Tuesday, July 21, 2015

Happy 5th Birthday, Dodd-Frank!

I just read an excellent "explainer" at Vox that lays out how the Dodd-Frank legislation is addressing the issues of the 2008 financial melt down.  Here's a sample:
The Dodd-Frank bill has three pillars... :
  • Fixing the broken consumer finance system by ending a system in which consumer protection was a secondary mission for many agencies and making it the primary mission of one agency, the Consumer Financial Protection Bureau.
  • Fixing derivatives by having them "be traded on exchanges ... and cleared through central counterparties." Derivatives would be forced into regulated marketplaces, where the risk they posed would be limited.
  • Fixing "too big to fail" by "building high quality capital" to make large banks less likely to fail and "cross-border resolutions [of] systemically important financial institutions" so a large financial firm that did fail (like, say, Lehman Brothers) could be shut down in a noncatastrophic way, just as the FDIC does regularly with small banks.
Read the entire explainer at: http://www.vox.com/2015/7/21/9004155/dodd-frank-explainer

And on his blog at Mother Jones, Kevin Drum, notes that the Fed has ... 
announced new capital requirements for large, systemically important banks that could devastate the financial system if they failed. These new requirements can be met only with common equity, the safest form of capital, and are in addition to the 7 percent common equity level already required of all banks:

Read the whole post here: http://www.motherjones.com/kevin-drum/2015/07/big-banks-get-their-new-marching-orders-fed

Update: Better Markets has a PowerPoint presentation on the 5th anniversary of Dodd-Frank available for download here: http://www.bettermarkets.com/cocpowerpoint

Saturday, June 6, 2015

"Too Big To Fail?" Nope. Too Much Risk.

Remember the 2008 financial meltdown? It seems the problem was and is not bigness, it's riskiness.

On The Washington Monthly's "Political Animal" blog,  Nancy LeTourneau nicely summarizes some great analysis by Michael Grunwald.  Here's the link:

The whole thing is well worth reading, but I'll share the last paragraph here.

"Grunwald points out that overall, Dodd-Frank is working by raising the capital requirements for big banks in order to protect against the risks. And then he goes on to talk about ways that the current regulations could be strengthened. But ultimately, vigilance is what will be required.
Risk has a way of migrating to the path of least resistance…What’s safe to predict is that risk won’t go away. The goal should be to monitor and manage it, not to eradicate it. Financial reformers often make grand pronouncements about how this or that reform will eliminate the risk of meltdowns and bailouts, but those risks will remain as long as human beings are susceptible to manias like the one that inflated the credit bubble before the crisis and panics like the one that nearly shredded the system during the crisis—in other words, as long as human beings are human."
Vigilance.  The same thing that's required to ensure that we remain a democracy.

Sunday, March 22, 2015

Here's What the Budget Proposed by Republicans Is Meant to Do

Economist Paul Krugman called them the trillion dollar fraudsters.  What's he referring to?  The Republicans who have proposed budgets that further shift the tax burden to those in the middle and low income brackets while putting earned benefits in jeopardy.

The full op ed is here:

It's time for Republicans to own up to the impact of their proposals and stop pretending that making the rich richer will benefit all of us. Trickle down has never worked - it didn't when the shift started in the Reagan administration and it hasn't since.  Just look at where the US stands in terms of inequality of income - in 2010 the top 1% got 17% of the income in the US, and the picture is worse when it comes to concentration of wealth.
(See the sample graph below. More at http://www.economist.com/blogs/graphicdetail/2014/11/daily-chart-2)

Source: An article in The Economist
A NEW paper by Emmanuel Saez of the University of California, Berkeley, and Gabriel Zucman of the London School of Economics suggests that, in America at least, inequality in wealth is approaching record levels. 
Note: the upward trend in concentration of wealth in the top one-tenth of one percent of the population beginning in the late 1970's and the corresponding drop in net household wealth of the bottom 90%.  The reality has been an upward transfer of wealth from the bottom 90% to the .1% not "trickle down".  Despite what you've heard from Republicans and others, this is not the natural order of things resulting from the free market.  It is the result of deliberate policy decisions - and Republicans are calling for more of the same and worse.

We need to call them out on this.  The Republican Congress won't look out for the interests of the 90% unless we make them.

Wednesday, February 18, 2015

An Idea Whose Time Has Come?

It appears that the "no tax" Republicans in charge of state governments are "no tax" only to the benefit of the richest in their states.  Here's a link to a report on the situation and recommendations for how to fix it.

Taxing Top Incomes at the Same Rate as the Middle Class Could Fund Critical State Priorities, Including Education, Infrastructure, and Public Pensions