Commentaries
Now raising intellectual capital
from Rolfe Winkler:
The Ascent of Volcker
So, wow, the Obama administration has reacted very quickly -- perhaps too quickly -- post the Massachusetts Senate election. After proposing a tax on bank liabilities, Obama is taking an even tougher line, adopting recommendations from Paul Volcker that banks be limited in their size and scope.
Before getting to specifics, it's worth noting how Geithner and Summers appear to have lost favor. In the preamble to the proposal, Obama mentions neither of them. And when he announced the plan he did so with Volcker and Bill Donaldson standing behind him...Geithner and Summers were off to the side. Could the duo be headed for the exit?
But back to the proposals themselves. Unfortunately they are very vague:
1. Limit the Scope - The President and his economic team will work with Congress to ensure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit.
In his prepared remarks, Obama called this first proposal the "Volcker Rule,"
2. Limit the Size - The President also announced a new proposal to limit the consolidation of our financial sector. The President’s proposal will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits.
These are good ideas, but until we see the details it's hard to offer unconditional support.
from Rolfe Winkler:
Lunchtime Links 12-18
(Reader note: still working on
MUST READ -- Strict framework leaves room for maneuver (Masters/Jenkins, FT) While this subject may seem a little dry, it's the Basel Committee in Switzerland that will lead the way when it comes to how banks measure capital and how much they need to have. I'll offer more detailed thoughts on this later today.
Saab to be shuttered (Reuters wire) More creative destruction in the auto industry. In the end, the best Saab could do was sell the intellectual property for the 9-5 and 9-3 sedans...
China central banker says harder to buy Treasuries (Xin/Subler, Reuters) How ironic. The current account deficit is shrinking as the import/export imbalance with China is shrinking. So we're not stuffing as many dollars down China's throat which it is forced to recycle into Treasuries. Watch out for calls to buy Chinese so that the Treasury can finance its deficits! ;)
China asset bubbles will burst on inflation (Chen, Bloomberg)
Greenspan backs deficit reduction commission (Ferraro/Sullivan, Reuters)
Harvard swaps are so toxic, even Summers won't explain (McDonald/Lauerman/Wee, Bloomberg)
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The Wall
I applaud the steps that this administration is undertaking under the prodding of Paul Volcker. Adam Smith stated…where there is no moral framework, no ethical sensibility, the market ends up devouring all the other sectors and then devours itself. Paul Volcker
understands this and it is evident that most Americans do not.
It is unfortunate that so many Americans fail to take moral or ethical responsibility as beneficiaries of the very institutions they have voting rights to govern. American think that as long as stock prices and dividends continue to improve they can let critical thought rest as their mind drifts into the dilusion of considering themselves responsible citizens.
To conclude that the direction of the stock market is a confirmation that we are being governed wisely is foolish.
Ronald Reagan and his advisors were sadly incompetent when formulating and administering economic policy. The S&L crisis is a case book example of how men and women act on their own self interests without regard to the nations health. Ronald Reagan sowed the seeds of
economic failure and instituted up to then the largest “to big to fail” policy in modern history. Unfortunately our country continues to be consumed with this misguided and foolish economic theory. Our nation should instead deploy its financial and labor resources effectively. This is not a deep and complex concept to grasp and it is essential that we not only grasp but execute on it if we are to remain a sovereign nation.
Sovereignty is not an eternal gift granted by time to the citizens of any nation that refuses to act on their responsibilities. The value of the dollar will sink as long as America continues to think that other countries will continue to purchase our debt regardless of where their funds are being invested.