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“Obama’s Other Success”: Dodd-Frank Financial Reform Is Working

Although the enemies of health reform will never admit it, the Affordable Care Act is looking more and more like a big success. Costs are coming in below predictions, while the number of uninsured Americans is dropping fast, especially in states that haven’t tried to sabotage the program. Obamacare is working.

But what about the administration’s other big push, financial reform? The Dodd-Frank reform bill has, if anything, received even worse press than Obamacare, derided by the right as anti-business and by the left as hopelessly inadequate. And like Obamacare, it’s certainly not the reform you would have devised in the absence of political constraints.

But also like Obamacare, financial reform is working a lot better than anyone listening to the news media would imagine. Let’s talk, in particular, about two important pieces of Dodd-Frank: creation of an agency protecting consumers from misleading or fraudulent financial sales pitches, and efforts to end “too big to fail.”

The decision to create a Consumer Financial Protection Bureau shouldn’t have been controversial, given what happened during the housing boom. As Edward M. Gramlich, a Federal Reserve official who warned prophetically of problems in subprime lending, asked, “Why are the most risky loan products sold to the least sophisticated borrowers?” He went on, “The question answers itself — the least sophisticated borrowers are probably duped into taking these products.” The need for more protection was obvious.

Of course, that obvious need didn’t stop the U.S. Chamber of Commerce, financial industry lobbyists and conservative groups from going all out in an effort to prevent the bureau’s creation or at least stop it from doing its job, spending more than $1.3 billion in the process. Republicans in Congress dutifully served the industry’s interests, notably by trying to prevent President Obama from appointing a permanent director. And the question was whether all that opposition would hobble the new bureau and make it ineffective.

At this point, however, all accounts indicate that the bureau is in fact doing its job, and well — well enough to inspire continuing fury among bankers and their political allies. A recent case in point: The bureau is cracking down on billions in excessive overdraft fees.

Better consumer protection means fewer bad loans, and therefore a reduced risk of financial crisis. But what happens if a crisis occurs anyway?

The answer is that, as in 2008, the government will step in to keep the financial system functioning; nobody wants to take the risk of repeating the Great Depression.

But how do you rescue the banking system without rewarding bad behavior? In particular, rescues in times of crisis can give large financial players an unfair advantage: They can borrow cheaply in normal times, because everyone knows that they are “too big to fail” and will be bailed out if things go wrong.

The answer is that the government should seize troubled institutions when it bails them out, so that they can be kept running without rewarding stockholders or bondholders who don’t need rescue. In 2008 and 2009, however, it wasn’t clear that the Treasury Department had the necessary legal authority to do that. So Dodd-Frank filled that gap, giving regulators Ordinary Liquidation Authority, also known as resolution authority, so that in the next crisis we can save “systemically important” banks and other institutions without bailing out the bankers.

Bankers, of course, hate this idea; and Republican leaders like Mitch McConnell tried to help their friends with the Orwellian claim that resolution authority was actually a gift to Wall Street, a form of corporate welfare, because it would grease the skids for future bailouts.

But Wall Street knew better. As Mike Konczal of the Roosevelt Institute points out, if being labeled systemically important were actually corporate welfare, institutions would welcome the designation; in fact, they have fought it tooth and nail. And a new study from the Government Accountability Office shows that while large banks were able to borrow more cheaply than small banks before financial reform passed, that advantage has now essentially disappeared. To some extent this may reflect generally calmer markets, but the study nonetheless suggests that reform has done at least part of what it was supposed to do.

Did reform go far enough? No. In particular, while banks are being forced to hold more capital, a key force for stability, they really should be holding much more. But Wall Street and its allies wouldn’t be screaming so loudly, and spending so much money in an effort to gut the law, if it weren’t an important step in the right direction. For all its limitations, financial reform is a success story.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, August 3, 2014

August 4, 2014 Posted by | Big Banks, Dodd-Frank, Financial Reform | , , , , , , | Leave a comment

“Sorry, Obamacare Denialists, You’re Insane”: Don’t Want To Be Called Ridiculous And Nutty, Stop Saying Ridiculous, Nutty Things

Conservative writer Philip Klein, who seems very nice, complains that liberals are being far too mean about the latest conservative attempt to gut Obamacare. “Liberal critics of this legal theory have portrayed it as absurd, ridiculous, nutty, stupid, and even criminal,” he writes. “Recently, I’ve been likened to the health policy equivalent of a World Trade Center attack conspiracy theorist merely for sympathetically reporting the legal case of the challengers.”

Not exactly. Klein is conflating two different things here. First, there’s the Halbig lawsuit, which hinges upon a strained, somewhat-exotic reading of the law to argue that the Affordable Care Act fails to create tax credits for people who buy their insurance through a federal exchange. The basis of this lawsuit is that the most explicit reference in the law mentions only state exchanges, and therefore courts ought to ignore all the other, less explicit parts of the law implying the opposite.

This is the case conservatives made for several years — Congress hastily failed to write a clear law, so conservative legal activists can take advantage of the screwup to interpret what (they argue, tendentiously but not insanely) is its literal reading. As the right-wing Investor’s Business Daily, an early booster of this once-long-shot legal challenge, gleefully put it in 2011, “Oops! No Obamacare Tax Credit for You!” I’m sorry, the card says “Moops.” I find this argument highly, highly unpersuasive. It’s been laughed out of court by Democratic-appointed judges, and rejected by at least one Republican judge. I will say this for it — it is at least tenuously connected to reality.

But now conservatives are making a different argument. They’re no longer saying that the lawsuit is exploiting a drafting error. They’re claiming it interprets the law correctly, and that the law actually (or possibly) intended to deny tax credits to people in federal exchanges. They have gone from smugly saying the card says “Moops” to insisting that the people who invaded Spain in the eighth century were actually called “the Moops.”

And yes, that is completely insane. There is a massive trove of evidence here regarding the intent of the law’s drafters. Dylan Scott has the latest chunk today — a deep excavation of the role of the Congressional Budget Office, which was a kind of legislative super-body regarded as authoritative by Congress. The CBO, like everybody involved in the law’s passage, believed the federal exchanges were designed to give health insurance to people in states that did not build their own. They were not designed as a deliberately unworkable punishment.

Yes, some smart people, speaking extemporaneously, were sometimes confused about just how the law worked. (Conservatives have made a great deal about off-the-cuff comments made by Jonathan Cohn before the law was actually finalized.) That doesn’t change the fact that the federal exchanges were obviously designed to give people affordable insurance. It may be mean to point out that those who argue otherwise are completely, manifestly ahistorical, but that’s just reality. If you don’t want to be called ridiculous and nutty, stop saying ridiculous, nutty things.

 

By: Jonathan Chait, Daily Intelligencer, New York Magazine, August 1, 2014

August 4, 2014 Posted by | Affordable Care Act, Conservatives | , , , , , , | Leave a comment

“Can The Voters Change The GOP?”: The Electorate Must Realize That The Radical Right Is The Real Culprit

The central issue in this fall’s elections could turn out to be a sleeper: What kind of Republican Party does the country want?

It is, to be sure, a strange question to put to an electorate in which independents and Democrats constitute a majority. Yet there is no getting around this: The single biggest change in Washington over the last five years has been a GOP shift to a more radical form of conservatism. This, in turn, has led to a kind of rejectionism that views cooperation with President Obama as inherently unprincipled.

Solving the country’s problems requires, above all, turning the Republican Party back into a political enterprise willing to share the burdens of governing, even when a Democrat is in the White House.

For those looking for a different, more constructive Republicanism, this is not a great year to stage the battle. Because of gerrymandering, knocking the current band of Republicans out of control of the House is a Herculean task. And most of the competitive seats in the fight for the Senate are held by Democrats in Republican states. The GOP needs to win six currently Democratic seats to take over, and it appears already to have nailed down two or three of these. Republicans are now favored in the open seats of South Dakota and West Virginia, and probably also in Montana.

Nonetheless, there is as yet no sense of the sort of tide that in 2010 gave a Republicanism inflected with tea party sensibilities dominance in the House. The core narrative of the campaign has yet to be established. Democrats seeking reelection are holding their own in Senate races in which they are seen as vulnerable.

And then there was last week’s House fiasco over resolving the refugee crisis at our border. It served as a reminder that Republican leaders are handcuffing themselves by choosing to appease their most right-wing members rather than pursuing middle-ground legislation by collaborating with Democrats.

The bill that House Speaker John Boehner was trying to pass last Thursday already tilted well rightward. It provided Obama with only a fraction of what he said was needed to deal with the crisis — $659 million, compared with the president’s request for $3.7 billion. It also included provisions to put deportations on such a fast track that Obama threatened to veto it. A White House statement said that its “arbitrary timelines” were both impractical and inhumane.

House Democratic leader Nancy Pelosi happened to be meeting with a group of journalists when the bill collapsed. “In order for them to pass a bill, they had to make it worse and worse and worse,” she said, referring to Boehner’s efforts to placate members who have entered into an unusual cross-chamber alliance with Sen. Ted Cruz (R-Tex.) to foil even conservative legislation if they regard it as insufficiently pure. When the bill was pulled back, Pelosi observed: “They couldn’t make it bad enough.”

On Friday, the GOP leadership pushed the measure still further right and added $35 million for border states to get it passed at an unusual evening session — but not before Republicans themselves had complained loudly about dysfunction in their own ranks.

In the meantime, the Senate was paralyzed on the issue by filibusters and other procedural hurdles that have rendered majority rule an antique notion in what once proudly proclaimed itself “the world’s greatest deliberative body.”

As the House was preparing to pass its bill, Obama told a news conference on Friday that GOP leaders were well aware that he’d veto it if it came to him and bemoaned the fact that “even basic, commonsense, plain vanilla legislation” can’t get through because Republicans fear “giving Obama a victory.”

Last week’s legislative commotion could change the political winds by putting the costs of the GOP’s flight from moderation into stark relief. House Republicans found themselves in the peculiar position of simultaneously suing Obama for executive overreach and then insisting that he could act unilaterally to solve the border crisis.

Pelosi, for her part, went out of her way to praise “the Grand Old Party that did so much and has done so much for our country.” Commending the opposing party is not an election year habit, but her point was to underscore that Republicans had been “hijacked” by a “radical right wing” that is not simply “anti-government” but also “anti-governance.”

On balance, Washington gridlock has hurt Democrats more than Republicans by dispiriting moderate and progressive constituencies that had hoped Obama could usher in an era of reform. The key to the election will be whether Democrats can persuade these voters that the radical right is the real culprit in their disappointment — and get them to act accordingly on Election Day.

 

By: E. J. Dionne, Jr., Opinion Writer, The Washington Post, August 3, 2014

August 4, 2014 Posted by | Election 2014, Electorate, GOP, Right Wing | , , , , , , | Leave a comment

“Work And Worth”: What Someone Is Paid Has Little Or No Relationship To What Their Work Is Worth To Society

What someone is paid has little or no relationship to what their work is worth to society.

Does anyone seriously believe hedge-fund mogul Steven A. Cohen is worth the $2.3 billion he raked in last year, despite being slapped with a $1.8 billion fine after his firm pleaded guilty to insider trading?

On the other hand, what’s the worth to society of social workers who put in long and difficult hours dealing with patients suffering from mental illness or substance abuse? Probably higher than their average pay of $18.14 an hour, which translates into less than $38,000 a year.

How much does society gain from personal-care aides who assist the elderly, convalescents, and persons with disabilities? Likely more than their average pay of $9.67 an hour, or just over $20,000 a year.

What’s the social worth of hospital orderlies who feed, bathe, dress, and move patients, and empty their ben pans? Surely higher than their median wage of $11.63 an hour, or $24,190 a year.

Or of child care workers, who get $10.33 an hour, $21.490 a year? And preschool teachers, who earn $13.26 an hour, $27,570 a year?

Yet what would the rest of us do without these dedicated people?

Or consider kindergarten teachers, who make an average of $53,590 a year.

That may sound generous but a good kindergarten teacher is worth his or her weight in gold, almost.

One study found that children with outstanding kindergarten teachers are more likely to go to college and less likely to become single parents than a random set of children similar to them in every way other than being assigned a superb teacher.

And what of writers, actors, painters, and poets? Only a tiny fraction ever become rich and famous. Most barely make enough to live on (many don’t, and are forced to take paying jobs to pursue their art). But society is surely all the richer for their efforts.

At the other extreme are hedge-fund and private-equity managers, investment bankers, corporate lawyers, management consultants, high-frequency traders, and top Washington lobbyists.

They’re getting paid vast sums for their labors. Yet it seems doubtful that society is really that much better off because of what they do.

I don’t mean to sound unduly harsh, but I’ve never heard of a hedge-fund manager whose jobs entails attending to basic human needs (unless you consider having more money as basic human need) or enriching our culture (except through the myriad novels, exposes, and movies made about greedy hedge-fund managers and investment bankers).

They don’t even build the economy.

Most financiers, corporate lawyers, lobbyists, and management consultants are competing with other financiers, lawyers, lobbyists, and management consultants in zero-sum games that take money out of one set of pockets and put it into another.

They’re paid gigantic amounts because winning these games can generate far bigger sums, while losing them can be extremely costly.

It’s said that by moving money to where it can make more money, these games make the economy more efficient.

In fact, the games amount to a mammoth waste of societal resources.

They demand ever more cunning innovations but they create no social value. High-frequency traders who win by a thousandth of a second can reap a fortune, but society as a whole is no better off.

Meanwhile, the games consume the energies of loads of talented people who might otherwise be making real contributions to society — if not by tending to human needs or enriching our culture then by curing diseases or devising new technological breakthroughs, or helping solve some of our most intractable social problems.

In 2010 (the most recent date for which we have data) close to 36 percent of Princeton graduates went into finance (down from the pre-financial crisis high of 46 percent in 2006). Add in management consulting, and it was close to 60 percent.

Graduates of Harvard and other Ivy League universities are also more likely to enter finance and consulting than any other career.

The hefty endowments of such elite institutions are swollen with tax-subsidized donations from wealthy alumni, many of whom are seeking to guarantee their own kids’ admissions so they too can become enormously rich financiers and management consultants.

But I can think of a better way for taxpayers to subsidize occupations with more social merit: Forgive the student debts of graduates who choose social work, child care, elder care, nursing, and teaching.

 

By: Robert Reich, The Robert Reich Blog, August 2, 2014

August 4, 2014 Posted by | Economic Inequality, Workers | , , , , , , , | Leave a comment

“Ted Cruz, Legislative Innovator”: What’s Bad For The GOP Can Be Good For Little Teddy

Congress, it is said, is divided into “work horses” and “show horses.” The former try to make laws, while the latter worry more about whether they can get on TV. Plenty of members try to be both, but there are a surprising number that don’t even bother legislating. And these days, being a show horse offers a much clearer path to one day running for president. It’s still technically possible to spend a few decades crafting a legislative record and working your way up the leadership ladder, then eventually get your party’s nomination, like Bob Dole did. But it’s a hell of a lot easier to inject yourself into a few controversies, make some notable speeches, and take a trip or two to Iowa. Do that, and like Rand Paul or Ted Cruz (or Barack Obama), you can run for president in your first term.

Cruz, however, is doing something completely new. He may not bother to introduce any bills, but he is creating a new kind of legislative innovation. Perhaps for the first time in American history—I can’t think of any precedent, and knowledgeable people I’ve asked can’t either—we have a senator who has taken it upon himself to lead revolts in the House in order to undermine his own party’s leadership there.

Last year, Cruz held private meetings with Tea Party members in the House, urging them to keep the government shut down in the vain hope that they could destroy Obamacare as the price of ending the crisis. And this week, he was at it again:

The beginning of the collapse of House Speaker John A. Boehner’s border bill came Wednesday evening, when Texas Sen. Ted Cruz gathered more than a dozen House Republicans at his office in the Dirksen building on Capitol Hill.

It was there, as Boehner (R-Ohio) held his own meetings on the other side of Constitution Avenue, that Cruz heard that the speaker didn’t have enough votes—and realized that if his House allies held firm, he could rupture the fragile coalition supporting the measure…

He agreed that Boehner was distracted and said they should stick to their principles. The freshman senator also reminded them to be skeptical of promises from House leaders, particularly of “show votes”—legislative action designed to placate conservatives that carry little, if any, weight.

That quiet assurance was enough to persuade the conservatives to effectively topple Boehner’s plan, at least on Thursday, by balking when he said he would hold a largely symbolic standalone vote on Obama’s program.

We shouldn’t overstate the impact of Cruz’s involvement; it’s likely that Boehner’s immigration plan would have failed even if this meeting hadn’t taken place. But once again, Cruz has used his influence with House conservatives to help undermine Boehner and engineer a debacle for Republicans.

You might wonder at the strategic wisdom of that, but what’s bad for the GOP can be good for Ted Cruz. If we assume that his primary goal is mounting a presidential campaign, Republican unity isn’t something to be desired. You know what Republican unity gets you? Candidates like Bob Dole and Mitt Romney: establishment figures who get the nomination because it’s their turn and they seem like the best chance the GOP has of winning. Cruz is going to be the candidate of the far right, and the only way he could possibly prevail in a nomination fight is if it turns out to be a complete mess, with multiple factions engaged in bitter recriminations that fail to resolve themselves. If there’s a compromise candidate, it isn’t going to be Ted Cruz; if there’s a bloodbath, he stands at least a chance of being the last one standing.

I think it’s highly unlikely that Cruz could get the GOP nomination. But if you think about his actions in terms of stoking the GOP division and dismay that give him a shot, they make a lot more sense.

 

By: Paul Waldman, Contributing Editor, The American Prospect, August 1, 2014

August 4, 2014 Posted by | GOP, House Republicans, Ted Cruz | , , , , , , | Leave a comment

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