Paul Krugman Retracts a Key Part of Last Friday’s ‘Sanders Over the Edge’ Op-ed: That Sanders, rather than the New York Daily News editorial board members, don’t know what Dodd-Frank authorizes the federal government to do concerning ‘systemically important’ (a.k.a., too-big-to-fail) financial institutions. Good for him.
Which brings us to Snoopy, who has, for reasons I don’t fully understand, long been the emblem of the insurance giant MetLife.
“At the end of 2014 the regulators designated MetLife, whose business extends far beyond individual life insurance, a systemically important financial institution. Other firms faced with this designation have tried to get out by changing their business models. For example, General Electric, which had become more about finance than about manufacturing, has sold off much of its finance business. But MetLife went to court. And it has won a favorable ruling from Rosemary Collyer, a Federal District Court judge.
It was a peculiar ruling. Judge Collyer repeatedly complained that the regulators had failed to do a costbenefit analysis, which the law doesn’t say they should do, and for good reason. Financial crises are, after all, rare but drastic events; it’s unreasonable to expect regulators to game out in advance just how likely the next crisis is, or how it might play out, before imposing prudential standards. To demand that officials quantify the unquantifiable would, in effect, establish a strong presumption against any kind of protective measures.
Of course, that’s what financial firms want. Conservatives like to pretend that the “systemically important” designation is actually a privilege, a guarantee that firms will be bailed out. Back in 2012 Mitt Romney described this part of reform as “a kiss that’s been given to New York banks” (they never miss an opportunity to sneer at this city, do they?), an “enormous boon for them.” Strange to say, however, firms are doing all they can to dodge this “boon” — and MetLife’s stock rose sharply when the ruling came down.
The federal government will appeal the MetLife ruling, but even if it wins the ruling may open the floodgates to a wave of challenges to financial reform. And that’s the sense in which Snoopy may be setting us up for future disaster.
It doesn’t have to happen. As with so much else, this year’s election is crucial. A Democrat in the White House would enforce the spirit as well as the letter of reform — and would also appoint judges sympathetic to that endeavor. A Republican, any Republican, would make every effort to undermine reform, even if he didn’t manage an explicit repeal.
Just to be clear, I’m not saying that the 2010 financial reform was enough. The next crisis might come even if it remains intact. But the odds of crisis will be a lot higher if it falls apart.
— Snoopy the Destroyer, Paul Krugman, New York Times, today
I posted here twice in the last few days about the stunningly bungled political commentary about the New York Daily News editorial board interview of Sanders, a transcript of which that paper released last Tuesday. The second of my two posts was titled:
Why did Paul Krugman and the Washington Post editorial board—both of whom know better—misrepresent that it was Sanders rather than the New York Daily News editorial board that was wrong about what Dodd-Frank provides, and about whether it would be Treasury or instead the financial institutions themselves that would determine the method of paring down?
In today’s op-ed Krugman has retracted that allegation against Sanders in his op-ed from last Friday. But what prompted the retraction—and especially the timing of it—is itself important: The federal judge’s opinion in the MetLife case was issued on March 30, the news reports about it were published mostly on March 31, and the New York Times published a critical editorial on it on Apr. 4, the day of the New York Daily News editorial board’s interview of Sanders.
A significant part of the media-criticism frenzy of Sanders for saying that he was unsure about the extent to which Dodd-Frank authorizes the federal government to determine that a financial institution is systemically so important because of its size that it must be pared down concerned questions about that opinion, by that one federal judge, issued less than a week earlier and containing some strange and unexpected—and inaccurate—statements about the relevant part of that statute.
Apparently on the ground that Sanders by then should have read the opinion and discussed it in detail with legal and finance-industry experts, the New York Daily News editorial board and most of the mainstream political analysts and pundits who opted to weigh in on it did so with the verdict that Sanders does not know much about this signature issue of his. Or maybe it was just on the ground that no politician should ever, regardless of the circumstances, say he or she does not know something, does not know enough yet about a new development or about an obscure fact, point or event, or hasn’t thought through something in particular—or maybe everything in particular—and that any politician is, according to the prevalent assembly-line political-journalist guidelines, is toast.
And Hillary Clinton, who at a televised debate two months earlier had said the very opposite of what the New York Daily News editorial board and its journalist parrots were saying about that exchange between the editorial board and Sanders, and emphasized that she had made the same point earlier in the campaign—specifically, about Dodd-Frank, what it authorizes, and how clear those provisions and their breadth are—herself parroted that take. With no indication of irony.
The first of my two posts on that interview and its aftermath was titled:
Clinton admits she failed to do her homework, and therefore misunderstood, when she stated at the February debate that Dodd-Frank already authorizes the Treasury Dept. to force too-big-to-fail banks to pare down and that therefore no further legislation authorizing it is necessary. That’s quite an admission by her, and the New York Daily News editorial board (and the Washington Post’s Chris Cillizza) should take note.
This will be my last post on that editorial board interview and the punditry’s reaction to it. Gratefully.
CORRECTION: The second-last paragraph in the excerpt from Krugman’s column that opens this post somehow ended up with a really big cut-and-paste error in it as I posted it there. Someone I don’t know emailed me and told me about the error. I’m very grateful. Apologies to Paul Krugman. I didn’t do that on purpose. Although next time he writes something nasty about Bernie, I might.
Added 4/11 at 8:41 p.m.