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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. 

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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?

As Dean Baker and several (mostly) alternative-media and hobbyist bloggers—including actual experts on Dodd-Frank and on financial-institution governance—have noted since the New York Daily News editorial board released a transcript last Tuesday of its interview with Bernie Sanders, it was not Sanders but instead members of that editorial board who were deeply confused about what Dodd-Frank actually provides.  Specifically, about whether that law grant’s the federal government authority to determine that a financial institution is so large that its sheer size poses a systemic risk to this country’s economy.

And also specifically, about whether experts within the finance industry and the Treasury Dept., and economists, think the method of any such government-mandated paring down of a financial institution—absent enactment of the Glass-Steagall-like law—should be devised by Treasury of the Fed of instead by the financial institutions themselves.

And also about whether none other than Hillary Clinton, their candidate of choice, had said during this campaign something along the lines of:

We now have power under the Dodd-Frank legislation to break up banks. And I’ve said I will use that power if they pose a systemic risk.

Which, it has been pointed out since now since Wednesday when Clinton joined the chorus of those saying that Sanders in that interview had demonstrated a lack of basic knowledge, thoughtfulness and competence about this signature issue of his, Clinton herself at last February’s debate in fact said exactly:

We now have power under the Dodd-Frank legislation to break up banks. And I’ve said I will use that power if they pose a systemic risk.

Leading me to post this here at AB on Thursday.  It’s 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.

Which drew some blowback in the Comments thread from a couple of fellow progressives, including their insistence that Clinton did not admit that she failed to do her homework before February’s debate and therefore misunderstood, like she now says Sanders does, what Dodd-Frank actually provides.

Which in turn drew blowback from me.  Specifically:

Clinton’s statement that Sanders is incorrect that under Dodd-Frank the Treasury Dept. does have the authority to declare particular financial institutions so large that a failure of that institution would create significant danger to the economy or to the broader financial industry and therefore to the economy, and therefore would effectively require a federal bailout, is EXACTLY a reversal of what she said at that February debate when fending off Sanders’s suggestion that additional legislation is needed.

So she either was right at the February debate or she was right this week in her comments about Sanders’s interview with that editorial board, but the statements, two months apart, are mutually exclusive. Since the February one matched Sanders’s statements to the editorial board, her comment that Sanders was wrong and would know this had he done his homework sometime during the 11 months since he began his campaign, she did indeed say by necessary implication that she was mistaken in that statement at the February debate, and that had she done her homework she would have known that.

Clinton is not making the issue of NOT proposing further legislation on too-big-to-fail, but in resisting proposals for further legislation, she sure has made her claim that there is no need for it because Dodd-Frank already takes care of the problem a part of her defense against Sanders’s candidacy.

Further, since apparently there is nothing in Dodd-Frank that authorizes, much less requires, the Treasury Dept. to actually take over the financial institution and break it up, or to dictate how exactly it would be broken up, but does apparently give Treasury the authority to determine that a bank must pare down to a specified size—Clinton was right in February, and Sanders was right in his interview with that editorial board, according to Stephen F. Diamond, an actual expert on Dodd-Frank who both teaches the subject at Santa Clara Law School and advises on it in private practice—the claim by most of the news media and also by Clinton that Sanders’s statement that this is so is exactly what those folks are claiming Sanders’s statement was: wrong as a matter of fact, and indicative of a failure to do homework on the subject. Or, in Paul Krugman’s case in his op-ed piece yesterday, a deliberate misstatement. (I assume that Krugman is sufficiently familiar with Dodd-Frank to know that, although—who knows? – maybe not.)

Diamond had a lengthy post on his own blog on Thursday titled “Don’t blame Bernie – of course the banks can be broken up”, (Dan here…link corrected) which I learned of because Naked Capital posted its title and link immediately about its post of the title of and link for this post of mine.  I clicked the pingback link, saw my post listed, and saw Diamond’s immediately above mine.

The first four paragraphs read:

“In a recent interview, a very confused New York Daily News reporter continually mixed up the Treasury Department and the Federal Reserve in the face of a very straightforward statement of presidential candidate Bernie Sanders that Congress can give the President power to impose changes on the structure of the financial system “under Dodd Frank.”

“Well, the Treasury is an agency of the executive branch while the Federal Reserve is an independent hybrid public-private entity. The former is an extension of the power of the President while the latter has autonomy that limits, understandably, Presidential influence. Apparently in the minds of financial journalists the two entities can be conflated without consequence.

“Sure enough Secretary Clinton jumped on the bandwagon and slyly and indirectly suggested on Morning Joe that Bernie Sanders does not “seem” to know enough about how the economy works to be qualified as president.

“Now that we have cleared up the fact that it was the Daily News reporter who was confused not Sanders, let’s focus on the agency that a President does control, the Treasury. When Sanders said he wanted to use Dodd-Frank to break up the big banks one could consider that from two angles. First, does the current language of that law enable the federal government to break up the banks; and second, could Dodd-Frank be amended to give the federal government the power it needs to break up the banks. Since Sanders talked about going to Congress to empower the government to break up the banks it seems reasonable to conclude he means the latter, second method. But he is taking the view that any such amendment would be consistent with Dodd-Frank, a necessary extension consistent with the spirit of what Congress intended to do.”

Clinton did her usual thing: Someone fed her a line and she parroted it. I hope that at the debate on Thursday Sanders hangs this one around her neck. and tightens the noose until she gets that she needs to stop that tactic–even if she needs methadone to help her break the habit.

And, in response to a response:

Clinton said at the Feb. debate: ““We now have power under the Dodd-Frank legislation to break up banks. And I’ve said I will use that power if they pose a systemic risk.”  What can that possibly mean other than that she thought then—or was saying that she thought then, even if she did not think then—that the federal government now has power under the Dodd-Frank legislation to break up banks.   And since she said “And I’ve said I will use that power if they pose a systemic risk,” this presumably was not the first time she said that.

So she said, then and presumably earlier, that she will use that power if they pose a systemic risk.  How so? What exactly did she have in mind then?  And how exactly did she plan to exercise that power?   Did she plan then to have the Treasury Dept. dictate how each bank must pare down?  Or did she plan, as Sanders told that editorial board he would, to allow each bank to determine it, maybe with the assistance and recommendations of the experts at Treasury?

This was not merely a flip-flop by her last week; this was a statement by her that Sanders did not know what he was talking about on an issue critical to his campaign.  She’s now retracted her own earlier statements—the one during the Feb. debate and the earlier ones she was referring to in that comment at the Feb. debate—and doing so by parroting journalists who clearly have no idea what Dodd-Frank actually contains and what the actual experts suggest would be the best way to have these banks pare down (a method the banks choose or instead a method that Treasury chooses).  Did she herself not know what she was talking about when she made those earlier statements?  And what exactly are her plans?  And if she now believes that Dodd-Frank does not confer that power, does she think further legislation should do so—as Sanders has proposed?

Some of the journalists and political commentators who jumped on this bandwagon—Paul Krugman and the Washington Post editorial board, for example—do know that it was not Sanders but the New York Daily News editorial board who was clueless. Yet they chose to misrepresent—outright misrepresent—that Sanders was wrong about Dodd-Frank, the role of the Treasury Dept., and the role of the Fed, as well as the actual mechanism that would be used in paring down these financial institutions: it would be the institutions, not the Treasury or the Fed., that would structure it.

Some excellent political journalists, such as Annie Karni, who covers the Sanders campaign for Politico even late last week in reporting on Sanders referenced the NYDN editorial board interview with a comment that Sanders seemed to lack specifics about this signature issue of his (or some such).  But she and the others were just picking up what the political-opinion journalists were saying.  The editorial and op-ed folks who know the specifics of this issue quite well abuse their positions when they misstate the facts of actual legislation (e.g., Dodd-Frank) or expert policy consensus (e.g., who should determine how to restructure).  And before they again accuse Sanders of dishonesty (as Krugman does in that op-ed), they should look in the mirror.  And at their chosen candidate.

As for Clinton herself, her bandwagon-jumping nature is a big reason why so many people dislike her.  But in this instance there was the additional element of dishonesty: she knew that Sanders rather than the editorial board members had it right about what Dodd-Frank provides. She had said so publicly, recently, in a statement in which she also said she had said that before.

I added an addendum to my Thursday post, on a different matter—but it’s really part and parcel of the same one: The New York Times fact check blog had fact checked a recent statement of Clinton’s in which she said she “couldn’t believe” it when she learned that Sanders was opposing the recent Paris climate-change agreement.  Her intended implication of course was that Sanders thinks the agreement goes too far.   Both the statement itself and the intended implication were false.  Sanders supports the agreement as a first step and says much more is needed.

What’s the real story?  What’s she leaving out?  What intended inference is not true?  What connection is she implying that is false?  What word is she parsing or cutely redefining?  Both Donald Trump and Ted Cruz are habitual, maybe pathological, liars, so hopefully it won’t matter that, in Clinton, the Democrats will be nominating someone who campaigns like a used-car-salesman cliché.

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