Opinion

The Great Debate

Fed chair fight raises crucial questions for Obama

The media circus over who will be the next chairman of the Federal Reserve is, on the one hand, an unwelcome spectacle at a time when uncertainty over the outlook for U.S. output and jobs growth is high. While previous leadership transitions have brought forth speculation about candidates, the current “contest” is odd. President Obama, after ungraciously commenting on Chairman Bernanke’s reappointment prospects, wisely stepped back for a period of reflection and decision about “what” he wants as well as “who” he wants.

On the other hand, this period also offers an opportunity for the White House to turn questions for the next chairman to consistent questions about the administration’s own economic policies. Four areas provide an immediate point for comparison.

The first is about the Fed’s role in supporting economic growth. A core element of the desire for Fed policy to enhance near-term growth and employment prospects is the Fed’s reduction in longer-term interest rates via its large-scale asset purchases (“quantitative easing”). The link here is from lower long rates to higher investment spending by households and businesses, with gains in GDP bolstering employment. Chairman Bernanke has justified continued quantitative easing to augment the economy’s growth momentum. A problem: the pace of growth actually decreased from 2010 to 2011 to 2012, suggesting a less than robust correlation.

The question for the president: The most optimistic estimates of economic gains from quantitative easing from Chairman Bernanke’s Jackson Hole remarks last August indicated that the first three rounds of quantitative easing reduced the 10-year Treasury yield by 80 to 120 basis points and may have raised the level of output by as much as 3 percent by 2012. Other estimates are much more modest, as the raw data suggests. (A problem here is that it is difficult to assess how economic conditions would have evolved  if the unconventional policy had not been in place.) But many economists have argued that fundamental tax reform remains the most potent growth–raising weapon in the government’s arsenal — with estimated gains in GDP growth of a half to a full percentage point per year for a decade. Why is it important to have a Fed chair that continues quantitative easing, while failing to have the administration work with Congress to advance fundamental tax reform? In spite of the spillover from the Fed’s asset purchases into higher asset prices, does the president believe that additional quantitative easing has more favorable distributional benefits than tax reform? Does the president’s proposal that corporate-only tax reform coupled with a tax increase on large global firms and small businesses match the growth rhetoric?

Second, by its history as lender of last resort and much enhanced by the Dodd-Frank Act in 2010, the Fed has an outsized role in financial regulation in general and banking regulation in particular. Many commentators have rightly observed that knowledge of financial markets and institutions and how financial excesses build up is key for the next Fed chair. But so, too, does it raise questions for the president in his consideration. Who will advocate for economic growth as well as safety and soundness in financial regulation? How will the Fed’s pursuit of Systemically Important Financial Institutions not enshrine the current “too big to fail” financial institutions? Will the administration pursue reform of housing finance, given the role played by government-sponsored enterprises in the run-up to the financial crisis?

A blueprint to make banks behave

Banking integrity has become an oxymoron. Top bankers need to change this and take responsibility for tackling ethical issues. For this to happen, every part of the organization – from senior management to human resources managers to those on the trading floor and beyond – should be assessed according to the contribution it makes to promoting ethical values, not just the bottom line.

The investigations into the LIBOR rate-rigging scandal showed how commonplace bribery among dealers had become. For example, between September 2008 and August 2009 a single trader at the Royal Bank of Scotland had made corrupt payments to interbank brokers on 30 occasions, by means of risk-free transactions known as “wash trades.”

While the likes of Barclays and RBS have acknowledged wrongdoings and vowed to change course, it’s no longer enough to mollify critics with soothing words, apologies and empty gestures.

Apple and Samsung’s cone of silence

Apple and Samsung, you might have heard, have spent the last many months in a California courtroom haggling over who violated whose patents. At the end of August, Apple was awarded more than a billion dollars in damages by a jury, and the Samsung is now claiming jury misconduct. Just last week a U.S. appeals court threw out the judge’s ban on Samsung’s Galaxy Nexus phone. The whole situation is, really, turning into a bit of a confusing mess.

Also messy: a lesser-known but hugely important struggle among Samsung, Apple, and those members of the press trying to write about the court battle. While otherwise adversaries, the two companies have joined forces to keep some of the evidence in the case off the public record. But how much secrecy in the Apple v. Samsung proceedings is too much for the public to tolerate? It’s a meta legal question, and one that might not have the same billions directly at stake as the main event. But the outcome of the dispute about the transparency of our courts is central to understanding the future of these big tech trials. And there will likely be plenty more of those.

The question at stake is whether the tech firms will be allowed to tie up the courts with their business disputes while engineering it so they don’t face the full scrutiny of a truly public trial.

The people’s business is none of our business

Politicians have always loved to keep the political process as shrouded in mystery as possible. But for a brief time, thanks to the increased use of computers, it seemed that technology would finally shine some needed sunlight on the political process. Due to the extensive virtual paper trails created by emails, and assisted by ever-improving search technology, what went on between government officials was opened up for public examination in new and unexpected ways.

But now, political figures are fighting back. As reports continually show, politicians are pushing to ensure that the people’s business is none of your business.

It was recently reported that New York Governor Andrew Cuomo refuses to use email. He sends and receives messages only by using a BlackBerry-to-BlackBerry messaging system that immediately deletes the message. No paper trail, no negative campaign ads based on anything he wrote in an email, which now even a Freedom of Information Request or an inopportune leak will not reveal. Cuomo has apparently also tried to “clean up” his records from his time as state attorney general, having aides remove key documents from view.

Should we ditch the idea of privacy?

The ubiquity of digital gadgets and sensors, the pervasiveness of networks and the benefits of sharing very personal information through social media have led some to argue that privacy as a social norm is changing and becoming an outmoded concept.  In this three-part series Don Tapscott questions this view, arguing that we each need a personal privacy strategy.

Since I co-authored a book on privacy and the Internet 15 years ago I’ve been writing about how to manage the various threats to the security and control of our personal information. But today I find myself in a completely unexpected discussion. A growing number of people argue that the notion of having a private life in which we carefully restrict what information we share with others may not be a good idea. Instead, sharing our intimate, personal information with others would benefit us individually and as a society.

This is not a fringe movement. The proponents of this view are some of the smartest and most influential thinkers and practitioners of the digital revolution.

from For the Record:

A is for abattoir; Z is for ZULU: All in the Handbook of Journalism

dean-150Dean Wright is Global Editor, Ethics, Innovation and News Standards. Any opinions are his own.

The first entry is abattoir (not abbatoir); the last is ZULU (a term used by Western military forces to mean GMT).

In between are 2,211 additional entries in the A-to-Z general style guide, part of the Reuters Handbook of Journalism, which we are now making available online. Also included in the handbook are sections on standards and values; a guide to operations; a sports style guide and a section of specialised guidance on such issues as personal investments by journalists, dealing with threats and complaints and reporting information found on the internet.

from For the Record:

After the warm glow, telling the cold, hard truths

dean-150Dean Wright is Global Editor, Ethics, Innovation and News Standards. Any opinions are his own.

The president was inaugurated in front of adoring crowds and positive reviews in the media. As the unpopular incumbent sat on the platform with him, the new Democratic chief executive took office as the nation faced a crippling economic crisis. The incoming president was a charismatic figure who had run a brilliant campaign and had handled the press with aplomb. The media were ready to give him a break.

That was 1933, and in Franklin Roosevelt’s case, the media gave him a break.

For Barack Obama, the honeymoon was shorter.

Less than 36 hours after Obama took the oath of office, the White House denied news photographers access to the new president’s do-over swearing in, instead releasing official White House photos of the event. Reuters, The Associated Press and Agence France-Presse protested and refused to distribute the official photos (which nevertheless showed up on the websites of a number of large U.S. newspapers).

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