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Posts Tagged ‘Financial Regulation

Missing 20th Century Republican Roots….

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Regarding the desire of many on the left and among Democrats to see the GOP die, I have very mixed emotions. I remember a very different GOP: one which had lived through the Great Depression and WWII and was firmly committed to fiscal responsibility, rebuilding and renewing the homeland, staying out of foreign military engagements as much as possible, and creating economic growth and security for everyone.

With this ignorant and bombastic GOP, I say keep up the publicity ’cause they’ll continue to lose and maybe lose even more sooner if the current Democratic fundraising push has legs, provided, of course, that the GOP doesn’t rig the electoral game too much more in their favor regardless of what is in the best interests of a constitutional democratic Republic. (FYI, a lot of these sneaky gerrymandering, etc., actions were Cheney’s grand idea. Another reason to hate that rotten old SOB.)

Movement conservative GOP libertarian ideology

Yes, I do want them to lose because they do not represent the GOP I grew up knowing and appreciating for their conservative yet economic moderation, understanding and knowledge of fiscal realities, their desire to rebuild and renew the American physical and economic landscape, and to keep Americans out of more wars. The modern conservative movement, and its many faceted coalition, no longer represent, let along understand, what those earlier Republicans stood for or helped build. Let alone why.

On the other hand, I’d like to see a renewal of a more centrist, post WWII like GOP, aka Eisenhower or Rockefeller Republican party, who were fiscally responsible (as in raised taxes to keep deficits and spending down), did not believe in American Imperialism or being the world’s great cops and liberty bringers, and recognized that the way to create both wealth and a strong functioning society was build the up middle class by providing economically family sustainable jobs and economic opportunity (including quality k-12 and affordable higher education) to anyone who worked hard enough to rise up through the ranks as two of my uncles did within major corporations to senior management ranks.

Those same old-fashioned Republicans, now called RINOs and who have been driven from the party by the Limbaughs, Ericksons, Coulters, and Hannitys of the GOP infotainment media universe, were the ones who also believed in efficient but enforced financial regulations that kept our financial system sound for 50 years. A financial soundness they knew had never happened before in the nation’s history, but at the same time empowered tremendous growth and development of new businesses, quite often through the sharing of financial and information resources of combined government and private enterprise.

Those Republicans had lived through the Great Depression and deeply understood the economic, family, and social harm caused by that speculative financial crash. Even Reagan proudly said he was an FDR Democrat (and a union head) until the ’60s when Democrats went too far left (and yes, Reagan was wrong on Medicare – the best thing the nation could do today economically would be to let go of its obsession with employer provided health care for one of the other OECD models in order to save well over a trillion dollars annually. But many like Reagan believed the AMA denunciations of Medicare way back when).

They, too, had experienced real war, unlike most in the GOP today who either like McCain cannot forget, let alone forgive, leaving Vietnam without winning, or hold to a Cheney-Kristol neo-con belief in American Imperialism that would have been antithetical to the Greatest Generation Republicans who fought WWII. Anyone who had read the dispatches of Ernie Pyle – there’s an out of print book of them and his diaries – quickly understands why Eisenhower kept the US out of more wars. Most of today’s leading GOP pundits and followers hold fast to their guns but have absolutely no knowledge or experience with actual realities of war. I’d bet few of them have ever seen the mid-1950s TV series, “Victory at Sea” that was aired every Sunday morning. They think guns, shooting, et al, are all fun and games kind of like a video game. But Ernie Pyle wrote about the dirty, bloody underside of war. Embedded with Army, he wrote about slogging through the mud, the American GIs (and himself) exhausted and worn out; seeing the bombed, bloody body parts of American GIs he knew spread across the landscape; seeing and feeling death and destruction everywhere as the Army moved north in Italy towards Germany.

My father and mother’s generation had lived through the hell of the Great Depression and WWII. My Dad rode the rails as a teenager, looking for work to send money home to his family and to support himself. My mom’s family lost their home and moved into a cousin’s barn, while my grandfather walked the highways and streets of eastern Washington, selling spices door to door. My dad convinced his mother to lie about his age so he could join the Army and later transferred to the Army Air Corps because he was allergic to horses. He and two other uncles became part of the USAF during WWII. Dad flew missions over Africa. My two other USAF uncles flew missions over Germany. Another uncle was lost when his ship was sunk in the Pacific. That is what Eisenhower knew about war and what today’s neo-cons have never experienced war and do not know…and have never experienced. They never joined up. They have never known the dirt and exhaustion, the horrors of the killing and the ugliness of death.

These prissy gun-toting haters of our social safety net have never experienced the fear, loss and devastation that my parents and grandparents went through. Worse, they don’t care to even learn or even understand. But the Eisenhower and Rockefeller Republicans knew just as Democrats of that era knew. Just as my Republican parents and grandparents knew. They had seen and lived through the worst of deregulation and speculation as well as the real horrors of war. They demanded stability, economic growth and opportunity for a better life than the one in which they had grown into adulthood. They demanded some sense of economic security and the knowledge that the killing was over. They supported reasonable, sound gun laws, as did the NRA in those days, to end the killing of which they had seen far too much.

They supported a social safety net because they knew how easily it was to lose everything they had worked years to achieve to be left with nothing: not homes, not jobs, not businesses, and often without families. They approved of restrictive regulations on Wall St. to prevent another Great Depression, caused by over speculation and gambling. Even the very McKinley-like Lochner SCOTUS eventually finally gave way to public demand for more social equity that put workers on a equal footing with owners and eventually gave way for more new business development and opportunity.

These are the reasons why Reagan was an FDR Democrat until the overreach of Democrats in the ’60s. For all of the GOP’s glorification of Reagan, they have quite literally forgotten, or chosen to ignore, what he had lived through and who he really was. They’ve twisted him into a McKinley laissez-faire hero he never was. In truth, he probably felt closer to a Rockefeller Republican with a great deal of sympathy for 1950s McCarthy-Bircher anti-communistic ideology. There is no where in his record of actions, legislation or speeches in which he preaches a laissez-faire, libertarian ideology. He was a real product of both the Great Depression and World War II…not of the cynical, selfish, ignorant modern movement conservative. I know. I lived in California, as an adult, during his Governorship as well as his Presidency. I watched him and I saw him. He is nothing like what modern conservative claim him to have been. Even his breaking of the Air Traffic Controllers Union was a product of union over reach rather than a hatred of unions. As a union negotiator, he knew and understood the values of unions in protecting the membership’s wages and benefits as opposed to inflating corporate profits at the expense of workers.

So, if and when the GOP returns to its 20th Century, post Great Depression, roots, I will begin to root for it as my parents did. Until then, I will pray – and work towards – for the national and state wide demise of its current incarnation. I believe our nation – and all her people – deserves better than the current GOP.

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Financial History Does Rhyme…

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Economist Alan Blinder

Alan Blinder: Financial Collapse – A 10-Step Recovery Plan: “1. Remember That People Forget…. 2. Do Not Rely on Self-Regulation…. 3. Honor Thy Shareholders…. 4. Elevate Risk Management…. 5. Use Less Leverage…. 6. Keep It Simple, Stupid…. 7. Standardize Derivatives and Trade Them on Exchanges…. 8. Keep Things on the Balance Sheet…. 9. Fix Perverse Compensation…. 10. Watch Out for Consumers…. Twain is said to have quipped that while history doesn’t repeat itself, it does rhyme. There will be financial crises in the future, and the next one won’t be a carbon copy of the last. Neither, however, will it be so different that these commandments won’t apply. Financial history does rhyme, but we’re already forgetting the meter.”

Darn good advise. But will organizations and people take note or long remember?

H/T Brad DeLong

Written by Valerie Curl

January 24, 2013 at 1:06 PM

Just Say No…To Mary Miller to Head the SEC

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Mary Schapiro, the current Securities and Exchange Commission Chairman, has resigned her position, effective on December 14. President Obama has nominated Mary J Miller to replace Shapiro. However, it appears Ms. Miller does not have the qualifications for this top cop position.

Simon Johnson, over at baselinescenario.com, explains Ms. Miller’s credentials:

The Obama administration is floating the idea that Mary J. Miller, under secretary for domestic finance at the Treasury Department, could become its nominee to lead the Securities and Exchange Commission. Ms. Miller, a longtime executive in the mutual funds industry, has served in the Treasury under Timothy Geithner since February 2010.

Ms. Miller represents the financial sector’s preferred approach to financial reform – some rhetoric but very little by way of serious effort. She has no time for people who are serious about making the financial system safer. And there is no willingness to really face down powerful people on Wall Street.[…]

She has no experience as a regulator or as an enforcer of the law. She has never worked on securities fraud. And she has no track record of standing up to powerful vested interests; in fact, she helped push the recent JOBS Act, which greatly undermine the protections available to investors. In addition, her work experience is entirely within the mutual fund industry – 26 years at T. Rowe Price. And a major agenda item now for the S.E.C. is mutual funds and how to make them less vulnerable to the kind of runs that occurred in September 2008. (For a primer, please see my recent column for Yahoo Finance.)

The mutual-fund industry does not want reform, and it worked long and hard to keep Mary Schapiro, the departing S.E.C. chairwoman, from pushing forward some sensible ideas. After outside pressure was brought to bear, including by Ms. Bair’s systemic risk council (of which I am a member), there are signs that the S.E.C. will finally at least issue some proposed changes for public comment.

After the 2007-2008 financial meltdown, we need the best cop to clean up the Street. And there are much better candidates for this top, vitally important position, namely Neil Barofsky, former Senator Ted Kaufman of Delaware, Dennis Kelleher of Better Markets, and Sheila Bair, formerly head of the FDIC.

Credo Action has created an online petition urging President Obama to appoint an S.E.C. chairman who will hold Wall Street accountable, and naming Mr. Barofsky as a worthy choice. The petition had more than 35,000 signatures by Wednesday morning. I urge you to sign the petition so we get the best SEC cop available…and not another Wall St sympathizer.

Written by Valerie Curl

November 28, 2012 at 9:09 PM

Preventing National Decline

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Presidential Candidates Romney and Obama

I’ll be honest, I want Obama to win. Not because he’s a great president. We would need another TR or FDR for that. But campaign costs and the way campaigns are funded, along with Citizens United, make a real reformer president unlikely at present. Look what happened to Obama. He told Wall St during the ’08 campaign that he would raise their taxes and reform the financial system; when he actually tried they revolted to the tune of half a billion dollars in negative ads and lobbying.

Nevertheless, Romney will be a disaster as president.

This afternoon, I spent time reading some of my favorite financial and economics blogs: Simon Johnson and James Kwak’s Baseline Scenario and Jesse’s Café Americain. Through their blogs, I clicked over to a blog by Judge Richard Posner, appointed by Reagan, who now sounds more liberal than modern conservative Republican; then onto an interview with Glen Hubbard, Romney’s leading economics adviser (ugh, what a arrogant sleeze!); and then found a new blog, Capitalism Without Failure.

In each blog, I became more firmly convinced that if Romney is elected, Wall St and the uber wealthy will win; that we average people, like you and me, not only don’t count in their considerations, we’re irrelevant; and that any chance to reform the financial system into becoming a system that provides capital to businesses rather than a high stakes, high risk gambling casino will fail. Most of all, if the nation continues to celebrate the “greed is good” and “me first and only” ideology that has been fostered over the last 30 years, the nation will see another devastating depression within a few years. It will be far worse than the Great Recession and would likely spark violent revolutions worldwide.

Yesterday, I read a Business Week Charlie Rose interview with Jeremy Grantham who owns a highly successful equity fund business. He, too, is sincerely worried about coming events that the GOP ignores or has convinced its base is irrelevant or misleading (pdf). He told Charlie the U.S. is in for a major fall if it doesn’t wake up to what is going on worldwide and here at home.

Over and over again, I read the hazards that await the country if this nation doesn’t change paths. Obama, I believe, is attempting to change those paths if not well, considering the legacy of monied forces arrayed against him and his innate desire to cut a deal rather than being the progressive reformer TR was.

Romney, on the other hand, is a continuation of GW Bush on steroids, and the GOP Congress is worse. In Bloomberg View, Jonathan Alter writes that if Romney is elected, not only will we not know which Romney shows up at any particular moment, he’ll be constantly looking over his shoulder to the GOP Congress to see how he should act and what he should say. He’ll be led along by Norquist, DeMint, and Blackrock’s Schwartzman to name a few. Ryan will probably control the budget, just as Cheney controlled energy and national security.

Our nation is already suffering OECD ratings losses in a variety of competitive areas, from education to equity and mobility to loss of new business start ups to income security to health care to governmental ability to resolve problems and issues. Given the Romney-Ryan budget plans, neo-con national security advisers, and the whole far right wing conservative movement of the GOP, I cannot conceive of a Romney administration increasing the nation’s OECD competitive ratings…or even Harvard’s Business School Review’s competitive rankings.

It’s hard for me to believe that so many people have been conned by Romney. He’s a chameleon whose only beliefs are his destiny to become president (fulfilling Daddy’s dream?) and that the wealthy are superior beings. The US cannot be run as if it’s an LBO in the making. Or at least it should not be. As John Winthrop told his small community of colonists back in the early 1600s, the community needed to needed to take care of each other as Jesus required. And only in ensuring the economic viability and equitable opportunity of every colonist would that community become the “shining city on the hill” – the light of Jesus.

Yet, now, nearly one half of the nation would choose to elect a man, and a party, who choose to negate everything Winthrop told his Puritan parishioners and which that colony worked so diligently to achieve in terms of equity and opportunity, from free schools to physical and monetary care for the poor and disabled to income taxation based on ability to pay without causing family harm for the general needs of the commonweal.

There are plenty of things about which dislike the Obama Administration. But a Romney administration would be even worse – not by any stretch of the imagination better. Romney would lead the nation down the path of Depression and aggressive selfishness.

In The 21st Century, A Replay Between Two Visions: Coolidge or TR/FDR

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Contrary to pundit analysis, the first half of Obama’s speech today in Cleveland reminded me of his old inspiring self. While the second half of his speech delved down into the weeds of policy differences between the current GOP and Democrats that became somewhat boring, even though completely true.

The first half of Obama’s speech clearly laid out his vision for the future of America. I might add, it’s a vision with which I completely agree, the essence of which is increased global competitiveness in every sector of the economy and greater economic rewards for labor – or actual work.

American Plutocrats take over the Economy for their own benefit

Nevertheless, the two visions of America going forward in this election replay the visions of Coolidge and of TR and his distant cousin, FDR.

Yes, it does seem strange that we’re even discussing the visions of presidents from a hundred or more years ago; yet, we are discussing the same essential policy visions again today.

While Coolidge, according to Wikipedia, had an essentially laissez-faire, hands off attitude towards business, believed that few regulations were needed and taxes should remain as low as possible, TR and FDR had another view based on their experiences with the so-called free market.

During the early 1900s when TR became President, the renowned Robber Barons dominated industry. Numerous books and magazine articles were written decrying the poor and often deadly state of American worker conditions under the heavy hand of corporate ownership: the high rate of deaths and physical dismembership among employees; the high rate of deaths in coal mines; and the overall low wages which prevented workers from rising above stark poverty and barely managed to provide roofs over their heads. Cold water flats, as cheap housing accommodations were known in the late 1800s, were not only common among workers but were miserly at best, providing only cold water and no heat except when the renter provided the coal to heat water and for cooking.

Yet, corporate businesses and Wall St boomed. Commodore Vanderbilt’s family regularly gave extraordinarily gaudy and lavish week-long parties. Wall St. magnates and other corporate leaders sought to compete in extravagance with the Vanderbilt’s.

In response to this disparity of wealth and opportunity, workers revolted. Street corner advocates called for massive worker revolutions against the corporate system. Unions formed. Workers struck, effectively shutting down businesses.

Businesses fought back with strike breakers and hired private police and army forces. Socialism and even Communism were on the rise amongst workers who saw the capitalistic system as supremely unfair and failing to live up to the promise of real democracy.

Violence was common…and threatened the country.

Into this era of violence, poverty and excess stepped Teddy Roosevelt. A rich kid from upper New York, TR quickly realized that to save capitalism he had to initiate reforms to save it from its worst excesses. That broadly spread economic benefits not only enabled the country to grow but maintained domestic order.

Thus, the GOP-created progressive era began as a consequence of unbridled free market capitalism that destroyed millions of families and businesses throughout the 1800s into the early 1900s.

TR realized that only the government could pull up on the reins of capitalism to prevent its largest horses from crushing underfoot the opportunities of millions of other citizens. He realized that if he and Congress did not put limits upon how trusts and other companies behaved, the likelihood of free market capitalism surviving was slim or, at the very least would fail to prevent revolution amongst the millions of American workers. After all, workers’ unions were the direct result of corporate management’s failure to address the wage, health and safety needs of workers.

FDR sought additional worker and consumer protections as well as for Social Security to lighten the burden on workers while enabling companies to grow. He understood that without a healthy, thriving middle class, real capitalism was doomed.

In 1936, GDP growth had reached a steady 45% degree angle upward throughout FDR’s Administration; yet, unemployment remained very high – even though accurate figures were not available. (The Fed. government did not begin keeping accurate unemployment data until the ’50s.) In 1937, the Fed. Government reined in its spending to balance the budget, thinking the economy had sufficiently healed. Those austerity policies sent the nation back into depression, increasing unemployment and federal deficits. Only the extraordinarily massive Federal spending for WWII, pulled the nation completely out of the Depression.

Oh, I know, some say that if FDR had not intervened the Depression would have ended much sooner. To them I say, read Rogoff and Reinhart’s book covering a century of global financial crises in which they report that financially caused recession takes up to 10 years before the economy returns to normal. Moreover, I would ask them to research what happened following each banking crash throughout the 1800s. What were the results for working Americans? How many working families lost everything? How many small business died? How much did the overall economy suffer as a result of banking crashes every 10 years. There is a reason why bankers asked for the Fed and the FDIC.

In between TR and FDR was Calvin Coolidge. His basic philosophy was hands off. He believed in light regulation, an almost unencumbered free market, and very low taxes. Business boomed under his administration during the 1920s. Unfortunately, his hands off approach led to massive speculation very similar to what occurred in the last decade. Hoover followed Coolidge’s economic philosophy and became the inheritor of a policy legacy that led to the worst depression in modern American history. When FDR was elected, the estimated unemployment rate was over 25%. Millions of businesses had shuttered. Millions more had lost their homes.

When FDR was elected the first time, he won all but 59 electoral college votes. In the 1936 election, he lost only 8 electoral college votes.

It’s that knowledge of history, including economic history, that informs my politics. You cannot have a thriving, broad-based economy without a thriving middle class who shares in the economic benefits of commerce. This nation has not had that sharing for at least the last 12 years – actually it’s been declining for 30 years as even Reagan acknowledged in the ’80s.

Right now, I think we’re once again caught up in a fight between the vision of Calvin Coolidge and TR/FDR. These are two very disparate visions of America. For myself, I fall on the side of a modernized version of TR/FDR because I believe their visions work better for America on the whole. And, indeed, because the TR/FDR model relies upon a muscular – even a Hamiltonian model – of a strong central government and the tax revenues need to meet the costs of government we need and over the last 100 years have chosen.

TBTF Bank Fraud Continues…But the Decision to Put Profits First Is Nothing New

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Matt Taibbi, of Rolling Stone, published a lengthy article on Bank of America’s failure of ethics regarding credit cards accounts. His reporting cites robo-signing abuses, failure to document customer records, and outright fraud. Yet, BofA continues to be protected by our government as a Too Big to Fail bank.

Bank of AmericaHowever, BofA’s malfeasance…and arrogance towards its customers…is neither new nor only a decade long. BofA has a long history of a management that has made poor decisions and expected their regular customers to financially bail out the bank.

Bank of America’s problems began long before the company moved its headquarters from San Francisco to Charlotte, NC. In the early ‘80s, I went to work for one of BofA’s ad agencies – one of many spread around San Francisco. Not long after, BofA found itself in deep financial trouble as a result of overexposure in the California housing market which was undergoing a price decline and an even larger exposure to So. American loans that were failing. BofA was in a panic as their losses mounted, particularly on the So. American loans.

You’d think they would have had some humility about their losses, but instead management became even more arrogant. They began increasing fees on their regular banking customers while at the same time treating those customers with distain. Customers who complained about errors or unknown fees were regularly treated with derision. The attitude was “we’re better than you so go suck a lemon.”

At the same time, BofA decided it could make more money by catering to the wealthy. No longer did their marketing focus on regular banking customers who needed a checking account or a home mortgage or a credit card at reasonable interest rates or a savings account that gave a decent rate of interest return. Bleeding the poor suckers was fine with management if it shored up the bank’s huge losses.

Instead of maintaining Giannini’s record being a bank for average, hardworking families, BofA refocused their moneymaking strategy on Private Banking to attract wealthy customers. They offered wealthy customers a personal banker who was intimately familiar with the customer’s finances; a haute couture private lounge, complete with designer coffee and wine, so their wealthy customers never had to rub shoulders with the riff-raff; and a culture within the bank to make the wealthy feel superior.

Within a year, BofA saw a mass exodus of their regular banking customers. But don’t take my word for it, look up what Charles Schwab said about BofA’s attitudes towards its customers during this time period.

It didn’t take long – a year or so – for BofA to realize the mistake they made in driving off regular, middle income banking customers. Thousands, if not hundred of thousands, of ordinary middle income customers had deserted BofA. As a result, BofA began to court these customers with a vengeance because they realized the bank could not survive without them.

Within a few years, BofA, in its search for every higher profits, became one of the largest credit card offerers, from an insider’s marketer position, in the marketplace because credit cards became enormously profitable – and became the bank’s largest profit center, outstripping anything other product by huge margins.

After the merger which moved BofA’s headquarters to Charlotte, the arrogance of management did not recede. It became worse as management decided their customers were little more than cash cows which the bank could bleed to their hearts’ content…and they used every trick on the books to do so.

But BofA is not alone in this type of thinking or attitude. Each and every one of the TBTF banks is complicit in the same kind of behavior.

I’m sure A.G. Giannini, were he alive today, would mourn what became of his workers’ bank…and deeply ashamed of his bank’s modern day management that chose to put its’ profit over its customers well being.

Reagan’s OMB Director Slams GOP

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OMB Director for President Reagan, David StockmanDavid Stockman, former OMB Director for President Reagan, slams the current GOP presidential line-up on business and economics. Stockman is very conservative and could be called a libertarian.

But he is realistic and has worked on Wall St. He knows how LBO firms like Bain Capital really work, and clearly states they are not set up to create jobs or develop new businesses. They are meant solely to increase shareholder and company profits at the expense of both the business being bought and the employees of that business. He also scoffs at Gingrich’s claim regarding Freddie Mac. He says no company gives a historian or an adviser millions of dollars in fees without expecting something valuable in return, such as inside influence.

Watch the entire segment here.

It’s well past time to clean up financial businesses and all of the banks as Simon Johnson, former IMF chief, former Deleware Sen. Ted Kaufman, and Ohio Sharrod Brown have all argued.

Listen carefully to David Stockman.

Written by Valerie Curl

January 25, 2012 at 9:29 AM

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