“Democrats, Republicans And Wall Street Tycoons”: Financiers Resent Any Constraints On Ability To Gamble With Other People’s Money
Hillary Clinton and Bernie Sanders had an argument about financial regulation during Tuesday’s debate — but it wasn’t about whether to crack down on banks. Instead, it was about whose plan was tougher. The contrast with Republicans like Jeb Bush or Marco Rubio, who have pledged to reverse even the moderate financial reforms enacted in 2010, couldn’t be stronger.
For what it’s worth, Mrs. Clinton had the better case. Mr. Sanders has been focused on restoring Glass-Steagall, the rule that separated deposit-taking banks from riskier wheeling and dealing. And repealing Glass-Steagall was indeed a mistake. But it’s not what caused the financial crisis, which arose instead from “shadow banks” like Lehman Brothers, which don’t take deposits but can nonetheless wreak havoc when they fail. Mrs. Clinton has laid out a plan to rein in shadow banks; so far, Mr. Sanders hasn’t.
But is Mrs. Clinton’s promise to take a tough line on the financial industry credible? Or would she, once in the White House, return to the finance-friendly, deregulatory policies of the 1990s?
Well, if Wall Street’s attitude and its political giving are any indication, financiers themselves believe that any Democrat, Mrs. Clinton very much included, would be serious about policing their industry’s excesses. And that’s why they’re doing all they can to elect a Republican.
To understand the politics of financial reform and regulation, we have to start by acknowledging that there was a time when Wall Street and Democrats got on just fine. Robert Rubin of Goldman Sachs became Bill Clinton’s most influential economic official; big banks had plenty of political access; and the industry by and large got what it wanted, including repeal of Glass-Steagall.
This cozy relationship was reflected in campaign contributions, with the securities industry splitting its donations more or less evenly between the parties, and hedge funds actually leaning Democratic.
But then came the financial crisis of 2008, and everything changed.
Many liberals feel that the Obama administration was far too lenient on the financial industry in the aftermath of the crisis. After all, runaway banks brought the economy to its knees, causing millions to lose their jobs, their homes, or both. What’s more, banks themselves were bailed out, at potentially large expense to taxpayers (although in the end the costs weren’t very large). Yet nobody went to jail, and the big banks weren’t broken up.
But the financiers didn’t feel grateful for getting off so lightly. On the contrary, they were and remain consumed with “Obama rage.”
Partly this reflects hurt feelings. By any normal standard, President Obama has been remarkably restrained in his criticisms of Wall Street. But with great wealth comes great pettiness: These are men accustomed to obsequious deference, and they took even mild comments about bad behavior by some of their number as an unforgivable insult.
Furthermore, while the Dodd-Frank financial regulation bill enacted in 2010 was much weaker than many reformers had wanted, it was far from toothless. The Consumer Financial Protection Bureau has proved highly effective, and the “too big to fail” subsidy appears to have mostly gone away. That is, big financial institutions that would probably be bailed out in a future crisis no longer seem to be able to raise funds more cheaply than smaller players, perhaps because “systemically important” institutions are now subject to extra regulations, including the requirement that they set aside more capital.
While this is good news for taxpayers and the economy, financiers bitterly resent any constraints on their ability to gamble with other people’s money, and they are voting with their checkbooks. Financial tycoons loom large among the tiny group of wealthy families that is dominating campaign finance this election cycle — a group that overwhelmingly supports Republicans. Hedge funds used to give the majority of their contributions to Democrats, but since 2010 they have flipped almost totally to the G.O.P.
As I said, this lopsided giving is an indication that Wall Street insiders take Democratic pledges to crack down on bankers’ excesses seriously. And it also means that a victorious Democrat wouldn’t owe much to the financial industry.
If a Democrat does win, does it matter much which one it is? Probably not. Any Democrat is likely to retain the financial reforms of 2010, and seek to stiffen them where possible. But major new reforms will be blocked until and unless Democrats regain control of both houses of Congress, which isn’t likely to happen for a long time.
In other words, while there are some differences in financial policy between Mrs. Clinton and Mr. Sanders, as a practical matter they’re trivial compared with the yawning gulf with Republicans.
By: Paul Krugman, Op-Ed Columnist, The New York Times, October 16, 2015
“To Regulate Or Break Up?”: The Difference Between An Insurrectionist And An Institutionalist
Anyone who has been able to sit through both the Republican and Democratic presidential debates is very well-versed in the chasm that currently exists between the two parties. When all is said and done, the public is going to have a very clear choice between two starkly different directions for our country to embrace in November 2016. That is a good thing – especially for Democrats who seemed intent on watering down the differences in the 2014 midterms.
But Tuesday’s debate also clarified the differences between Clinton and Sanders. Matt Yglesias does a good job of teeing that up.
To Clinton, policy problems require policy solutions, and the more nuanced and narrowly tailored the solution, the better. To Sanders, policy problems stem from a fundamental imbalance of political power..The solution isn’t to pass a smart new law, it’s to spark a “political revolution” that upends the balance of power.
As we know from both the debate and their position statements, Clinton wants to regulate the big financial institutions and Sanders wants to break them up. The argument from the Sanders wing is that we can’t trust the government to be the regulator.
I remember that same argument coming up between liberals during the health care debate. Those who dismissed the ACA in favor of single payer often said that any attempt to regulate health insurance companies was a waste of time. I always found that odd based on the Democratic tradition of embracing government regulation as the means to correct the excesses of capitalism.
This basically comes down to whether you agree with Sanders when he says that we need a “political revolution that upends the balance of power” or do you agree with Clinton when she said, “it’s our job to rein in the excesses of capitalism so that it doesn’t run amok.” Peter Beinart calls it the difference between an insurrectionist and an institutionalist.
Depending on where you stand on that question, your solutions will look very different. That helps me understand why I never thought Sanders’ policy proposals were serious. Someone who assumes that the entire system is rigged isn’t going to be that interested in “nuanced and narrowly tailored policies” to fix it.
But in the end, this puts even more of a responsibility on Sanders’ shoulders. If he wants a political revolution to upend a rigged system, he needs to be very precise about what he has in mind as a replacement to that system. Otherwise, he’s simply proposing chaos.
By: Nancy LeTourneau, Political Animal Blog, The Washington Monthly, October 15, 2015
“The Outrageous Ascent Of CEO Pay”: Corporate Law In The United States Gives Shareholders At Most An Advisory Role
The Securities and Exchange Commission approved a rule last week requiring that large publicly held corporations disclose the ratios of the pay of their top CEOs to the pay of their median workers.
About time.
For the last 30 years almost all incentives operating on American corporations have resulted in lower pay for average workers and higher pay for CEOs and other top executives.
Consider that in 1965, CEOs of America’s largest corporations were paid, on average, 20 times the pay of average workers.
Now, the ratio is over 300 to 1.
Not only has CEO pay exploded, so has the pay of top executives just below them.
The share of corporate income devoted to compensating the five highest-paid executives of large corporations ballooned from an average of five percent in 1993 to more than 15 percent by 2005 (the latest data available).
Corporations might otherwise have devoted this sizable sum to research and development, additional jobs, higher wages for average workers, or dividends to shareholders – who, not incidentally, are supposed to be the owners of the firm.
Corporate apologists say CEOs and other top executives are worth these amounts because their corporations have performed so well over the last three decades that CEOs are like star baseball players or movie stars.
Baloney. Most CEOs haven’t done anything special. The entire stock market surged over this time.
Even if a company’s CEO simply played online solitaire for 30 years, the company’s stock would have ridden the wave.
Besides, that stock market surge has had less to do with widespread economic gains than with changes in market rules favoring big companies and major banks over average employees, consumers, and taxpayers.
Consider, for example, the stronger and more extensive intellectual-property rights now enjoyed by major corporations, and the far weaker antitrust enforcement against them.
Add in the rash of taxpayer-funded bailouts, taxpayer-funded subsidies and bankruptcies favoring big banks and corporations over employees and small borrowers.
Not to mention trade agreements making it easier to outsource American jobs, and state legislation (cynically termed “right-to-work” laws) dramatically reducing the power of unions to bargain for higher wages.
The result has been higher stock prices but not higher living standards for most Americans.
Which doesn’t justify sky-high CEO pay unless you think some CEOs deserve it for their political prowess in wangling these legal changes through Congress and state legislatures.
It even turns out the higher the CEO pay, the worse the firm does.
Professors Michael J. Cooper of the University of Utah, Huseyin Gulen of Purdue University and P. Raghavendra Rau of the University of Cambridge, recently found that companies with the highest-paid CEOs returned about 10 percent less to their shareholders than do their industry peers.
So why aren’t shareholders hollering about CEO pay? Because corporate law in the United States gives shareholders at most an advisory role.
They can holler all they want, but CEOs don’t have to listen.
Larry Ellison, the CEO of Oracle, received a pay package in 2013 valued at $78.4 million, a sum so stunning that Oracle shareholders rejected it. That made no difference because Ellison controlled the board.
In Australia, by contrast, shareholders have the right to force an entire corporate board to stand for re-election if 25 percent or more of a company’s shareholders vote against a CEO pay plan two years in a row.
Which is why Australian CEOs are paid an average of only 70 times the pay of the typical Australian worker.
The new SEC rule requiring disclosure of pay ratios could help strengthen the hand of American shareholders.
The rule might generate other reforms as well – such as pegging corporate tax rates to those ratios.
Under a bill introduced in the California legislature last year, a company whose CEO earns only 25 times the pay of its typical worker would pay a corporate tax rate of only seven percent, rather than the 8.8 percent rate now applied to all California firms.
On the other hand, a company whose CEO earns 200 times the pay of its typical employee, would face a 9.5 percent rate. If the CEO earned 400 times, the rate would be 13 percent.
The bill hasn’t made it through the legislature because business groups call it a “job killer.”
The reality is the opposite. CEOs don’t create jobs. Their customers create jobs by buying more of what their companies have to sell.
So pushing companies to put less money into the hands of their CEOs and more into the hands of their average employees will create more jobs.
The SEC’s disclosure rule isn’t perfect. Some corporations could try to game it by contracting out their low-wage jobs. Some industries pay their typical workers higher wages than other industries.
But the rule marks an important start.
By: Robert Reich, The Robert Reich Blog, August 9, 2015
“A Palpable Authenticity”: The Non-Clinton Alternative For Democrats
Is Bernie Sanders the political reincarnation of Eugene McCarthy? I doubt it, but let’s hope he makes the Democratic presidential race interesting.
I don’t know if front-runner Hillary Clinton shares my wish, but she ought to. I’m not of the school that believes competition for competition’s sake is always a good thing. But Sanders has an appeal for younger, more liberal, more idealistic Democrats that Clinton presently lacks. If she competes for these voters — and learns to connect with them — she will have a much better chance of winning the White House.
Sanders, the Vermont independent and the only self-described socialist in the Senate, drew packed houses during a weekend barnstorming tour of Iowa. The 2,500 people who attended his rally in Council Bluffs were believed to be the largest crowd a candidate from either party has drawn in the state. This followed last week’s triumph in Madison, Wis. , where Sanders packed a 10,000-seat arena with cheering supporters — the biggest event anywhere thus far in the campaign.
At the same time, Sanders is rising in the polls. The latest Quinnipiac survey showed Clinton with a 19-point lead in Iowa, 52 percent to 33 percent. As recently as May, Clinton had a 45-point advantage.
Comparisons have been made to McCarthy, the Minnesota senator whose opposition to the Vietnam War galvanized support on college campuses and stunned the Democratic Party establishment. McCarthy’s showing in the 1968 New Hampshire primary — he received 42 percent of the vote — helped lead incumbent Lyndon Johnson to pull out of the race.
But let’s not get carried away. A lead of 19 points is a problem any politician would love to have. Sanders’s numbers had nowhere to go but up, and Clinton’s nowhere but down. What’s safe to say at present is that Sanders — not Martin O’Malley, Jim Webb or Lincoln Chafee — has become the non-Clinton alternative for Democrats who, for whatever reason, are suffering some Clinton fatigue.
One thing Sanders has going for himself is palpable authenticity. He is the antithesis of slick. To say there’s nothing focus-grouped about the man is to understate; one doubts he knows what a focus group is. “Rumpled” is the word most often used to describe him, but that’s not quite right; it’s not as if his suits are unpressed or his shirttails untucked. He’s just all substance and no style — which, to say the least, makes him stand out among politicians.
Clinton, by contrast, has always struggled to let voters see the “authentic” her rather than the carefully curated, every-hair-in-place version her campaigns have sought to project. Part of the problem, I believe, is that women in politics are held to an almost impossible standard; no male candidate’s wardrobe choice or tone of voice receives such microscopic scrutiny. But she also distances herself by campaigning as if she’s protecting a big lead — which she is — and wants to avoid offending anyone. Last, when asked her favorite ice cream flavor, she replied, “I like nearly everything.” What, vanilla lovers were going to abandon her if she had said chocolate?
Sanders’s main appeal, however, is that he speaks unabashedly for the party’s activist left. He is witheringly critical of Wall Street, wants to break up the big banks, proposes single-payer health care and promises to raise taxes. He voted against the 2003 invasion of Iraq; Clinton, then a senator, voted for it but now says that she made a mistake.
Eight years ago, Barack Obama made opposition to the Iraq war his signature issue and rode it to victory in Iowa and beyond. Will lightning strike the Clinton machine twice?
Not the same kind of lightning, surely, and not in the same manner. Obama is a uniquely gifted politician whose appeal went beyond the issues. He was able to make voters believe not just in him but also in themselves and their power to reshape the world. And as the first African American with a legitimate chance to become president, he gave the nation a chance to make history.
This time, Clinton is the candidate with history on her side. The fact that she could be the first woman elected president is not enough, by itself, to win her the nomination. But it does matter. She, like Obama, offers voters the chance to feel a sense of accomplishment.
And nothing about Clinton’s past remotely compares with the millstone of Vietnam that weighed LBJ down and ultimately caused him to give up. I just don’t see a McCarthy scenario brewing — or an Obama scenario, either.
By: Eugene Robinson, Opinion Writer, The Washington Post, July 7, 2015
“Wall Street Vampires”: Lurking In Their Coffins, The Enemies Of Reform Can’t Withstand Sunlight
Last year the vampires of finance bought themselves a Congress. I know it’s not nice to call them that, but I have my reasons, which I’ll explain in a bit. For now, however, let’s just note that these days Wall Street, which used to split its support between the parties, overwhelmingly favors the G.O.P. And the Republicans who came to power this year are returning the favor by trying to kill Dodd-Frank, the financial reform enacted in 2010.
And why must Dodd-Frank die? Because it’s working.
This statement may surprise progressives who believe that nothing significant has been done to rein in runaway bankers. And it’s true both that reform fell well short of what we really should have done and that it hasn’t yielded obvious, measurable triumphs like the gains in insurance thanks to Obamacare.
But Wall Street hates reform for a reason, and a closer look shows why.
For one thing, the Consumer Financial Protection Bureau — the brainchild of Senator Elizabeth Warren — is, by all accounts, having a major chilling effect on abusive lending practices. And early indications are that enhanced regulation of financial derivatives — which played a major role in the 2008 crisis — is having similar effects, increasing transparency and reducing the profits of middlemen.
What about the problem of financial industry structure, sometimes oversimplified with the phrase “too big to fail”? There, too, Dodd-Frank seems to be yielding real results, in fact, more than many supporters expected.
As I’ve just suggested, too big to fail doesn’t quite get at the problem here. What was really lethal was the interaction between size and complexity. Financial institutions had become chimeras: part bank, part hedge fund, part insurance company, and so on. This complexity let them evade regulation, yet be rescued from the consequences when their bets went bad. And bankers’ ability to have it both ways helped set America up for disaster.
Dodd-Frank addressed this problem by letting regulators subject “systemically important” financial institutions to extra regulation, and seize control of such institutions at times of crisis, as opposed to simply bailing them out. And it required that financial institutions in general put up more capital, reducing both their incentive to take excessive risks and the chance that risk-taking would lead to bankruptcy.
All of this seems to be working: “Shadow banking,” which created bank-type risks while evading bank-type regulation, is in retreat. You can see this in cases like that of General Electric, a manufacturing firm that turned itself into a financial wheeler-dealer, but is now trying to return to its roots. You can also see it in the overall numbers, where conventional banking — which is to say, banking subject to relatively strong regulation — has made a comeback. Evading the rules, it seems, isn’t as appealing as it used to be.
But the vampires are fighting back.
O.K., why do I call them that? Not because they drain the economy of its lifeblood, although they do: there’s a lot of evidence that oversize, overpaid financial industries — like ours — hurt economic growth and stability. Even the International Monetary Fund agrees.
But what really makes the word apt in this context is that the enemies of reform can’t withstand sunlight. Open defenses of Wall Street’s right to go back to its old ways are hard to find. When right-wing think tanks do try to claim that regulation is a bad thing that will hurt the economy, their hearts don’t seem to be in it. For example, the latest such “study,” from the American Action Forum, runs to all of four pages, and even its author, the economist Douglas Holtz-Eakin, sounds embarrassed about his work.
What you mostly get, instead, is slavery-is-freedom claims that reform actually empowers the bad guys: for example, that regulating too-big-and-complex-to-fail institutions is somehow doing wheeler-dealers a favor, claims belied by the desperate efforts of such institutions to avoid the “systemically important” designation. The point is that almost nobody wants to be seen as a bought and paid-for servant of the financial industry, least of all those who really are exactly that.
And this in turn means that so far, at least, the vampires are getting a lot less than they expected for their money. Republicans would love to undo Dodd-Frank, but they are, rightly, afraid of the glare of publicity that defenders of reform like Senator Warren — who inspires a remarkable amount of fear in the unrighteous — would shine on their efforts.
Does this mean that all is well on the financial front? Of course not. Dodd-Frank is much better than nothing, but far from being all we need. And the vampires are still lurking in their coffins, waiting to strike again. But things could be worse.
By: Paul Waldman, Op-Ed Columnist, The New York Times, May 11, 2015
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