Should American Progressives Be Calling for a “Public Option” in Banking?

November 30, 2011  |   Economics & Trade Politics and Policy Progressive Political Commentary

Should American Progressives Be Calling for a “Public Option” in Banking?

Proposals for a public banking option are almost unheard of in the U.S., where free-market orthodoxy has, throughout most of our history, held sway over collective approaches to the provision of public and private goods and services. Nonetheless, the concept deserves serious consideration based on the evidence in at least a couple of areas. First, there is the striking success of this model in other advanced and advancing economies for providing and directing lower-cost, long-term capital essential for growth. And second, while better financial sector regulation, oversight, and enforcement might mitigate the worst excesses of an opaque multinational private banking system, it remains doubtful that the resources of regulators can ever match those of the private banking system to circumvent regulations and evade the consequences of wrongdoing. It is now widely understood that the private global banking and financial system has failed to serve the “real” economy, or what we often call, “Main Street.” This is not just the case in the U.S. Europe’s problems, while largely due to an ill-designed monetary union and the high sovereign debt of certain member countries, has been exacerbated by the same short-term-profit-driven, casino approach that has characterized the U.S. financial sector. Perhaps the time has come to consider another model, one that treats banking and finance more like a public utility. A public bank would not have to be beholden to shareholders demanding a 20% annual return. It could circumvent incentives that induce management to take extraordinary risks (cognizant that in the worst-case

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Are Bailouts for the Super-Rich Inevitable? Ask Paul Krugman

April 3, 2010  |   Paul Crist

Are Bailouts for the Super-Rich Inevitable? Ask Paul Krugman “There’s every reason to believe that this will be the rule from now on: when push comes to shove, no matter who is in power, the financial sector will be bailed out.” Paul Krugman, 3/29/10 “The recovery of big banks not only benefited bankers. It also created huge paydays for hedge fund managers, with the top 25 taking home an average of $1 billion in 2009.” New York Times, 4/1/10 Paul Krugman, the Nobel Prize-winning economist and influential New York Times columnist, says Wall Street institutions have become so big and powerful that they will never be allowed to fail. The only hope he sees is to regulate them thoroughly. He greatly prefers the stricter rules now being offered by Barney Frank in the House to the softer ones coming from Chris Dodd in the Senate. (Neither bill truly tackles the derivatives casino.) Krugman criticizes Senate Republican leaders who portray proposed bank regulations as just another Wall Street bailout. In fact these hypocritical leaders are doing all they can to thwart the Obama administration’s modest reforms and befriend Wall Street, hoping to net some cold, hard political cash from the bankers. Unfortunately, when Krugman says bailouts are inevitable, he’s handing the government haters another round of ammunition. “See, the liberal/pinkos are going to just keep on bailing out Wall Street,” they piously intone. But, why isn’t Krugman calling for an end to all financial bailouts for the wealthy, instead of announcing

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Capitalist Fools by Joseph Stiglitz

April 2, 2010  |   Politics and Policy

Capitalist Fools by Prof. Joseph E. Stiglitz   Behind the debate over remaking U.S. financial policy will be a debate over who’s to blame. It’s crucial to get the history right, writes a Nobel-laureate economist, identifying five key mistakes—under Reagan, Clinton, and Bush II—and one national delusion. There will come a moment when the most urgent threats posed by the credit crisis have eased and the larger task before us will be to chart a direction for the economic steps ahead. This will be a dangerous moment. Behind the debates over future policy is a debate over history-a debate over the causes of our current situation. The battle for the past will determine the battle for the present. So it's crucial to get the history straight. What were the critical decisions that led to the crisis? Mistakes were made at every fork in the road-we had what engineers call a "system failure," when not a single decision but a cascade of decisions produce a tragic result. Let's look at five key moments. No. 1: Firing the Chairman In 1987 the Reagan administration decided to remove Paul Volcker as chairman of the Federal Reserve Board and appoint Alan Greenspan in his place. Volcker had done what central bankers are supposed to do. On his watch, inflation had been brought down from more than 11 percent to under 4 percent. In the world of central banking, that should have earned him a grade of A+++ and assured his re-appointment. But Volcker also

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Senate Financial Reform Bill: A Review of the Key Proposals

April 1, 2010  |   Paul Crist Politics and Policy

Senate Financial Reform Bill: A Review of the Key Proposals By Paul Crist March 28, 2010 The Financial Reform Bill introduced by Sen. Christopher Dodd (D-CT) appears to be, on the whole, a decent piece of legislation.  There are good arguments why various aspects may be weaker than they should be, but given the political landscape, Dodd has come up with a bill that ought to garner broad support from across the spectrum.   It is widely recognized that the need for reform is urgent, and given the level of public anger toward bankers and the financial sector generally, fairly swift passage of this bill should be possible.  After all, are there 41 Senators willing to stand up and side with the bankers?  That would be very hard to explain to the constituents back home. The bill is comprehensive in that it covers many issues, and detailed, with over 1,100 pages of regulatory reforms.  Assessing every issue in detail would be a daunting task (but somebody’s gotta do it).  But there are a range of specific areas that deserve consideration and comment.  The following issues will be briefly addressed here: The proposed Financial Stability Oversight Council (FSOC) and curbing industry influence over regulators; The proposed Consumer Financial Protection Agency (CFPA); Enhanced resolution authority and the “too-big-to-fail” problem; Proposed changes in the division of regulatory authority; Proposed regulation over trading of derivatives, asset-backed securities, and hedge funds; Proposals for financial brokers, investment advisors, and credit rating agencies.   Financial Stability Oversight Council

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