Charlie Rose

REMant  06/19/2009 04:44 PM Report

I think it is clear now what is meant by "systemic risk." It is something that poses a risk to the Keynesian system and would jeopardize the Ponzi scheme which it is. The really peculiar thing being tho backing deregulation on the one hand and regulation on the other in the same way that they have been talking about stimulus on the one hand and inflation fighting on the other. The latter is termed by them "the paradox of thrift," and I suppose therefore that this one will have to be called "the paradox of regulation."

tartufe  06/19/2009 03:07 PM Report

Regulatory reform is best achieved by example. As in 'no egregious-greed should go unpunished.' No one of consequence is in jail yet. (Madoff's another unrelated story.)

Ironically, the most egregious decimators of the financial system are the politically 'untouchables' - the very venal whores that should be in the slammer. Paulson is my primary candidate in this category. He pulled the biggest heist in history to protect his ilk, his fraternity brothers to set the precedent for the Bush/Obama socialism our progeny will pay for. Geithner, Summers, Bernanke, Greenspan, (Bush of course) are close behind. All too clever-by-half and full of the entitlement syndrome. Celibate them all!

REMant  06/19/2009 01:13 PM Report

I read Stephen's column this morning (which can be found here: http://www.washingtonpost.com/wp-dyn/content/article/2009/06/18/AR2009061804087.html) and thoroughly agree with it. He finds several glaring shorcomings in the admin's plan, asks rightly why Wall St largely likes it, and why it seems to have been a seat-of-the-pants operation, the kind of thing Posner complained of last week, but he also concludes, I think rightly, that a lot of blame for this crisis accrues to execution, not regulation. As Pope proffered centuries ago: "For forms of govenment, let fools contest; Whatever is best administered is the best."

News reports say the admin pared down the initial proposal to meet legislative reality, but again Pearlstein asks what utility there was in that. There seems to be something else going on here, which has been hinted at in this conversation and elsehwere, and that is the differences, which have surfaced between Volcker's point of view and Summers' and Geithner's over financial deregulation.

Volcker's June 11 keynote address before the Institute of International Finance, an organization of bankers, in Beijing an excerpt of which was published on the op-ed page of the WSJ (http://online.wsj.com/article/SB124511733241717573.html) and the full text of which can be found on their website (http://www.iif.com/events/article+360.php) makes the case for renacting something like Glass-Steagall in order to re-separate deposit banks from hedge funds, investment banks, etc., for limiting the Fed's authority to bail-out the latter, and insurance cos like AIG, and for a sounder dollar. He believes deregulation has not accomplished the goal of providing more stability to mkts: "Powerful compensation practices and complex financial engineering have been introduced into our markets and institutions. Now it is evident that those changes have not protected us from a succession of bubbles and busts; rather they appear to have contributed to them." But otherwise he takes a mostly Austrian or classical line: "For the time being, government spending, debt financing and the volume of credit support may be a reasonable response to the sudden rise in personal savings in the United States and the needed deleveraging process. Both the renewed savings and private debt reductions are necessary and desirable structural adjustments for the longer term. However, depressing implications in the short-term have been unavoidable...All in all, the needed adjustment toward a better, more sustainable balance in domestic savings and investment, in international trade, and in capital flows will take time. Nowhere are those adjustments more necessary than in China and the United States. The two countries have been locked into widely divergent patterns of consumption and savings for too long, with the result of persistent and ultimately unsustainable imbalances in international payments...The challenge of restoring fiscal and monetary restraint will need to be front and center as the economy recovers. There is also growing discomfort whether the financial crisis and the spreading sense of 'too big to fail' may be leading to a degree of government intervention inconsistent with effective, competitive private markets. Put simply, the old concern about moral hazard looms even larger...One unfortunate consequence of the massive public assistance provided both banks and non-banks in dealing with the present crisis is that moral hazard may, I am afraid, become more deeply embedded. We can, and we should, take steps to limit the need and possibility of official 'bailouts.' One approach would be to set clear policy limits to access to the 'official safety net.' Deposit insurance and central bank liquidity facilities are properly confined to deposit taking institutions. It is, after all, those institutions that remain the backbone of the financial system. They provide basic essential services, meeting the needs of households, businesses, and other institutions for credit, for a safe and liquid repository for their funds, and for both everyday and complex payment services."

Volcker also raises the issue of monetary stability absent from this deabate so far: "I do want to briefly draw your attention to another area of potential reform that, to my mind, has been too long neglected. Specifically, there is an obvious question, but one seldom raised, about the international monetary system (or as some would put it the absence of a 'system'). The theoretical premise that a system of floating exchange rates would promote swift and efficient adjustment has not been borne out in practice. In particular circumstances, within continental Europe, in many developing countries, in China, freely floating exchange rates have been deemed unworkable or undesirable. Quixotically, the international role of the dollar has increased, not decreased, even as the relative economic strength of the United States has diminished.' Both side tho agree with another of Volcker's points, that financial regulation has to be consistent worldwide.

Summers' and Geithner's plan, the principles of which appeared in the Washington Post Sunday (http://www.washingtonpost.com/wp-dyn/content/article/2009/06/14/AR2009061402443.html) makes the case for leaving the deregulated structure and extending the authority of the Fed to deal with it from the viewpoint of "systemic risk," while they do correctly identify the causes of the crisis, and also ask for higher reserves, and greater authority to resolve issues without having to use bail-outs. Under Volcker's plan it should be observed all those investment banks, which have recently become ordinary banks, would now fall under banking supervision. I see no point to deregulation, because I see no reason for investment banks and hedge funds in the first place, and I am left wondering why, at this juncture, Summers is still pushing it. The only conclusion I can come to is that it is of a piece with his Keynesianism, which jibes much too nicely with Greenspan's monetarism, and I would be loath to see him taking Bernanke's place in half a year. Congress, even the Democrats, to my delight, seems this time to get the message. Bernanke opposes the admin plan's creation of a new consumer watchdog stripping the Fed of some of its power, but this seems to me to be only a sweetener for a bill that otherwise gives away the farm.