Jeb Bush discovers a hypothetical he’s willing to address—and assures us that he, unlike Obama, would have ensured a second Great Depression. Jeb for President!
Questioned by a voter inside a sports bar about whether there is “space” between himself and his older brother on any issues, Bush offered a clear critique.
“Are there differences? Yeah, I mean, sure,” Bush said. “I think that in Washington during my brother’s time, Republicans spent too much money. I think he could have used the veto power — he didn’t have line-item veto power, but he could have brought budget discipline to Washington, D.C. That seems kind of quaint right now given the fact that after he left, budget deficits and spending just like lit up astronomically. But having constraints on spending across the board during his time would have been a good thing.”
— Jeb Bush: George W. spent too much money, Eli Stokols, Politico, yesterday
Okay, so Bush has now found a hypothetical that he wants to discuss. Two hypotheticals, actually: (1) what his fiscal policies would have been between Jan. 2001 and Jan. 2009; and (2) what his fiscal policies would have been between Jan. 2009 and, oh—at what point did the federal budget deficit decline dramatically? 2013? And … what is the deficit now, as compared with the Bush years? And what role did the Bush tax cuts play in that?
But really, since these are to separate hypotheticals, we—well, the people who actually can ask and maybe get an answer (i.e., the news media; Hillary Clinton)—should ask two sets of questions.
First, we (they) should ask what spending, specifically, Jeb Bush would not have authorized during his brother’s presidency that his brother authorized. The military spending for the wars in Afghanistan and Iraq? The massive spending on increased security after 9/11? The Medicare Part D prescription-drug law? The frantic stopgap finance-industry bailout that George Bush’s Treasury secretary, Henry Paulson, put together in the fall of 2008 in order to try to fend off a near-complete collapse of the banking system?
Or maybe the initial part of the auto-industry bailout, without which George Bush said the unemployment rate would have jumped to about 20%?
So, would Jeb Bush—knowing then what we know now, about the near-collapse of the banking system, and of the economy, late in his brother’s presidency, and the fact that the Iraq war went on and on and on—have supported his brother’s two massive tax cuts, mostly for the wealthy, during his first term?
Just askin’. Although I’d bet that’s a hypothetical that he’d take even longer to answer than the five days it took him to answer the infamous Iraq one. Maybe even as long as 18 months.
Then, of course, there’s that second hypothetical that Bush answered yesterday—the one in which he said the budget deficits at the end of his brother’s term seem “kind of quaint right now given the fact that after he left, budget deficits and spending just like lit up astronomically,” indicating that he (Jeb) thinks Obama, in the face of the collapsing economy and banking system, should have … what, exactly?
Cut funding for unemployment compensation, or capped it at its 2007 level? Refused to allow extensions of it? Cut funding for food stamp access, or capped it at its 2007 level?
Ended the financial industry bailout begun under his brother?
Let Detroit go bankrupt? (That wasn’t such a winning tack for Mitt Romney. But, I mean, ya never know. …)
Ah. Maybe he means the stimulus bill, which provided funding for job training and college for hundreds of thousands of people, especially in states hardest hit by the collapse of the economy. States like Michigan, Ohio, Nevada, Florida. And the direct spending from that bill, on infrastructure projects and such. Y’know, the stuff that virtually all mainstream economists now say helped keep the unemployment rate from reaching Great Depression levels and helped start the recovery.
It’s not surprising, I suppose, that the political media played up Bush’s comments yesterday–at least in headlines and soundbites if not in the actual reportage itself by reporters who wrote full articles about the comments (see, e.g. the quote at the opening of this post, and the title given the article)–as Bush Brother v. Bush Brother. Because of course it’s the family saga, not the specifics of the policies, that matter, right?*
And some mainstream political reporters, including a couple of them from Politico, where (unrelatedly) the above quotes were originally published, couldn’t analyze their way out of a paper bag. And Clinton herself pretty clearly has settled on a campaign of mindless clichés, Republican soundbites about federal regulation, and cutesy gimmicks. Does she really not understand that most small business red tape has nothing at all to do with federal regulations? Or does she just think that most people don’t know the difference between private-bank business-loan operations and federal regulation, and between state and local business regulations—a.k.a., red tape—and federal regulations? And that no one will ask her what regulations, exactly, she thinks are holding back small-business owners and aspiring small-business owners?
On that last point, she may be right, since she has almost no direct contact with the press and no contact at all with everyday Americans who haven’t been prescreened as props.
So maybe Bernie Sanders or Martin O’Malley—or Elizabeth Warren—will question the specifics of Jeb Bush’s answers to those hypotheticals. And the specifics of Clinton’s claim that federal regulations are hindering small business. Like, which federal regulations, specifically? And maybe, at least regarding Bush’s, a Dem SuperPAC that is not coordinating with Clinton and her silly campaign, will run web ads or TV ads eventually that do that.
And maybe Sanders, O’Malley, Warren, or a progressive Democratic SuperPAC will point out that the biggest hindrance to small business loan availability, by far, is not federal regulation, or even state or local regulation, but instead federal deregulation—of the banking system. Specifically, the disastrous repeal of the Glass-Steagall Act. And mention the incessant Republican push to repeal the Dodd-Frank bank-regulation law, and their fight against instituting the Volker Rule.
Clinton is right that “[t]oo many regulatory and licensing requirements are uneven and uncertain” and that “[i]t should not take longer to start a business in the U.S. than it does in Canada, Korea, or France.” But small-business regulation is mostly, and licensing is entirely, state and local, not federal. So maybe she’ll get around to pointing that out and detailing what she, as president, would propose as a national fix. In any event she should not further the Republican misrepresentation that small-business regulation and licensing is done by the federal government. With the exception of federal tax laws, including FICA tax laws, and environmental laws and worker-safety laws, “cutting the red tape that holds back small businesses and entrepreneurs” means tackling state and local, not federal, red tape.
As for my earlier dismay at Clinton’s senior policy adviser Jake Sullivan’s Fox News-ish claim that Democrats support obstacles for small businesses, and are against small businesses having easy access to loans—we don’t want them to compete with Walmart, see—I now get it. Sadly. Blame imagined Democratic anti-small-business sentiment, and big federal gummint, rather than the deregulated banking industry, for the labyrinthine high-hurdle event that is the small-business loan situation now.
Clinton speaks of her father’s success in opening and running a very profitable small business. His business loans, though, weren’t from banks competing for profits with multinational hedge funds masquerading as JPMorgan Chase Bank, Citibank and Bank of America.
But, as for Jeb Bush, at least he’s honest. He’s told us now that had he, instead of Obama, been president in the aftermath of his brother’s presidency, he’d have ensured a complete collapse of the economy. Vote for Jeb!
We need a translator of “Jebish”. Or “Jebrubish”. I suggest we search for someone like those slender asian girls who can tie themselves in knots, but have the ability to untie verbal knots.
Dilbert
except for this: in fact “most people don’t know the difference between private-bank business-loan operations and federal regulation, and between state and local business regulations—a.k.a., red tape—and federal regulations? ”
I actually agree with Beverly whole heartedly in this post, but she is still up against the central fact of American politics: the people don’t know. And it doesn’t seem to help to try to tell them.
Jeb can pretend the deficit is still the huge big nasty terrible problem, and only cutting federal government can save us…. and get about 80% of the people to agree with him. … even those who won’t vote for him for other reasons.
he doesn’t have to mean it, or plan to do anything about it…. except for cutting Social Security. but hell, Obama wanted to do that.
Cob,
Did you ever wonder why Obama’s plan to cut Social Security was not included in the debt ceiling deal?
EMichael
I guess I haven’t been following it that closely. Can you explain to me in a few words?
I don’t know what to say other than, good post. I’m starting to see this as a less intelligent version of George Bush vs. a less charismatic version of Al Gore – at least in the roles they are playing.
You had me until this:
“Bush, of course, has been trashing Obama for pulling the military out of Iraq. But keeping the military there indefinitely would be expensive.”
IIRC, keeping the military there indefinitely wasn’t an option. Obama inherited Bush’s withdrawal schedule, which was the result of a failure to reach a SOF agreement with the Iraqi gov’t. So “expensive” both in money and in political terms, since the Iraqi gov’t wanted us out.
Make no mistake, I’m glad we’re out (we never should have gone in). But the attack on Obama for the timetable is phony, as I understand it.
“. . . the biggest hindrance to small business loan availability, by far, is not federal regulation, or even state or local regulation, but instead federal deregulation—of the banking system. . . .”
I doubt that regulation or deregulation has much of anything to do with loan availability. The problem is that lenders don’t see much opportunity for their loans to pay off as long as aggregate demand is so low. That’s why all the Democratic effort to make something of inequality should be about incomes that are lower than they should be — actually about 25% lower than they should be based on post-war experience before Republican philosophies of economics became so dominant. Without adequate incomes for the people who actually spend it in the U.S. (versus those who ether sock it away in fancy investments or foreign banks, or spend it in the South of France), there is inadequate demnd for the goods and services of American businesses. Anything that raises wages for the mass of Americans is good. That includes higher minimum wages that push other wages higher from the bottom and full employment policies (like catching up on our massive infrastructure deficit, which is the deficit that matters right now) that make businesses compete for employees with higher wages. Because we Democrats want wages for ordinary Americans to be higher so you can buy more goods and services from American businesses, that’s why the Democratic Party is the party of business. Because Republicans oppose efforts to repair the incomes of ordinary Americans, Republicans are actually anti-business. (At best they look out for the huge multi-nationals that use their unjustified tax breaks to steal business from small businesses.)
Democrats need to understand that you need to have a story. Merely re-stating positions considered to be popular with no story explaining why they are good for the country as a whole and helping to convince voters that Democrats will actually enact such programs is what Democrats have been doing for too long — and losing elections that count more oftern tan not.
Cob, cliff notes version.
In negotiations, the key is finding out exactly how much the other side wants something. To do that, you offer them that something (Chained CPI, ie.) but only if they will give you something(increased taxes on the top income earners, i.e). But if the other side refuses to even consider their concession, then your concession is off the table.
This played out clearly in the last couple of years(like the debt ceiling deal), where despite being willing to take the US to the brink, the Reps could not get Obama to actually agree to cut SS.
Now, personally I believe that the suggestion by a Dem for such a cut(even without any real intent) is a pr clusterf!ck. But them again, pr never has anything to do with how congress votes.
EMichael
not completely sure I understand what you are saying here.
SS has nothing to do with the deficit (so far. the left, oddly, is working on changing that.)
cutting benefits (even via chained CPI) does nothing for anyone and hurts the poor elderly for no good reason, except the pleasure the Republicans get out of hurting people. For Obama to even offer that makes him an idiot or a criminal in my eyes.
the only reason that even semi-sane Republicans want to cut benefits (cpi) would be to reduce their taxes (which they wouldn’t because SS pays for itself… that is the workers pay for their own retirement, even if most people don’t understand that, neither the ones who say “i paid for it myself [they did, but they don’t understand it] or the ones who think that somehow it is a “tax” or “a tax on the young” which is something you say if you are stupid (and young)).
if Obama wants to offer them something for raising their taxes he could offer them “a balanced budget” or “a better economy” (not necessarily the same thing.
but what we have in politics is “my side” vs “your side” and not two cents worth of understanding between them.
urban
i pretty much entirely agree with you. but two points:
it’s not only the lack of spending by the workers, and therefore the lack of business investment, but also the banks stopped lending because they became afraid of each other… the instability caused by their own fraudulent business model.
the democrats are in bed with the big banks, and the huge multi-nationals, just like the republicans.
the “progressives” have entirely abandoned the idea of more jobs at better pay. they see “tax the rich” and “welfare for all seasons” as the answer to everything. this makes the Republicans smile. Even rather poor workers don’t like taxes and welfare, so they “vote against their own interests.
This would have made me suspect that the progressives were actually working for the conservatives, but i have seen enough evidence that they are simply as stupid as the conservatives. Sorry for the taboo word “stupid,” but i can’t think of a better word for it.
“not completely sure I understand what you are saying here. ”
Well, you got that part right.
EMichael
still not sure. did i get the part about SS right. or did i get the part about not understanding right?
i am as pig headed as the next guy. but I am sure about SS. and sure that next to no one understands it.
otherwise i am a rather modest person easily impressed by the other guy’s ideas.
unless they are the sort of people who read three words out of a paragraph and apply that to their own theory of everything, get what i said completely backwards and decide they have been insulted and throw their used bananas at me.
OK, let met try one last time.
You said, “except for cutting Social Security. but hell, Obama wanted to do that.”
I believed I showed you that his intention was to do no such thing, as evidenced by the fact(s), that in the budget deals where many concessions were made to the Reps(and some to the Dems), no cuts to social security happened.
Urban, banks of course look at the overall economy in the business’s locale before agreeing to a loan, so level of expected demand matters a lot. But most businesses that most people consider small, and certainly mom-and-pop-type businesses like restaurants, use smaller regional or even local banks to get loans. The federal bailout and, especially, the extremely low fed interest rates have, as I understand it, had the effect, along with the profits from their continued proprietary hedge fund operations and from their investment banking operations, of harming the competitive abilities of the small, regular banks. The small and regional banks have been disappearing, many of them swallowed up by the conglomerates, in the last two decades, and there is, I believe, a relationship between the repeal of Glass-Steagall and the demise of local and regional banking. In any event, it’s apparently far harder for a small business—an ongoing one or a startup—to get a loan from any mega-bank than it was from traditional local or regional banks.
This is definitely not my area of expertise—to say the least—but that’s what I understand from various things I’ve read.
But coberly’s flatly wrong to say that “the Democrats” are in bed with the big banks just like the Republicans are. Some Democrats are; many, including three on the Senate Banking Committee—Warren, Sherrod Brown, and Merkley—clearly are not.
EMichael
yes. and I said he had no business even offering it. i can’t know what his “intention” was. THEY didn’t take him up on the offer because there was no advantage to them in it. the pleasure of hurting the poor was not enough to outweigh the pain of any tax increase.
i don’t see where you clearly demonstrated anything to the contrary.
try not to read this as “disagreeing” with you. but do look carefully and see if one or both of us is missing something.
Beverly
three exceptions does not amount to “flatly wrong.” Where do the dems get their campaign funds from? how do they vote?
furthermore, i have seen, with my own eyes, instances where politicians vote against something to stay in good with their constituents, but only if they know the measure will otherwise pass without their vote. so you can’t even be sure about the “good” guys, in spite of their rhetoric.
and banking is no more my “thing” than it is yours, but i wish your first paragraph had been a little easier to understand.
you say the moms and pops borrow from the mom and pop banks, but then you go on to say the mom and pop banks can’t compete and are swallowed up etc.
some of the confusion may have something to do with my uncertainty about who “their” refers to in “profits from their…operations… harming…the small banks. no doubt you mean “the big banks” when you say “their”, but my tenth grade writing teacher would have said “dangling pronoun” or some such. and i wasn’t trying to be cute about this. i really did have trouble understanding the sentence.
oddly, i think you were agreeing with me about the banks… before you disagreed with me about the democrats.
speaking of whom… who among the democrats have you talked to or heard from who wants to know the truth about SS. i don’t count Sanders who thinks that “tax the rich” is the right answer to SS. and before the big “expand SS” operation got under way NO democrat I tried to talk to was interested in just a few plain facts.
no doubt “defending SS” is good politics for them, even if it’s with a strategy they know can’t win.
In your recent posts where you’ve written on this subject (in addition to this one), it’s not clear why you believe that there exists a connection between the wariness of mega-banks to make loans to small businesses as impacting small banks from making the same loans.
The small and regional banks have been disappearing, many of them swallowed up by the conglomerates, in the last two decades,
Absolutely correct. We’ve gone from about 12,000 banks in the U.S., to about 6,000. For reference, Canada has about 30.
It’s apparently far harder for a small business. . .to get a loan from any mega-bank than it was from traditional local or regional banks.
It should be, considering regulation explicitly forces larger banks to hold more capital on their balance sheet than small banks. Dodd-Frank holds banks to more than $50 billion of assets to hold higher capital cushions, and it scales as balance sheets get bigger. Thus to make the same Return on Equity (an important measure of bank profitability), a large bank must lend at a higher rate and/or lower expected credit loss than a small bank. And banks near the $50 billion threshhold are taking measures to remain or get below that demarcation.
a relationship between the repeal of Glass-Steagall and the demise of local and regional banking.
Correlation/causation? Glass-Steagall is a convenient talking point, but there were only a few U.S. banks that wouldn’t have been compliant in a Glass-Steagall regime when the crisis hit, specifically Citigroup and JP Morgan, and one could reasonably argue Wells Fargo. Bank of America bought Merrill Lynch in the midst of the crisis which would make it non-compliant now. As for the other super-regional banks, like US Bancorp, PNC, Fifth Third, SunTrust, KeyBanc, etc. – none of them had/have significant investment banking operations. Other than Merrill Lynch, the other large firms that went or nearly went under as a result of the crisis – Bear Stearns, Lehman, New Century, Countrywide, Goldman Sachs, AIG, Washington Mutual would have all been in compliance with Glass-Steagall.
m.jed
if they want to stay under 50B, why buy up the small banks?
does return on equity mean stockholder equity or does it count deposits as equity?
and in either case.. if you make a 10% ROE on 50B, how are you hurt by making an additional 5% ROE on an additional 10B?
is there a connection between meag bank wariness and interest rates and general worry about the economy (ability of lender to repay) and the little bank’s wariness?
that is, the banking house of cards collapsed, leading to their inability or unwillingness to lend, leading to a general collapse of the economy, leading to small banks inability or unwillingness to lend…?
coberly,
the banks that are already over $50 bn are acquiring the smaller banks.
Return on Equity is indeed shareholders’ equity. On a bank balance sheet, deposits are liabilities.
Making 5% return on equity, while positive from the perspective is that the bank’s income is higher, these returns are below the firm’s cost of capital. So while positive from an accounting perspective are negative from an economic perspective (economic cost of capital).
I wouldn’t imagine that large banks or small banks have wildly different views on potential credit losses or macro/regional economic strength/weakness.
The daisy chain you cite is well in the rear-view mirror at this point. Credit losses at a personal, small commercial, and large commercial level have been at business-cycle lows for several years now.
M.Jed, as I understand it, Glass-Steagall would have barred banks from engaging in derivatives trading (by far most significantly, the packaging and selling and buying of mortgage-backed securities—the financial devices that caused the real estate bubble and that crashed the economy and that would have crashed the banking system had the federal government not intervened).
National City Bank was absolutely huge in Michigan—you were never more than a few miles from a branch—until it collapsed in 2009 because of huge numbers of bad mortgages and (I think) mortgage-backed securities and was acquired by PNC, which was one of the regional banks (it was regional, in Pennsylvania and, I think, Ohio, but had had no presence beyond that, I believe) that had not engaged in reckless mortgage-related practices.
That is what I had in mind by mentioning Glass-Steagall. Virtually all the banks that collapsed or would have collapsed but for the bailout had been engaged in extensive proprietary mortgage-backed securities trading, I believe.
Your understanding is wrong. The mortgage-backed security was created in the 70s, they’re not derivatives, and there’s nothing that was in Glass-Steagall that prevented securitzation of loans. There was nothing in Glass-Steagall either by letter or spirit that prevented secondary sales of loans, and securitization is just a not-so fancy way of repackaging the waterfall of cash flows and re-selling them to investors with different needs regarding timing, certainty, or expected yield on their investments.
NatCity was also compliant under Glass-Steagall. They were in a business model described as “originate to securitize” which turned out to be a sophisticated game of musical chairs and they were left without a chair when the music stopped. They didn’t have the balance sheet or market/counterparty confidence to keep all the loans they were making and thus needed the securitization market to remain open to finance their pipeline of loans (there’s a lag to the pipeline, so once you lose your financing, you’re still on the hook to loans that you’ve committed to).
m.jed:
There was something in Glass Steagall preventing depository banks from directly investing on Wall Street. Lets see if you can guess what it was and who started to change it. You did this the last time also.
M.Jed, I certainly know that Glass-Steagall did not prohibit secondary sales of loans by and to banks. Straight secondary sales of loans are, well, just straight sales of single loans, and single loans could be sold in a package together with other single loans. Sure. But that practice was effectively replaced by the mixing of huge numbers of loans for piecemeal securitization—derivatives, right? How could banks buy and sell those securitized composite loans and still have been in compliance with Glass-Steagall?
But that raises a separate, if related, issue: That as derivatives became a huge player in financial industry transactions—including FDIC-insured banks—there was a strong push to regulate them. That push, of course, was unsuccessful, thanks to Wall Street’s influence with the Clinton administration.
A derivative is an instrument who’s value depends on the fluctuation of the value of an underlying reference security, but has no rights to the cash flows of the reference security itself. Securitized loans are not derivatives. But there were derivatives tied to securitized loans.
To the extent that derivatives have greater trading liquidity (loosely defined as the ability to transact with out impacting the price of the security) banks could theoretically hedge their asset portfolio – either securitized or whole loan – with the derivative securities, and as long as they were rated investment grade still would have been in compliance with Glass-Steagall. To my knowledge most banks weren’t/aren’t doing this and during the crisis couldn’t because there was no trading liquidity in related derivatives and the cost of transacting basically whittles away the expected profit, either of holding a loan in portfolio or originating for a fee with the intent of later securitizing.
M.Jed
thanks for your reply to me. it might take more patience than you have to explain it to me.
I wasn’t aware that the mega banks had such incredible hurdles placed in front of their doing business, nor that they received no subsidies whatsoever due to their size and threat the the US economy.
I’m still not.
Thanks for that explanation of derivatives, M.Jed. I didn’t fully understand it, but realized that back when derivatives were so much in the news, circa 2009-11, I did know that they were bets that were separate from buying or selling the underlying security itself.
I just googled “derivatives” for an explanation that I could understand now that would refresh my memory, and found one: a short Reuters blog post by Felix Salmon, from June 1, 2009, titled “Securities are not derivatives,” at http://blogs.reuters.com/felix-salmon/2009/06/01/securities-are-not-derivatives/.
It reads:
“The WSJ makes a good catch: the SEC — the agency charged with regulating securities but not derivatives — refers to securities as derivatives three times in a press release which came out last Thursday. This is typical:
“Rosalind R. Tyson, Director of the SEC’s Los Angeles Regional Office, added, ‘These brokers took customers primarily interested in protecting their money and pushed them into risky derivative investments through blatant misrepresentations.’
“’No, they were not derivatives, they were mortgage-backed securities, as the official complaint — which never uses the word ‘derivatives’ explains.’
“When I’ve made this point in the past, invariably people have popped up in the comments saying that these securities can indeed be considered derivatives, for some recondite etymological reason. But really the line between securities and derivatives is quite easy to understand: derivatives are a zero-sum game, while if a security goes to zero, no one else makes a concomitant profit.
“I do wonder, though, whether a lot of the animus aimed at derivatives comes from people who are using such a broad definition of the term that it encompasses mortgage-backed securities and other non-derivative instruments. Certainly it would be helpful if stories like this one were assiduous in defining their terms — I’m pretty sure it’s referring only to real derivatives and not to securitizations, but that’s a distinction which is evidently worth making explicitly. And it’s certainly a distinction which the SEC, of all agencies, should be hyper-aware of.”
So derivatives are direct bets against another party. Like horseracing bets. Someone wins, others lose, and that’s true no matter the outcome of the race.
But I believe that my main premise, about composite mortgage securities sold and bought by banks, and the relationship between them and the repeal of Glass-Steagall, is correct. Run is right about Glass-Steagall.
Bev:
No shit I am right. Read about CDS and naked CDS next which are bets and counter bets as GS did so they would never lose. When GS called in the CDS is when AIG took a dive. Nice of them, heh? and we paid for it handsomely and GS also. Section 20 of GS kept the depository banks from investing gross profits on WS. When the troll became Fed Chairman, he gradually opened it reaching as high as 20% before GS was repealed and the National Banking was changed to allow Citibank and Travelers to consolidate.
Since CDS and naked CDS were unregulated thanks to the troll Greenspan, Rubin, Levitt, Geithner, Summers, Senator Graham and wife, etc. blocking the CFTC and Brooksley Born from regulating them after the LTCM debacle, there were no reserves in place to back them up, and it was a fricking free-for-all with WS execs pulling their bonuses out before money was reserved.
You’re not aware that the mega banks had such incredible hurdles placed in front of their doing business, nor that they received no subsidies whatsoever due to their size and threat the US economy, EMichael?
THAT’ll teach ya to keep not watching Fox News and CNBC!
Bev, there are now three things certain in my life.
Death
Taxes
Not watching Fox News and CNBC.
Beverly
thanks to you and MJed for clarifying the distinction between derivatives and motgage backed securities.
But I believe you may be in danger of losing track of the real point: what people are complaining about is being led to “invest” in very risky, if not worse, products without having them honestly explained to them. The mortgage backed securities were not “backed” by mortgages with a reasonable chance of being paid..
so the “security” was essentially worthless, as it turned out.
EMichael
“one last time.”
i can understand getting impatient with persistent stupidity. but unless you are content with making your points only to those who already agree with you, you might put some effort into clarifying exactly what your point is.
as best i can tell you are arguing that because the “deal” was not made, it was not offered. perhaps in the minds of “masters of the deal” that could be true…. but it’s not very convincing in the absence of any supporting evidence or argument.
for example, why offer to cut SS benefits, suppose they had said, “okay, cut benefits and we’ll take a 10% tax increase.” deal?
and what would the elderly get out of that deal? and what do the R’s get out of not making that deal?
if it’s just a game of “i’ll hurt my constituents if you hurt yours”… well, that might explain the mind of the politician, but it’s an insane way to decide policy.
there is some risk that i am doing exactly what i think you are doing : talking to myself, and since i have come to believe that solipsism is the default logic of the blogger, i have no basis to claim exemption.
still: SS does not cost the R’s anything, so what do they get out of cutting benefits? nothing, except the illusion of “cutting the deficit.”
and politically they would lose an issue that promises to continue to work very well for them. thanks to our Progressive friends who want to force the R’s to pay for it and make their illusion reality.
Cob,
Sorry that my explanation was not up to the task of convincing you.
However, your comments regarding the R’s and SS totally ignores the fact that, despite the fact that “SS does not cost the R’s anything”, every single Rep candidate has made SS reform a large part of his platform; that it is one of main planks of the Republican platform; and the last Rep President actually tried to start a reform.
EMichael
its not a question of being up to my standards. it’s a question of understanding your point. or you understanding mine.
i think i know about the R’s wanting to “reform” SS. trouble is, they don’t want to reform it, they want to kill it. and their “reform” is based entirely on lies about it. for the Democrat president to “bargain” on that basis is criminal stupidity.
EMichael, The fact that you describe the Republican Party’s attack on SS without pointing out the totally bogus nature of their so called need for reform implies that you agree with the use of their terms. Reform of SS is a red herring. It’s a lie. It is based upon deceitful descriptions of the entire funding process of the SS program. Where do you stand? Do you believe the bullshit put forth by too many of the political class and the stink tank industry? If so, read the details of the program on the SS web site. You need not take Coberly’s word for any analysis of the scam. Your money goes in, FICA. And when you’re old enough to retire you’ll receive a monthly payment back. What’s so hard to understand?
EMichael
i am trying to understand your point: guessing that you are saying that Obama’s offer was a master stroke of bargaining. by offering the R’s part of what they wanted…. actually much less than the “defenders of Social Security” have said they’d be willing to give up (if they understood what they are saying)… and showing that the R’s aren’t willing to “give up” anything (pay more taxes) for it, he (Obama) was able to get SS “reform” off the table.
could be. but the way it sounded to my ear was more like
suppose you lived in a “christian” town in Iraq and the Isis attacked and said they were going to kill everyone. The Americans come and defend the town, but the President decides to try to negotiate a peace: He tells Isis that he will let them kill all the old people if they will pay the United States one million dollars.
To which the Isis says, “hell no.” (saying to themselves… if we wait a bit we can beat the Americans and kill all the unbelievers, and keep the money.)
Me, as one of the people in the town, is outraged… who is this “president” that he offers to let them kill our people if they will give him money?
Beverly,
If your main premise is that more trading activity occurred in the securitized market leading into the crisis than prior, then I agree. If you’re claiming that’s coincident with the aftermath of the repeal of Glass-Steagall then I agree. If you’re claiming that the repeal of Glass-Steagall was the primary cause of increased securitized market activity among depository institutions that would have still been compliant in a Glass-Steagall regime, then I disagree.
As for CDS, as I alluded to earlier, neither Goldman, Morgan Stanley, nor AIG were depository banks prior to the crisis. Among the large U.S. depository banks, only Citi had a significant presence in the CDS market.
Brookings just came out with the first of a 4 part report on the subject of bank consolidation in the post-crisis period relevant to Beverly’s assertions:
http://www.brookings.edu/research/papers/2015/05/26-big-four-banks-mergers-asset-share-baily
from the report:
“This first report is meant to be a factual exploration of the balance sheets of the four largest banks [Bank of America, Citigroup, JP Morgan and Wells Fargo].”
“Figure 1 shows the shares of the total banking sector assets held by the Big Four with the assets of Goldman Sachs and Morgan Stanley excluded from the total (i.e. when the red bars are included). The share of total assets held by the Big Four rises strongly through 2008 and then decreases slightly after that, particularly after 2010, the year that Dodd-Frank was passed. The Big Four’s share dropped from 52.5% in 2008 to 51.2% in 2014. Surprisingly, the mergers and acquisitions entered into at the time of the crisis have not resulted in as much concentration of banking sector assets among the Big Four as might have been expected.”
“In addition to the lower rate at which their assets have grown since 2008, there are several notable changes within the composition of assets. It is apparent that trading assets constitute a smaller share of total assets while holdings of interest-bearing deposits have increased. Notable as well is the decrease in the share of total loans and leases, which have gone down from comprising approximately 45% of total assets in 2008 to 39% in 2014.”
“Second, the sweep of new rules and regulations authorized under the Dodd-Frank Act make it more costly – in terms of capital and liquidity requirements – for banks to hold assets. In addition to increasing the costliness of holding riskier and illiquid assets, this also increases the costliness of holding any assets, particularly high quality assets where there is already little margin to be made. The downsized trading operations and lower relative holdings of loans partially reflect bank efforts to manage the costs of these new regulations. Perhaps most importantly, new liquidity requirements strongly incentivize banks to hold larger quantities of liquid securities.”
“The data also show major changes in these banks’ return on assets (ROA), which is a measure of profitability. (Note that unlike the earlier calculations, ROA includes the effects of all expenses.) Figure 11 shows that in the pre-crisis years returns consistently exceeded 1.5%, above historical averages. And while in 2007, as one would expect, returns drop substantially, by over 2 percentage points, since the crisis the Big Four have seen their performance improving, though by 2014 returns were still below pre-crisis levels. [note that ROE, as I referred to earlier, is equal to ROA * Assets/Equity. Assets/Equity is more commonly known as ‘leverage’ and leverage has declined post-crisis – as a result of a combination of risk aversion, market forces and regulation]”
A friend emailed me, M.Jed, and asked me to respond to you by saying that Greenspan’s easing of Section 20 gave banks greater latitude to be globally competitive by investing higher percentages of gross profits. 20-25% sounds about right before repeal, he said.
Beverly,
Your friend is factually correct, but that fact, while true, is empirically irrelevant. Among US banks, only Citi and JP Morgan had pushed those boundaries pre-crisis. Merrill Lynch was pushing the boundary in the other direction, as an investment bank trying to grow deposits. JP Morgan had no balance sheet concerns thru the crisis, though Citi and Merril did. But the rest of the depository institutions were not heavily invested in investment banks, or derivatives (again specifically contrasting derivatives vs securities). The securities relaxation in Glass-Steagall wasn’t related to section 20, and securitizations didn’t exist until the 70’s. Greenspan’s logic for allowing securities trading was to increase diversification and diffusion of risk, which is sound risk management theory and theoretically lowered borrowing costs for bank clients. Otherwise banks were subject almost exclusively to whole loans in their local geography. And borrowers had limited alternatives to from which to choose.
Again, other than Citi, almost every firm that went under or needed rescuing was compliant with mid-1980s paradigm of Glass-Steagall.
M.jed, here’s a cut-and-paste from an email my friend sent me last night:
BHCs with Section 20 banking subsidiaries as of December 31, 1999
ABN AMRO Bank, NV
Banco Bilbao Vizcaya, SA
Banco Santander Central Hispano
Bank of America
Bank of Montreal
Bank of New York Company, Inc.
Bank of Nova Scotia
Bank One Corporation
Banque Nationale de Paris
Barclays Bank PLC
BB&T Corporation
BOK Financial Corporation
Canadian Imperial Bank of Com
Chase Manhattan
Citigroup
Commerce Bancorp
Cullen/Frost Bankers, Inc.
Deutsche Banks AG
Dresdner Bank AG
Fifth Third Bancorp
First Security Corporation
First Union Corporation
Fleetboston Financial Corporation
HSBC Holdings PLC
Huntington Bancshares, Inc.
J.P. Morgan & Co.
KeyCorp
Mellon Bank Corporation
National City Corporation
National Westminster Bank PLC
PNC Financial Services Group
Royal Bank of Canada
SABAN/Republic New York Corp.
San Paolo-IMI SpA
Sanwa Bank Ltd.
Societe Generale
Southtrust Corporation
State Street Corporation
Suntrust Banks, Inc.
Toronto-Dominion Bank
U.S. Bancorp
Umpqua Holdings Corporation
Union Bank of Switzerland
Wachovia Corporation
Wells Fargo & Company
This table lists the 45 domestic and international BHCs that had Section 20 bank subsidiaries on the eve of the effective date
of the GLBA. Our analysis includes only domestic banking organizations because data on the international organizations
are not available.
Source
: Federal Reserve Board of Governors.
http://www.researchgate.net/profile/Timothy_Yeager/publication/5047532_The_Financial_Modernization_Act_evolution_or_revolution/links/02e7e525b197eee577000000.pdf
Knew I had this somewhere.
Quick glance, 19 of those listed have non-US parents, another 8 were merged well before the crisis (e.g., JP Morgan and Chase, Bank of New York and Mellon, Bank of America and Fleet), and – again quick glance – only one was absorbed during the crisis – Wachovia – and National City went under.
Also – and as I’ve noted – Lehman, Bear Stearns, Goldman, Morgan Stanley, and I’m pretty sure Merrill Lynch – were not BHCs prior to the crisis.
Lastly, just because they had a Sec 20 subsidiary, doesn’t mean they were active in Sec 20 activities prior to or subsequent to GLBA. I had said only Citi and JP Morgan were prior to the crisis, and I’ll admit I had overlooked Wachovia who did have a securities business and did get into trouble, but it was more because the had acquired Green Tree (a competitor to Countrywide) than because of derivatives underwriting/trading.
And very few of those U.S. companies listed above had/have significant ex-U.S. presence, then or now, so they didn’t use Sec 20 to expand internationally.
Lastly, aside from Citi and maybe Bank of America (who needed it because of Merrill Lynch and Countrywide acquisitions made in 2008), I’m hard pressed to think of any of those banks who really needed TARP funds (accounting for NatCity and Wachovia which was purchased by Wells) – JP Morgan and Wells certainly didn’t – and who didn’t pay back TARP as soon as they were at the front of the queue with the Fed allowing them.
Jed:
(Dan here…comment edited)
run: “Section 20 of GS kept the depository banks from investing gross profits on WS. ”
Bev: “Greenspan’s easing of Section 20 gave banks greater latitude to be globally competitive by investing higher percentages of gross profits. ”
m.jed: “Your friend is factually correct, but that fact, while true, is empirically irrelevant. ”
Who gives a f*ck indeed. Sec 20 had nothing to do with Bev’s main premise: “about composite mortgage securities sold and bought by banks, and the relationship between them and the repeal of Glass-Steagall, is correct. “