heads of state of other countries with the other comparably too big to fail banks, some of whom are really po'd at the US, and said so, about what almost happened, and seek an agreement to adopt legislation or regulations or grand poobah royal plenipotentiary decrees or whatever the hell has to happen to break up the big banks to a not-too-big-to-fail size, and to enforce those new rules. Maybe a G-20 agenda item, if it can wait that long.

It seems to me that, seeing as the US-based big banks were the bad guys in this latest reality-show installment of "who can be the first to completely bring down the entire global economy?" the ball would be in our court insofar as other countries are concerned, and that they would welcome a US initiative to this effect. Heads of state don't generally like situations where their entire economies can be blown up by what big banks in another country do and don't do.

Maybe tax policy would

Obey — Wed, 08 Dec 2010 21:28:08 +0000

In reply to AT, I don't really have an

Maybe tax policy would achieve the ends we want,

Yup. Like Britain, who have implemented a tax on size - big banks pay a punitive tax on the size of their balance sheet. It's very small as it stands, but it's the kind of thing that becomes an attractive source of revenue when bank profits are high.

Obey, back to reality--those

Oxy Mora — Wed, 08 Dec 2010 21:27:05 +0000

In reply to Aah, your sunny optimism goes

Obey, back to reality--those bad MBS. Well, if the banks got them back again they would again have to be stress--tested and found to be insolvent. Now that is sounding like two years ago when there were some actual ideas of restructuring the banks--good banks, bad banks, etc.

Anyway, good points. I'll have another vodka on the rocks and hope for the best.

Well, we'll see. (The motto

AmericanDreamer — Wed, 08 Dec 2010 21:18:13 +0000

In reply to Dreamer, I agree, we just

Well, we'll see. (The motto of the wonderful Philip Seymour Hoffman character in "Charlie Wilson's War"; I'm on a movie-quoting spree lately). FWIW and IIRC Stiglitz's understanding, which he wrote in Freefall, was that Obama had concluded that bank size/too big to fail per se was not the main problem, but rather the nature of the products they were selling, reflected in the derivatives provisions that made it into the law passed earlier this year. Stiglitz thinks the problem has not been solved and specifically agrees that too big to fail means too big (in fact it probably was in his book, which I finished recently and highly recommend after you read Blowing Smoke, that I came upon that phrase).

Of course, it could make a hell of a difference if Obama were actually to, you know, *hire* Stiglitz to work in his WH so that he could be hearing from someone who really knows what he's talking about on a regular basis. Instead of having to have little people like me write, often to no one in particular, that he really ought to take seriously and listen to Stiglitz's views (among others) on these matters. Just a thought.

Instead, rumor has it Roger Altman is Summers' likely replacement. So, again, no evidence whatsoever that I am aware of, and some to the contrary, suggesting that although these may be good policy and good politics, they are not Obama's idea of good policy and politics. As of today. No reason to refrain from offering and advocating constructive suggestions, because who knows...?