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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U.S. Trade Policy and Declining Manufacturing: Where do we go from here?

August 16, 2010  |   Economics & Trade

U.S. Trade Policy and Declining Manufacturing: Where do we go from here?  By Paul Crist, Aug. 14, 2010 The U.S. economy and the manufacturing sector in particular, face both short-term and long-term challenges.  There is debate about whether government can or should play a role in addressing those challenges, and if so, what are the fiscal, industrial, regulatory, and trade policies that would benefit the stakeholders, which essentially include all U.S. citizens in one way or another. I should acknowledge at the outset a bias toward thoughtfully considered government interventions to guide the economy and trade in ways that benefit American workers and allow them to participate in the gains that accrue from their labor.  There are economic reasons for my bias that have nothing to do with either socialist or altruistic impulse.  That bias in no way means that I favor protectionism or a retreat from global trade, or that government intervention in the economy is always desirable, but there are, I believe, issues and stakeholders that get too little consideration and solutions to structural economic problems that are given short shrift in the name of conservative ideological orthodoxy. There is ample evidence that without adequate and well-designed regulatory intervention in domestic and global markets, capital and political power tends to migrate upward and become concentrated at the top of the economic ladder. We see that phenomenon in country after country, most recently in the U.S.  Concentrated wealth becomes problematic when it undermines social cohesion and a sense of

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Republicans Scuttle Fed Nominee: More of the same electoral politics that put workers last

August 8, 2010  |   Politics and Policy

There are three vacancies on the Federal Reserve Board of Governors.  That’s a big deal – maybe the biggest deal for economic recovery you’ve heard almost nothing about in the mainstream press. The economy has been growing for most of the past year, but data from the second quarter of 2010 are showing new signs of a slowdown. Unemployment hasn’t come down, and may be showing signs of inching up again. All this is great news for Republicans heading into the fall elections. Their biggest fear is that voters might see signs of recovery and jobs growth, and scuttle Republican chances for big gains in November.  But how do Fed nominees play into the Republican equation for electoral victory?  The Fed is the only body that can now take serious action to boost the economy.  Thanks to Republican obstructionism, and misplaced hysteria over the short-term budget deficit (the solution is putting people back to work, paying taxes and growing the economy), nothing more will come out of Congress this year. So what better for Republicans than to ensure continued gridlock at the Fed, guaranteeing continued high unemployment at least until after the November elections? Obama has nominated three highly qualified candidates to fill vacancies on the Fed Board of Governors: Janet Yellen, president of the Federal Reserve Bank of San Francisco has been nominated as vice chair; Sarah Raskin is currently the Maryland commissioner of financial regulation; and Peter Diamond is a Massachusetts Institute of Technology economics professor (an former

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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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