“Never again will the American taxpayer be held hostage by a bank that is too big to fail”
In a move that many see as nothing more than a clever attempt to tap into popular sentiment that the banking industry is the root of all evils, the President announced yesterday that he is proposing a major overhaul of said industry setting off a firestorm of criticism from points all across the political universe. In sum, what the President is proposing here through this “Volker Rule” is a change in the way that major financial firms conduct business. He wants to limit the areas in which they can trade to return to a day where banks were banks and investment firms were investment firms. On its face, I must admit that even though I am not a supporter of regulating a private industry especially by this President or this Congress, I am not in complete opposition to this plan at least on its face. That being said, I am in complete disagreement with the rationale behind it and the stated justification for it. The bailout / too big to fail mentality that began under the Bush administration has been nurtured, developed, and now relied upon under this administration to the point where the banking system is acting under an entirely new set of rules. This is merely step two or maybe even three or four of a plan to permanently inject government control through intervention in the banking industry. Would it be more prudent to have taken a step in the other direction and chip away at the bailout mentality? Of course it would have been, but that wouldn’t be the politically advantageous thing for this administration to do and more importantly, it wouldn’t mesh with this president’s inherent ideology of government knows best - especially when he represents the government.
The other side to this coin is the fact that the stated rationale for too big to fail in the first place is saving jobs and protecting the hard earned dollars of American citizens. We will ignore the fact that every step in this process has devalued the American dollar through inevitable inflation and simply look at the glaring inconsistency that certainly will now present itself. How will a city like New York, or a state like New York for that matter, sustain itself if its economy which is driven by the banking industry is forced to scale back, sell off, and/or limit its operations? How will that industry survive if it is forced to operate in a global economy from a position of handcuffed limited participation? I am not an economist and don’t intend to play one here on my little blog so I don’t have the answer to either of those questions. Instead, we can ask someone with a bit of experience in this area and a pretty big stake in this game – New York City Mayor Mike Bloomberg…
But Mayor Bloomberg said the banks and Wall Street are part of the bedrock of the city’s economy, and efforts to slash their business just means less tax revenue for the city, which brings up the dreaded “L” word.
“If that’s the case then we’ll have to lay off people because it will really hurt our industry,” Bloomberg said.
The mayor was so upset about the move — and a suggestion that Wall Street bonuses be put in escrow, which means the money wouldn’t be spent here, wouldn’t help the city economy — he responded with a proposal of his own for members of Congress.
“Maybe we should hold back their salaries for a decade or so and see whether the laws they pass work out,” Bloomberg said.
The mayor also demanded that the members of our congressional delegation go to the mat to protect the financial services industry, much like senators from Texas protect the oil industry.
Senator Charles Schumer said he will try to protect New York, but that some reforms are necessary.
“It’s a careful balance. You can’t say do nothing because we all know the banks made mistakes, but you can’t be so draconian that you cause job loss or make the institutions not function properly,” Schumer said.
“Maybe we should hold back their salaries for a decade or so and see whether the laws they pass work out.” – the best response I have heard to date for those who want to limit / withhold Wall Street bonuses…
Quite the precarious position that slimy Chuck Schumer finds himself in today as he begins his daily routine. The Supreme Court just reopened the door for corporate campaign contributions and the Senator from New York now has to choose between his state’s best interest and the wants and desires of his President. It will be interesting to see how that plays out. Another front that should be equally interesting to watch will be the role of Treasury Secretary Timothy Geithner. Remember this was not the “Geithner Rule” it was the “Volker Rule.” The President apparently has a new voice in his ear and it may be a sign of the beginning of the end for Treasury Secretary Timothy Geithner who has been the architect of President Obama’s economic policy to date. The truth is the voice isn’t new at all. Paul Volker – now the namesake of the proposed “Volker Rule” has apparently been trying to push the President in this direction for quite some time. He reportedly won the hearts and minds of the administration in Mid-December and began to draft a proposal to submit to Congress around Christmas. The timing of this announcement is anything but convenient. The President is clearly trying to tap into the booming populist fervor that reacts favorably to anyone tough on the “fat cats” of Wall Street. The original plan was likely to announce this shift in next week’s State of the Union Address, but in light of the thumping the administration just took in the state of Massachusetts, the announcement was simply too good to save for a later date. Anything, and I mean anything that could steal a few headlines away from Scott Brown have to be seen as a Heaven-sent for the White House this week.
So who is Paul Volker?
Remember on the campaign trail when McCain was making allusions to then canididate Obama’s sordid past relationships which got the response, “I associate economically with Warren Buffet and Paul Volcker.”
Still not helping? Okay, well he was the Chairman of the Federal Reserve from 1979-1987. He was then replaced by Alan Greenspan. Better?
So what does Geithner think about his diminished role and the new strategy of the President?
He also has concerns that the limits do not necessarily get at the heart of the problems and excesses that fueled the recent financial meltdown, the sources said.
The Treasury did not respond to requests for comment.
Also check out some brilliant commentary from The Business Insider who thinks Geithner was all but fired at the Press Conference yesterday…
Recall the opening words of Obama’s short speech:
Good morning, everybody. I just had a very productive meeting with two members of myEconomic Recovery Advisory Board: Paul Volcker, who is the former chair of the Federal Reserve Board, and Bill Donaldson, previously the head of the SEC. And I deeply appreciate the counsel of these two leaders and the board, that they’ve offered as we have dealt with a broad array of very difficult economic challenges.
Note the immediate shout-out to Paul Volcker and Bill Donaldson. Note the glaring omission of Tim Geithner and Larry Summers. What Obama was telling America was “I just had a meeting with two newadvisors, and, based on what they said, I’m launching a new policy.”
Note, too, that the new get-tough-on-Wall Street policy is explicitly called, “The Volcker Rule.” (That in itself is shocking. Volcker is just an advisor. Tim Geithner is Obama’s Treasury Secretary.)
Tim Geithner was at the press conference, way down the line — but, by some accounts, he spent most of it staring at his shoes. He is also said to disagree with the new policy (we have problems with it, too).
I still dont know him or care who he is. Who is Volker and how will he screw me?
Ha. Well for what its worth, Volker gets a lot of praise from both sides of the aisle. You know what they say about a friend to all, but he is an economist not a politician so perhaps it is at least a sign that he could be a step in the right direction. Anyone would be better than Geithner. If someone / anyone else can steal the President’s ear it would be an improvement.