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

Read More...

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

Read More...