James Pethokoukis

Some polling results from a healthcare poll from global branding firm Siegel+Gale:

– 37 percent understand the president’s plan
– 17 percent believe the plan is deficit neutral
– 20 percent believe funding will come from a fine on the wealthy.
– 32 percent actually support the president’s plan
– 40 percent have no idea how is being paid for
– 34 percent think everyone other than Congress will be pushed into public plan

“Clearly the whole health care issue is fraught with complexity, political in-fighting, and emotion that is not helped by poor media coverage. So I’m not surprised that the American people have thrown up their hands – even sophisticated consumer advocates are not clear about the plan,” says Alan Siegel, Chairman and Founder of Siegel+Gale.

Time for another speech!

My Reuters amigo Christopher “Black” Swann goes after the Fed plan to curb Wall Street pay — with a vengeance. Here is a bit, but read the whole thing. Your brain will thank you:

1. The Fed is certain to be outmatched. In one corner you have a central bank that has been notoriously spineless on regulatory matters. The institution is crammed with officials who have traditionally seen themselves as defenders of the banking system and advocates of laissez faire. … In the opposing corner you have heavy-weight Wall Street institutions with armies of lawyers dedicated to gaming the regulatory system.

2. There is a deeper objection to the Fed’s effort. The real problem is not the structure of bank pay but its scale. The received wisdom remains that longer-term incentives will curb risk taking. Lock up bonuses in stock and you will tame bankers. The experience of the 2008 financial crisis screams otherwise. In the case of Lehman Brothers and Bear Stearns, leading bankers were major shareholders. Richard Fuld was heavily invested in Lehman stock and saw the bulk of his fortune evaporate when the firm collapsed. Ownership does not seem to lower risk.

3. The key, then, is to curb the overall amount of risk that banks can take on. The main tool for doing this is by insisting on much larger capital reserves. This kills two birds with one stone. Tighter capital rules will increase the stability of the financial system and limit the exposure of taxpayers in the event of failure. In addition, tighter capital rules are the most reliable way of bringing down overall bank pay.

Bruce Bartlett makes the case that a) either taxes need to be raised or spending cut to bring America back to fiscal solvency, b) there is little historical evidence that spending can be cut, and thus c) taxes are headed higher. Certainly Congress has show itself willing to raises taxes (1982, 1991, 1993) by large amounts and not cut spending. Both the 2005 effort by the Bush administration to fix Social Security and the current effort to reign in healthcare costs are further evidence. Yet you certainly wouldn’t want to close the hole purely by raising taxes, would you? I think they would have to rise by 50 percent, IIRC.  We would definitely be on the wrong side of the Laffer curve then. Spending is really Obama’s Nixon-to-China opportunity …

After a big speech by the POTUS and the leak of a Fed proposal to monitor and curb Wall Street pay (really, pay at thousands of banks), what has changed about Too Big Too Fail, erratic Fed monetary policy and U.S. housing policy? They’re the true villains of the financial crisis. You want to limit leverage and raise capital requirement? Fine.  But the WH is taking its eye off the ball, I think …

The Obama administration wants the Federal Reserve to be the maximum regulator of the American financial system. As Treasury Secretary Timothy Geithner told the Senate Banking Committee, “The Federal Reserve is best positioned to play that role. It already supervises and regulates bank holding companies, including all major U.S. commercial and investment banks.”

The problem, of course, is that most informed observers have concluded that the Fed failed to adequately supervise and regulate banks during the lead-up to the financial crisis. Count Senator Chris Dodd, chairman of the Senate Banking Committee, in that camp. “There’s not a lot of confidence in the Fed at this point,” Dodd said right after the White House released its financial reform proposal.

This is where Daniel Tarullo makes his appearance. The newest member of the Federal Reserve has apparently authored a plan to have the central bank approve compensation policies potentially But previous to joining the Fed, Tarullo was an influential economic adviser in the Obama presidential campaign.

So now what we have, I think, is Obama’s man at the Fed pushing a politically savvy plan that could bolster the Fed’s standing as a tough regulator in the eyes of Congress and deflect some of the criticism of the central banks past failings. Score one for the White House in its push to make the Fed super-regulator.

Surely, the timing couldn’t be better. Not only has the administration been refocusing attention on passing financial reform – witness the president’s tough Wall Street speech – but next week’s G-20 meeting will include extensive discussion about banker pay issues.

But this is a case where good short-term politics makes for bad long-term bad policy. The greater the Fed involvement in the regulatory process, the greater attention it will receive from Congress – and the greater the threat to its cherished independence.

As it is, the Fed’s historic efforts to rescue the financial system have raised concerns on Capitol Hill that it has too much power with too little oversight. That’s why Rep. Ron Paul’s bill to audit the Fed, according to Financial Services Committee Chairman Barney Frank, will pass the House this year. (Indeed, what Paul really wants to do is end, not mend the Fed.)

Really, could anyone possibly believe that having the Fed become the pay czar at 5,000 banks would lessen congressional interest in its activities, including monetary policy? Not to mention that a better solution to excessive financial risk taking is the restoration of market discipline on Wall Street.

Better that Wall Street understand the consequences of poorly incentivized pay structures. “Too big too fail” remains the biggest threat to America’s fragile financial system.

Talk about a phenomenally bad idea. According to the WSJ:

Policies that set the pay for tens of thousands of bank employees nationwide would require approval from the Federal Reserve as part of a far-reaching proposal to rein in risk-taking at financial institutions. … Under the proposal, the Fed could reject any compensation policies it believes encourage bank employees — from chief executives, to traders, to loan officers — to take too much risk. Bureaucrats wouldn’t set the pay of individuals, but would review and, if necessary, amend each bank’s salary and bonus policies to make sure they don’t create harmful incentives.

Me: Team Obama wants the Fed to be the super-regulator of the financial system. Sen. Chris “I have no confidence in the Fed” Dodd, chairman of the Senate Banking Committee, would prefer a new, separate entity. A now here we have a plan that would see the Fed doing the kind of thing a super-regulator might do. It is like the Fed is saying, “Hey, we know we dropped the ball before. We get it.  Now we are getting tough. Trust us.”  And don’t ignore the fact that the guy pushing this is Daniel Tarullo, a Fed governor and Obama economic adviser. This is like a joint Fed-WH operation. Also don’t forget that this is coming right before the G-20 meeting where there are expected to be calls to get tough on banker pay. So one could view this as a PR ploy by a WH that is less enthused about pay restrictions than Europe.

Of course, this is a lousy idea. Banker pay didn’t cause the financial crisis. The government should not be micromanaging private-sector compensation. Also, the more the Fed is involved in the regulatory process, the more it is open to political scrutiny.  Yves Smith seems to think this will tamp down support for Ron Paul’s Fed audit bill. Actually, I think this increases support for the bill since the more powerful the Fed seems, the greater the attractiveness of increased oversight and congressional meddling.