Fantastic interview with David Stockman

#2
#2
Good stuff so far. I like the point about stock speculation plummeting when bailouts were opposed in order to manipulate the public into reconsidering a bailout.
 
#4
#4
The problem ultimately comes down to trying to affect any actual change when large institutions can basically pay their way to ensuring a shift towards a truly freer market won't happen.
 
#5
#5
milohimself said:
The problem ultimately comes down to trying to affect any actual change when large institutions can basically pay their way to ensuring a shift towards a truly freer market won't happen.
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Another reason to:

1) start over on Dodd-Frank
2) oppose the current structure of the Consumer Protection Agency thingy that Obama created.

Both shift rule making power into a very limited number of political appointees.
 
#6
#6
The CPA started in a good place, the intent was simply to provide good, clear information on which people can make their decisions. Making decisions based on accurate, understood information is a core tenant of a properly working free market.

The problem is trying to make a real shift, and it doesn't matter if you think that requires increased regulation or deregulation, that it will be muddled up in non-specific language or denied altogether.

The financial giants have a great deal of vested interest in making sure that a shift to a free market in which they would have to live with real consequences doesn't occur, as well as effectively de-fanging any real regulation.
 
#7
#7
milohimself said:
The CPA started in a good place, the intent was simply to provide good, clear information on which people can make their decisions. Making decisions based on accurate, understood information is a core tenant of a properly working free market.

The problem is trying to make a real shift, and it doesn't matter if you think that requires increased regulation or deregulation, that it will be muddled up in non-specific language or denied altogether.

The financial giants have a great deal of vested interest in making sure that a shift to a free market in which they would have to live with real consequences doesn't occur, as well as effectively de-fanging any real regulation.
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If all the CPA did was provide transparency then I'd be fine with it. Instead it has been designed with considerably more policy power (e.g. EPA) and shielded from Congressional oversight. It's a recipe for disaster - an Executive appointed committee with no oversight that can set business policy.

Dodd-Frank explicitly prevents free market unwinding of poor performers and institutionalizes "too-big to fail".
 
#8
#8
And it was done that way systematically by lobbyists. It effectively renders that kind of legislation useless against the problems it was supposed to correct and does hurt small and medium sized firms.

Large firms would much rather have 20,000 pages of vaguely worded regulation that would allow them to get eve larger than the 34 page Glass-Steagall act that actually worked.
 
#9
#9
volinbham said:
If all the CPA did was provide transparency then I'd be fine with it. Instead it has been designed with considerably more policy power (e.g. EPA) and shielded from Congressional oversight. It's a recipe for disaster - an Executive appointed committee with no oversight that can set business policy.

Dodd-Frank explicitly prevents free market unwinding of poor performers and institutionalizes "too-big to fail".
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Wut?
 
#13
#13
volinbham said:
What do you think I said? I said it is shielded from Congressional oversight. In the next sentence I indicated it is an agency from one branch without oversight from another branch.
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You said no oversight, which is a blatant misrepresentation and falsehood put out there by the bought and paid for haters.
 
#14
#14
lawgator1 said:
You said no oversight, which is a blatant misrepresentation and falsehood put out there by the bought and paid for haters.
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Both a misrepresentation and falsehood - oh noes! And both are blatant and I'm bought and paid for.

Holy smokes
 
#15
#15
Care to explain the Congressional oversight of the CFPB? Even the Fed (it's own home) requires a 2/3rds majority to overturn a CFPB ruling. The Director has sweeping powers over all lending including rule making and enforcement (blending legislative and executive powers). Just a short list from a long line of oversight issues.
 
#16
#16
The problem with the CPA is who is going to work there? Currently the people at the SEC are a joke and the Treasury is full of either 30 year employees who are there b/c nobody in the private sector will hire them or they are fresh from college and don't have a clue.

Seriously what competent person is going to wake up one day and say "I want to work for the Consumer Protection Agency"
 
#17
#17
It was a fantastically popular idea at its inception, when, as I said, the main goal was transparency with consumer financial products.
 
#18
#18
milohimself said:
It was a fantastically popular idea at its inception, when, as I said, the main goal was transparency with consumer financial products.
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Agreed and that should be the role of government in general in financial-based regulation - ensure transparency and therefore enable proper risk assessment.

One objective of the CFPB is to protect consumers from unfair, deceptive or abusive acts and practices and from discrimination. The CFPB is soley vested with defining "unfair, deception, abusive and discriminatory". The "oversight" in the Fed must agree in 2/3rds majority that the CFPB defined these incorrectly to stop enforcement. Dodd-Frank considers practice to be "abusive" if it materially interferes with a consumers ability to understand a term or condition. Clearly, consumers abilities to understand terms will vary greatly and ONE PERSON is vested with the power to determine if "abuse" occured AND to enforce punishment.

The agency has the power to create, administer, implement and enforce ALL consumer related laws involving finance and credit (which it determines if any given product should be considered a "financial product").

But since it's intended to do good for consumers I guess we should just look the other way and let that one, good person do his/her thing.
 
#19
#19
That same lack of oversight and left in the hands of a czar, so to speak, was also supposed to be its strength. If you leave that sort of thing up to a congressional committee, then decisions presumably get made based on the efforts of lobbying, then you wind up with more government dead weight. If you have one person in an unelected position, then they are free to make decisions without the influence of special interests i.e. the financial lobby.

Not that I'm advocating that solution either, but there are advantages. As you said, there is a role of government in regulation of the financial sector in a limited sense, like issues of transparency for instance. The problem with leaving those decisions up to congressional committees is the financial lobby then has direct access and winds up writing their own rules, which is right along the lines of what got us in the mess we're in.
 
#20
#20
volinbham said:
Care to explain the Congressional oversight of the CFPB? Even the Fed (it's own home) requires a 2/3rds majority to overturn a CFPB ruling. The Director has sweeping powers over all lending including rule making and enforcement (blending legislative and executive powers). Just a short list from a long line of oversight issues.
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So you admit there is oversight ?

And there is considerably more than you let on here.
 
#21
#21
lawgator1 said:
So you admit there is oversight ?

And there is considerably more than you let on here.
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I said there was oversight - my OP indicated that it was limited to one branch of government and even in that branch has limited oversight.
 
#22
#22
milohimself said:
That same lack of oversight and left in the hands of a czar, so to speak, was also supposed to be its strength. If you leave that sort of thing up to a congressional committee, then decisions presumably get made based on the efforts of lobbying, then you wind up with more government dead weight. If you have one person in an unelected position, then they are free to make decisions without the influence of special interests i.e. the financial lobby.

Not that I'm advocating that solution either, but there are advantages. As you said, there is a role of government in regulation of the financial sector in a limited sense, like issues of transparency for instance. The problem with leaving those decisions up to congressional committees is the financial lobby then has direct access and winds up writing their own rules, which is right along the lines of what got us in the mess we're in.
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I get the rationale for "independence" but vesting rule making and enforcing authority for all consumer related financial aspects of our economy in one person is about the farthest thing from free markets I can imagine.

At a minimum, the CFPB should be committee run to ensure one person's views don't hold inordinate power.
 
#23
#23
I agree about committee run, but do you agree that it's important to insulate it from the financial lobby and if so what is the best way to go about it?

Here's a good passage from a book I'm reading:

Smith and his successors also believed that the government had a duty to protect the public from financial swindles and speculative panics, which were both common in eighteenth and nineteenth century Britain. The financial system was a two-tier one, consisting number of big banks based in London and dozens of smaller "country banks" located in other towns and cities. Many of these provincial banks issues their own promissory notes, which circulated as money. There was perennial concern that the banks would issue too much of this paper to unworthy borrowers, leaving them vulnerable to panics should concerned depositors try to withdraw their money. In book two of The Wealth of Nations, Smith cited the case of a Scottish bank that was established to provide loans to local entrepreneurs - "projectors," he called them - on more favorable terms than existing lenders, and which quickly ended up with many heavily indebted customers. "The bank, no doubt, gave some temporary relief to those projectors, and enabled them to carry on their projects for about two years longer than they otherwise would have done," Smith wrote. "But it thereby only enabled them to get so much deeper into debt, so that, when ruin came, it fell so much the heavier both upon them and upon their creditors."

To prevent a recurrence of credit busts, Smith advocated preventing banks from issuing notes to speculative lenders. "Such regulations may, no doubt, be considered as in some respects a violation of natural liberty," he wrote. "But these exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments, of the most free, as well as the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed."
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- John Cassidy

I think this is a proper take on both the reasonable extent of economic liberty and an indictment of our own Federal Reserve's recent policy of "free money" to speculative trading practices.
 
#24
#24
milohimself said:
I agree about committee run, but do you agree that it's important to insulate it from the financial lobby and if so what is the best way to go about it?
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Insulation is important but I think we have the tale wagging the dog here. If the Fed Govt stuck to a role of enforcing transparency primarily then the financial lobby is somewhat neutered. As the case with the tax code that is a mish mash of special deals and incentives, the regulatory framework is the same. The more roles and rules you put in place, the more incentive and opportunity there is to influence the tweeking. If you have flatter taxes and broader regulations you limit the incentive and opportunity. The argument for the CFPB seems to be that Congress can't do this so will add another layer of influence on top. I think it's a grave mistake to vest so much power in that additional layer, particularly given the single director model. IIRC, even the POTUS cannot remove the director after he's been appointed.

I don't see the financial crisis as primarily a result of insufficient regulations or consumer protection. The rules were there, the SEC and other agencies were asleep at the wheel. Other than Glass/Stegall I don't believe lack of rules was a major factor in the meltdown.

I'd rather see a simplification and flattening of both the tax structure and the regulatory framework. By doing so you starve the lobby. Dodd-Frank will accelerate the lobby effect. Adding the CFPB will likewise do so. Under it's current structure, a single CFPB Director could be highly influenced by the financial lobby and since power is so concentrated, the effects will be hard to mitigate.
 
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#25
#25
That influence can only happen if their job depends on campaign finance dollars to keep their job. If it's an unelected position and they don't have donors to answer to in order to keep their job, then they theoretically become incorruptible by the financial lobby. But, as you intimated, there is then a whole other host of issues introduced by instituting a czar with oversight that's inefficient at best.

You're right. Blindly pointing at deregulation as the cause of the crash isn't really accurate. The people in significant economic posts during the Bush administration did have the tools at their disposal in order to do something about it, and we know for a fact there were people within the SEC and other government agencies frantically waving giant red flags for years prior saying "This boom isn't real and we're about to be screwed" but all of those warnings were summarily ignored.

The way the regulation structure was set up basically allowed people at government posts to just watch the speculative bubble happen. People tried to tell them Santa wasn't real, but who's going to listen when they're getting showered with presents?

You did mention Glass-Steagall, which is really a big key in all of this. I'm not necessarily for across the board regulation as the answer, though virtually all classical free market doctrine says regulation of banking and finance is necessary to an extent because of exactly what just happened.

It all came down to a combination of the repeal of Glass-Steagall, a failure to allow normal free market operation resulting in the ballooning of the financial industry which took advantage of lobbying in order to make sure they stay in a place where their balance sheets are so large and all-consuming that the government is almost in a place where they have to flush cash in when the bubble pops.

I don't think the tax code really ties into this. A proper amount of regulation does need to be revised and reinforced, but it still comes down to the same problem: the financial giants have a heavily vested interest in maintaining TBTF status and the lobby machine in Washington has a heavily vested interest in its own survival. There is so much glut in that sector that they can and will outspend anyone and everyone to make sure they don't get gutted and reduced, and unlimited undisclosed campaign contributions is the perfect tool through which they can do that. Simplification and flattening of the tax code is all well and good but it won't remedy the situation.

I see three options here: Increased regulation. That was tried, that's what Dodd-Frank was supposed to be. It failed because the financial lobby went in and saddled small and medium firms with 20,000 pages of new regulation while doing nothing to correct market issues. The second is something like the CFPB, which has to strike a likely untenable balance between either being autonomous and given great regulatory control over the financial sector while being accountable to no one; however, the way to make them accountable is to make them subject to congressional oversight, which leads you right back to the same problem: The CFPB would be accountable to congress who is accountable to the financial lobby. The third is campaign finance reform.
 
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