The Growth Rate Again!



Paul Krugman’s article in the editorial section of today’s New York Times begins to cast doubt on the all-too-frequently heard exaggerated estimates of a future economic growth rate in this country of 3.5 percent—but not sufficiently, in our opinion.

By PAUL KRUGMAN for the New York Times, Feb. 21, 2017

. . . The Trump team is apparently projecting growth at between 3 and 3.5 percent for a decade. This wouldn’t be unprecedented: the U.S. economy grew at a 3.4 percent rate during the Reagan years, 3.7 percent under Bill Clinton. But a repeat performance is unlikely.

For one thing, in the Reagan years baby boomers were still entering the work force. Now they’re on their way out, and the rise in the working-age population has slowed to a crawl. This demographic shift alone should, other things being equal, subtract around a percentage point from U.S. growth.

Furthermore, both Reagan and Clinton inherited depressed economies, with unemployment well over 7 percent. This meant that there was a lot of economic slack, allowing rapid growth as the unemployed went back to work. Today, by contrast, unemployment is under 5 percent, and other indicators suggest an economy close to full employment. This leaves much less scope for rapid growth. . . .

As I said, belief that tax cuts and deregulation will reliably produce awesome growth isn’t unique to the Trump-Putin administration. We heard the same thing from Jeb Bush (who?); we hear it from congressional Republicans like Paul Ryan. The question is why. After all, there is nothing — nothing at all — in the historical record to justify this arrogance.

Yes, Reagan presided over pretty fast growth. But Bill Clinton, who raised taxes on the rich, amid confident predictions from the right that this would cause an economic disaster, presided over even faster growth. President Obama presided over much more rapid private-sector job growth than George W. Bush, even if you leave out the 2008 collapse. Furthermore, two Obama policies that the right totally hated – the 2013 hike in tax rates on the rich, and the 2014 implementation of the Affordable Care Act – produced no slowdown at all in job creation.


Now let us take a look at Thomas Piketty’s  Capital in the Twenty-First Century. Piketty  made a  global study of growth rates reaching back to the eighteenth century and he sees no reason to believe future growth rates in the United States will ever rise much above 1.5 percent in the future .

From Capital in the Twenty-First Century by Thomas Piketty,  pp.93-94: “The End of Growth”

Now to consider the future. Will the spectacular increase in per capita output I have just described inexorably slow in the twenty-first century? Are we headed toward the end of growth for technological or ecological reasons, or perhaps both at once?. . .

At the global level, the average rate of growth of per capita output was 0.8 percent per year from 1700 to 2012, or 0.1 in the period 1700-1820, 0.9 percent in 1820-1913, and 1.6 percent in 1913-2012. . .

In Europe, per capita output grew at a rate of 1.0 percent 1820-1913 and 1.9 percent 1913-2012. In America growth reached 1.5 percent: 1820-1913 and 1.5 percent 1913-2012.

The details are unimportant. The key point is that there is no historical example of a country at the world technological frontier whose growth in per capita output exceeded 1.5 percent over a lengthy period of time. If we look at the last few decades, we find even lower growth rates in the wealthiest countries: between 1990 and 2012, per capita output grew at a rate of 1.6 percent in Western Europe, 1.4 percent in North America, and 0.7 percent in Japan. It is important to bear this in mind as I proceed, because many people think that growth ought to be at least 3 to 4 percent per year. As noted, both history and logic show this to be illusory


This chart from Piketty’s book clearly indicates that growth rates much above 1.5 percent have been extremely rare in world economic history and only for brief periods (e.g., Europe 1950-1970)  and under extraordinary circumstances. They are not the norm and will not be repeated in our lifetime.

Does Dodd-Frank Restrict Banks from Lending?

In the Republican assault on the Dodd-Frank law, one frequent criticism of this regulatory measure enacted by the last administration is that it restricts banks from making loans and consequently is hurting the economy and job creation. Gretchen Morgenson of the New York Times questioned the veteran bank analyst Richard Bove, of Rafferty Capital Markets, about this and this was his response: 

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By GRETCHEN MORGENSON for the New York Times, Feb. 18, 2017

. . . Indeed, a look at recent bank results shows that lending among the big institutions is rising, not falling.  In the fourth quarter of 2016, the most recent period, Bank of America, Citigroup, J. P. Morgan and Wells Fargo all reported increases in their average loan figures. . . .

There is no doubt that Congress’ regulatory response to the financial crisis of 2008, which was largely fueled by reckless mortgage lending, tightened the rules for banks. Chief among them was a requirement that these institutions set aside greater amounts of capital to cover potential losses. That was justified, but it is crimping lending.

And there are other reasons these institutions are relatively restrained in their lending, Mr. Bove said. . . .

 Bank managers cannot control interest rates. But they can control the amount of dividends they pay out to shareholders, and the amount of stock they buy back in the open market. And generous distributions to shareholders by bank officials are a big factor in diminishing the money left over for making loans.

Stock buybacks and lush dividends come out of a bank’s retained earnings, also its source for increased lending. And Mr. Bove characterizes these payouts as financial engineering, pursued by bank executives interested in making their stocks perform better. He criticizes this practice, because while dividends and buybacks are good in the short-term, fewer loans will translate into reduced long-term earnings power at a bank.

The amounts being paid out are considerable. During 2016, Wells Fargo returned $12.5 billion to shareholders through common stock dividends and share repurchases net of stock issued to employees. And in the most recent quarter, J. P. Morgan returned $3.8 billion to shareholders. That included $2.1 billion of net stock buybacks.

. . . But officials at these institutions often contend that buying back stock and paying rich dividends are ways of returning excess capital to their shareholders, who are entitled to that money. . . .

But buying back shares and paying rich dividends to shareholders diminishes a bank’s common equity. And among 18 large banks that Mr. Bove follows, 14 showed declines in common equity in the fourth quarter of 2016 as a result of increased interest rates, buybacks and dividends. The combined decline in equity totaled almost $18 billion; in his view, that means the banks have lowered their ability to lend by $250 billion. To be sure, none of these banks are paying out all of their excess capital in dividends or stock buybacks. And that leaves them with a much fatter cushion for bad times.

But Mr. Bove said that he had recently spoken with some bank executives who are considering paying out all the growth they report in retained earnings or common equity. “This would effectively negate any contribution that profits would make to retained earnings,” Mr. Bove wrote in a recent research note. “The combination of further interest rate increases and large buyback programs would accelerate the decline in common equity and the ability of banks to make loans.” . . .

One of Dodd-Frank’s bigger errors was to require smaller banks that had played no role in the crisis to ramp up their compliance duties as well. This was unfair and, yes, burdensome. Mr. Bove said he believes that some of the regulations should be reversed, but the elements he cited are not those that Republicans are focusing on.

“The Republicans in the House and Senate cannot even agree with each other as to what should be deregulated,” he pointed out in a recent research note. “In the Senate, they want a big-government approach to change the structure of the industry. In the House, there is a desire to get rid of irritating amendments to Dodd-Frank. Nothing is going to get done.”

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If Mr. Bove is right, that might be a good outcome. But this much is clear: The next time someone tells you that a wide swath of financial regulations needs to be reversed because they are crimping bank lending, you can tell them they’ve got only part of the story.

Have the Past Eight Years Chastened Wall Street?

Two articles recently, one from the Wall Street Journal and the other from the New York Times, give us hope that, in spite of the President’s threat to demolish Dodd-Frank, big business may have more sense than to abandon it in its entirety. Concern for their fallen reputation with the public at large and pressure from their stockholders may very well  lead them to retain and adopt some of the restraints that the regulatory law would have required. See below:


By KEN BROWN,  Feb. 8, 2017, for the Wall Street Journal,

The Trump administration has pledged to boost economic growth by cutting two regulations for every new one created. Investors have responded by bidding up stocks in the hope that profits will surge.


In the past companies would have been off to the races, building belching smokestacks and cutting back on worker safety, though, all in the name of profits. Today, businesses will rejoice at reduced red tape and might invest in areas they have avoided, but few will pollute more or risk damaging their reputations as good corporate citizens. The extent to which businesses will take advantage of the easier regulations will determine whether the economy gets the boost the administration is seeking.

DENVER, CO. MONDAY, JANUARY 31, 2005- The Denver Public Schools Commission on Secondary School Reform met behind open doors at the National Jewish Hospital board room. The commission was going to evoke executive session privilege to shield the meeting fro

Business[es] that sell to consumers are especially sensitive to their reputations. But all U.S. companies are increasingly wary of how their shareholders might respond to their behavior. Investors that incorporate businesses’ records on the environment, social factors such as diversity and good governance characteristics into their decisions account for $9 trillion in investment assets in the U.S. While that is about 20% of overall assets, these funds have grown 33% a year over the past two years. The numbers in Europe are far higher.

“This was something nobody really cared about 20 years ago from a U.S. investment perspective,” said Savita Subramanian, an equity and quantitative strategist at Bank of America Merrill Lynch. New research by Ms. Subramanian shows they should. Her group analyzed corporate ratings of environmental, social and governance characteristics and found that since 2005, companies that scored in the top third relative to their peers outperformed stocks in the bottom third by 18 percentage points.

Ms. Subramanian’s data also show that companies that score well had smaller price declines on average, which she sees as a result of their efforts to control risk. Ms. Subramanian, a quantitative analyst for Merrill Lynch since 2001, was surprised that the scores had a measurable effect. “I’m so used to running these back tests and you get zero impact,” she said.

Corporate executives are nearly unanimous that cutting red tape and compliance costs will boost their performance. Banks in particular would benefit from reductions in compliance requirements that have mushroomed in recent years. But beyond that, they are cautious about loosening safeguards just when their shareholders are looking more closely. “You don’t want to wait until your investors are demanding it, you know which way the parade is going,” said David A. Golden, the chief legal and sustainability officer at Eastman Chemical .

Eastman has faced both higher expenses from compliance and benefited from rules, for example, by building a big business selling products to the auto industry that improve fuel efficiency. And regardless of what happens in the U.S., Eastman makes products to a single global standard, either based on U.S. or foreign rules, whichever are higher.

The first test of corporate behavior will likely be in the energy industry where the Trump administration and the Republican Congress have quickly moved to roll back a rule on emissions of methane, a potent greenhouse gas, and one that protects streams from pollution from coal mining. The regulations, though, came in the waning days of the Obama administration, so it isn’t as if companies will have to go back on longstanding practices.

Analysts have struggled for years to quantify the cost of regulation. In the meantime, businesses have new pressures to hold to high standards. The economic boost from slashing the rules may be less than the administration thinks.

Have Bankers Really Learned a Lesson?

By WILLIAM D. COHAN, Feb. 10, 2017, for the New York Times


It’s been a rough eight years in exile for the big banks. Barely three months into the job, President Obama told the chief executives of the nation’s most powerful banks that his administration was the only thing standing “between you and the pitchforks.” Later he said he did not get elected to help out “a bunch of fat-cat bankers.” There were well-deserved public floggings of bankers in Congress and in front of the Financial Crisis Inquiry Commission. And in July 2010, President Obama signed the Dodd-Frank law, a complex set of rules governing what bankers and traders could do to make money and the risks they could take, intended to prevent another financial crisis.

Dodd-Frank and other financial regulations adopted around the same time have made it much harder for Wall Street to do what it does best: provide much-needed capital to businesses that want it. They are often cited, correctly, as a big culprit behind what Lawrence Summers, the Harvard economist and former Treasury secretary, refers to as “secular stagnation,” an economy that is “stuck in neutral” and condemned to a mere 2 percent annual gross domestic product growth rate.

Meanwhile, Mr. Obama’s Justice Department forced the big firms — or more accurately their shareholders — to cough up more than $200 billion in fines as punishment for, among other things, the role the banks played in knowingly packaging shoddy mortgages into securities and then passing them off as AAA-rated investments. We were led to believe these exorbitant fines were the same as justice, but that’s not remotely true, especially since many of the facts about what happened were whitewashed as part of the settlements and no individual Wall Street bankers, traders or executives have been held responsible for their wrongdoing. . . .


It’s about time we stopped flogging Wall Street, but we shouldn’t forgive it, either. These rich white men need to take advantage of their second chance to help the American economy get back on a more secure footing, one that works for everyone, not just for the elites. . . .

Parts of the Obama-era regulations make sense and should be kept: for instance, demanding that big banks have more capital and less leverage; requiring that often-risky financial derivatives be traded on exchanges so that their pricing is more transparent; and ensuring that brokers have their customers’ best interests at heart when advising them on their retirement accounts — the fiduciary rule, which Mr. Trump is unfortunately likely to eliminate. . . .

If Mr. Trump does even a portion of what he promised he would do — and he’ll need congressional approval to do much of anything — Wall Street will applaud, and smarter regulation will probably serve as a catalyst to get the economy humming again. But repealing the bad regulations, let alone the good ones like the fiduciary rule, will do nothing to rehabilitate Wall Street’s image or overcome the view that the markets are rigged against the average investor.

The 2008 financial crisis badly hurt Wall Street by removing all doubt that the people who work there are in it for themselves (and their fat paychecks) regardless of the consequences of their poor judgment on the rest of us. That perception must be changed if we want ordinary Americans to benefit from a functioning Wall Street.

So while Mr. Trump and his banker buddies whittle away at Dodd-Frank, they need to do something else as well: junk Wall Street’s compensation system, which continues to reward bankers for making big bets with other people’s money and does nothing to hold them accountable when the bets go bad. We need to replace this system with one that rewards people when they succeed but penalizes them when they fail.

To do this, the government could require that the leading executives at each big bank — the top 500 or so people — put their own assets on the line in the event of a bankruptcy filing, bailout or default. Creditors and shareholders would have what’s called a first lien against executives’ co-op apartments, Hamptons houses, art collections and bank accounts. This would go beyond a now doomed Dodd-Frank proposal to claw back bonuses. Only something like this would properly align risk and reward on Wall Street, and help to prevent the next financial crisis.

This is actually how Wall Street worked once upon a time, when it was just undercapitalized small firms in which partners invested their own hard-earned capital. They lived with a daily existential threat that they could lose everything because of a foolish trader or an unscrupulous banker. But this changed in 1970, when the brokerage firm Donaldson, Lufkin & Jenrette sold a portion of its stock to the public. One Wall Street firm after another followed, with the climax coming in May 1999, when Goldman Sachs went public. Virtually overnight, Goldman’s partners were worth tens, if not hundreds, of millions of dollars.


Wall Street was no longer gambling with its own money, but with the public’s. As a result, for the past 47 years, Wall Street has been rewarding its star performers for generating as much revenue as possible, without a particular concern for how it was done. The only wonder is why it took so long for the 2008 crisis to come along.

People are pretty simple. If you reward them to take big risks with other people’s money, that is exactly what they will do. So sure, Mr. Trump, go ahead and work to repeal what you don’t like about Dodd-Frank. Try to increase G.D.P. growth to 4 percent. Ratchet up the supply of high-paying jobs. Move millions of people out of poverty into the middle class. An untethered Wall Street will help make that possible.

But the repeal of burdensome regulations cannot be done in a vacuum. Wall Street must also be forced to change its compensation system to one where there is real accountability for the bad behavior of bankers, traders and executives. Accidents are inevitable. Wall Street needs — and wants — seatbelts and speed limits.

William D. Cohan is the author of the forthcoming “Why Wall Street Matters.”


More on the Undoing of Our Financial Safeguards

The Republican Administration is in the process of dismantling the safeguards which were put in place by the previous administration following the Great Recession of 2007-2008. In this blog we look at two very different points of view of this process. First, a very sensible summary and explanation of the safeguards themselves and what they were intended to accomplish, followed by a look at how they are being dismantled and why, from the February 6 New York Times:

06krugmanweb-master768Credit Sam Hodgson for The New York Times

Springtime for Scammers

By PAUL KRUGMAN for The New York Times

. . . so far [President Trump’s] economic policies are all about empowering ethically challenged businesses to cheat and exploit the little guy.

In particular, he and his allies in Congress are making it a priority to unravel financial reform — and specifically the parts of financial reform that protect consumers against predators.

Last week Mr. Trump released a memorandum calling on the Department of Labor to reconsider its new “fiduciary rule,” which requires financial advisers to act in their clients’ best interests — as opposed to, say, steering them into investments on which the advisers get big commissions. He also issued an executive order designed to weaken the Dodd-Frank financial reform, enacted in 2010 in the aftermath of the financial crisis.

Both moves are very much in line with the priorities of congressional Republicans and, of course, the financial industry. For both groups really, really hate financial regulation, especially when it helps protect families against sharp practice.

Why, after all, was the fiduciary rule created? The main issue here is retirement savings — the 401(k)’s and other plans that are Americans’ main source of retirement income over and above Social Security. To invest these funds, people have turned to financial professionals — but most probably weren’t aware that these professionals were under no legal obligation to give advice that maximized clients’ returns rather than their own incomes.

This is a big deal. A 2015 Obama administration study concluded that “conflicted investment advice” has been reducing the return on retirement savings by around one percentage point, costing ordinary Americans around $17 billion each year. Where has that $17 billion been going? Largely into the pockets of various financial-industry players. And now we have a White House trying to ensure that this game goes on.

On Dodd-Frank: Republicans would like to repeal the whole law, but probably don’t have the votes. What they can do is try to cripple enforcement, especially by undermining the Consumer Financial Protection Bureau, whose goal is to protect ordinary families from financial scams.

Unlike other parts of Dodd-Frank, which are supposed to reduce the risk of a future financial crisis — and won’t be fully tested until the next major shock hits — the bureau is designed to deal with problems that afflict consumers in good times and bad. And by all accounts it has been a huge success, increasing transparency, reducing fees, and exposing fraud. Remember the Wells Fargo scandal, in which the bank was found to have signed millions of customers up for accounts, credit cards, and services without their consent or knowledge? This scandal only came to light thanks to the bureau.

So why are consumer protections in the Trump firing line?

Gary Cohn, the Goldman Sachs banker appointed to head Mr. Trump’s National Economic Council — populism! — says that the fiduciary rule is like “putting only healthy food on the menu” and denying people the right to eat unhealthy food if they want it. Of course, it doesn’t do anything like that. If you want a better analogy, it’s like preventing restaurants from claiming that their 1400-calorie portions are health food.

Mr. Trump offers a different explanation for his hostility to financial reform: It’s hurting credit availability. “I have so many people, friends of mine that had nice businesses, they can’t borrow money.” It would be interesting to learn what these “nice businesses” are. What we do know is that U.S. banks have generally shunned Mr. Trump’s own businesses — from which, by the way, he hasn’t separated himself at all — perhaps because of his history of defaults.

Other would-be borrowers, however, don’t seem to be having problems. Only 4 percent of the small firms surveyed by the National Federation of Independent Business report themselves unsatisfied with loan availability, a historic low. Overall bank lending in the United States has been quite robust since Dodd-Frank was enacted.

So what’s motivating the attack on financial regulation? Well, there’s a lot of money at stake — money that the financial industry has been extracting from unwitting, unprotected consumers. Financial reform was starting to roll back these abuses, but we clearly now have a political leadership determined to roll back the rollback. Make financial predation great again!

And now to hear from the other side

Let’s see how differently the financial institutions themselves look at the system and its overhaul. This partial article is lifted from the Opinion section of the Wall Street Journal of the same day. Our comments are in purple

 04konczalweb-master768President Trump signing an executive order in the Oval Office on Friday. Credit Al Drago/The New York Times

President Trump is focusing early on rolling back regulation, and on Friday he took another good step with directives to peel back Dodd-Frank and the Labor Department’s fiduciary rule. Democrats are predicting another financial crisis, but it’s possible to build a sturdy system that also allows for more risk-taking to serve economic growth.

Start by repealing rules that add costs without making the system safer, such as the fiduciary rule that Labor imposed last year under the guise of protecting savers. The rule requires brokers to act in the “best interest” of clients, though many investors will be harmed (Harmed by what, exactly?). The rule will make investment advice too expensive for many small investors as brokers eliminate commissions and instead charge fees. Plaintiff attorneys are circling, ready to slap brokers with class-action lawsuits if stock prices fall. (To conceal the fact that they have just put the fox in charge of the henhouse they frighten the poor investor, first with invented fees, and then with made-up malpractice suits.)

Small investors may also find themselves at the mercy of robo advisers that may have a hard time discerning their client’s best interest. (Well, at least the machine isn’t going to try to line its pockets with the  investor client’s money.) Want to know whether to boost your investment in health stocks if ObamaCare is repealed? Ask Alexa. (This isn’t the first time the money men have used robots as  bogeymen to scare the working class.) Robert Litan and Hal Singer have estimated that depriving small investors of human advice could cost clients $80 billion in a downturn. Mr. Trump ordered Labor to review and perhaps rewrite the rule that was scheduled to take effect in April.

The President also directed a review of the 2,300-page Dodd-Frank law that has turned banks into regulated utilities. Gary Cohn, who runs Mr. Trump’s National Economic Council, told the Journal that Dodd-Frank’s costs and complexity have restrained bank lending. Democrats wrote Dodd-Frank with enough ambiguity so the feds could regulate as they please. But this means a new government can ease those burdens without Congress.  .  .  .

Also in need of review is the Volcker Rule, which had the sensible goal of barring high-risk trading at taxpayer-insured banks. But regulators needed four years to finalize the abstruse 950-page rule that includes 2,800 footnotes. One iron rule of government is that the more complex a regulation, the easier to find loopholes. (A major safeguard that prevents commercial banks from becoming high-risk trading institutions, as they did prior to the Great Recession, is faulted because it’s too long?)

Dodd-Frank’s fatal flaw is assuming that regulators who failed to prevent the last crisis will foresee and prevent the next one. All they need are more rules and more power. But financial manias happen precisely because everyone assumes the good times will last forever. (Precisely! As we saw in the last financial crisis of 2007-2008, it was not everyone but specifically the predator banks that assumed the good times would last forever from whom we need to be protected.)

The better way to prevent a panic is to have simple but firm rules along with high capital standards that make banks better able to endure losses in a downturn. That’s the philosophy behind House Financial Services Chairman Jeb Hensarling’s proposed financial reform, and it’s the direction the Trump Administration should take even without legislation.

But will it? The President signed his directives Friday after meeting with bank executives, and he didn’t help himself politically by praising the “great returns” BlackRock has earned. The point is to help the larger economy, not bank profits.

As a Goldman Sachs alum, Mr. Cohn has a particular burden not merely to relax regulations that are the bane of big banks while doing little to relieve the burden on their smaller competitors and tech start-ups. J.P. Morgan ’s Jamie Dimon and Goldman Sachs’s Lloyd Blankfein have argued against a wholesale repeal of Dodd-Frank, which has given these large incumbents a competitive advantage.

Although Mr. Cohn said the U.S. has the highest bank capital standards in the world, they aren’t as high as they should be. The trade he could offer Wall Street is less burdensome regulation in return for higher capital standards. The banks would then be freer to lend money while taxpayers have more protection against the next bailout. This would have the added political benefit of blunting the inevitable Democratic attacks that Messrs. Cohn and Trump are trying to help Wall Street [avoid?].

You choose whose explanation you like best.

Two Very Different Ways of Handling a Financial Crisis.

First, from The Wall Street Journal, February 3, 2017



WASHINGTON—President Donald Trump on Friday plans to sign an executive action that establishes a framework for scaling back the 2010 Dodd-Frank financial overhaul law [1], part of a sweeping plan to dismantle much of the regulatory system put in place after the financial crisis.

Mr. Trump also plans another executive action aimed at rolling back a controversial regulation scheduled to take effect in April that critics have said would upend the retirement-account advisory business [2].

“Americans are going to have better choices and Americans are going to have better products because we’re not going to burden the banks with literally hundreds of billions of dollars of regulatory costs every year,” White House National Economic Council Director Gary Cohn said in an interview with The Wall Street Journal. “The banks are going to be able to price product more efficiently and more effectively to consumers.”

Mr. Trump will use a memorandum to ask the labor secretary to consider rescinding a rule set to go into effect in April that orders retirement advisers, overseeing about $3 trillion in assets, to act in the best interest of their clients, Mr. Cohn said in the White House interview. He said the rule limits consumer choice.

Mr. Trump also will sign an executive order that directs the Treasury secretary and financial regulators to come up with a plan to revise rules the Dodd-Frank law put in place.

Mr. Cohn said the actions are intended to pave the way for additional orders that would affect the post crisis Financial Stability Oversight Council [3],  the mechanism for winding down a giant faltering financial company, and the way the government supervises big financial firms that aren’t traditional banks, often referred to as systemically important financial institutions.

“This is a table setter for a bunch of stuff that is coming,” he said. (Whoa!)

The changes Mr. Cohn described are sure to face a fight from consumer groups and Democrats, who say postcrisis regulations are protecting average borrowers and investors from abusive practices, while making the financial system more resilient and bailouts less likely.

This path also may create political problems for Mr. Trump, whose populist campaign was successful in swaths of the Midwest where homeowners were hit hardest by the housing crash sparked by the financial crisis.

Mr. Trump blamed the political establishment and Wall Street banks for leaving behind many Americans and vowed to break up both. Those promises have already been called into question as he has filled his administration with members of Congress and Wall Street executives, including Mr. Cohn, who retired as president of Goldman Sachs Group Inc. to join the Trump administration.

Adding to the potentially difficult optics for Mr. Trump, he will sign the actions on the same day he meets with a group of business executives, including J.P. Morgan Chase & Co. Chief Executive James Dimon and BlackRock Inc. CEO Laurence Fink.

Asked about the potential political pushback because of his Wall Street past, Mr. Cohn said the administration’s goal of deregulating financial markets “has nothing to do with Goldman Sachs.” (Uh-huh!)

“It has nothing to do with J.P. Morgan,” he said. “It has nothing to do with Citigroup . It has nothing to do with Bank of America . It has to do with being a player in a global market where we should, could and will have a dominant position as long as we don’t regulate ourselves out of that.”

Mr. Cohn said existing regulations put in place by Dodd-Frank are so sweeping that it is too hard for banks to lend, and consumers’ choice of financial products is too limited.

Democrats and consumer groups have pushed for tighter controls on banks and other lenders, particularly after the subprime mortgage crisis that helped fuel the global financial crisis.

But Mr. Cohn said that many of the postcrisis rules haven’t solved the problems they were supposed to be addressing. He said, for example, that there still isn’t a solid process to safely wind down the collapse of a giant faltering financial company or to ensure that those firms have access to short-term liquidity.

“I’m not sitting here saying we want to go back to the good old days,” Mr. Cohn said. (See below)

“We have the best, most highly capitalized banks in the world, and we should use that to our competitive advantage,” he added. “But on the flip side, we also have the most highly regulated, overburdened banks in the world.”

[1] The 2010 Dodd-Frank act reined in mortgage practices and derivatives trading and curbed the ability of banks to trade with their own money in a measure known as the Volcker Rule. See photo below

04db-doddfrank-master675President Obama signed the Dodd-Frank financial reform law on July 21, 2010. Credit Doug Mills/The New York Times

[2] The so-called fiduciary rule, six years in the making and unveiled by the Labor Department last spring, holds brokers and advisers who work with tax-advantaged retirement savings to a fiduciary standard as opposed to the previous suitability standard. That means they must work in the best interest of their clients and generally avoid conflicts, which can come about with the commission-based compensation common among brokers and insurance age

[3] For big banks, Mr. Cohn suggested capital levels were high enough to withstand shocks so that other rules dictating how they operate to further enhance their safety could be eased. He questioned the value of policies enacted to handle megabank failures, particularly cumbersome “living wills” that his former employer, among others, have had to submit showing how they could go out of business without requiring a taxpayer bailout

Now Let Us Take a Look at a Very Different Presidency to See How It Handled Its Financial Crisis:


From The New York Times, February 3, 2017

Take a look at the front pages from the first 10 days of Franklin D. Roosevelt’s presidency in 1933, beginning with his speech on March 4 (the last time a swearing-in was held on that date).

“The inaugural address was a Jacksonian speech, a fighting speech, implicit with criticism of the lack of leadership and the philosophy of government which the president imputed to his predecessor, who sat there listening,” Arthur Krock, the Washington bureau chief of The Times, wrote in his account.

“‘Action’ was the promise of Mr. Roosevelt’s speech, and action was immediately forthcoming,” Mr. Krock stated.

Before his second full day in office was over, President Roosevelt had suspended all banking transactions in the United States. The goal was to stanch the hoarding of currency and gold by anxious depositors. Runs on the nation’s banks had pushed them into or near collapse.

History calls it a “bank holiday.” That makes it sound cheerful. No confetti was involved.

At 11 p.m. on Sunday, the new president ordered banking institutions — the Federal Reserve Bank, commercial banks, savings banks, national banking associations, trust companies, credit unions and building and loan associations — to stop the payment, export, withdrawal or transfer of currency and gold or silver coins or bullion. His proclamation took effect at 1 a.m. on Monday and was to be lifted after Thursday, March 9. On that day, and again by proclamation, Roosevelt extended the holiday indefinitely.

By the time the banks finally began reopening on March 13, Roosevelt had delivered the first of his intimate “fireside chats” over the radio and had been granted what The Times described as “practically dictatorial powers” by Congress after he proposed a $500 million cut in federal salaries and pensions, and in veterans’ compensation. That would be the equivalent of more than $9 billion today.

Agricultural leaders were urging Roosevelt to ask Congress “for the same dictatorial powers” to solve the farming crisis. The White House was preparing a $500 million unemployment relief program that would put people to work on government construction and reclamation projects. The president was moving to legalize the manufacture and sale of beer with up to 3.2 percent alcohol content. Taxes on this product, he said, would provide a “proper and much-needed revenue for the government.” And quench a few thirsts after 13 years of Prohibition.

In its first 10 days, the fledgling Roosevelt administration generated five banner headlines in The Times. Only on March 11 and 12 did news from the capital share top billing, after an earthquake in Long Beach, California, killed more than 100 people.

Ah, for the old days!

Is It To Be High Stakes Gambling Again on Wall Street?

And so it begins. All the careful safeguards the last administration installed after the financial crash of 2007-2008 to check the wild speculation of the big banks that led up to it, to see that it wouldn’t happen again, the present administration is preparing to dismantle “in order to restore business prosperity.” Read about it below in an extract from an article in the New York Times.

But prosperity for whom? Surely not the working people as the president claims. Won’t they simply get handed the tab as they did last time? Is there no way to prevent Wall Street from treating the wealth of our nation as their stake on a global gambling table?





Which casino do you prefer? Wall Street or Monte Carlo?

By BEN PROTESS 31 Jan 2017 (Stacy Cowley, Emmarie Huetteman and Glenn Thrush contributed reporting)

President Trump took aim at financial regulations and other federal rules on Monday, signing an executive order to trim back the federal regulatory thicket and promising to do “a big number” on Obama-era Wall Street restrictions.

At the same time, congressional Republicans opened their own front against the Dodd-Frank Act, the law that overhauled financial regulation after the 2008 financial crisis. . .

In reality, the president cannot unravel Dodd-Frank with a stroke of a pen, and congressional Republicans will find it easier to chip away at the law than to repeal it altogether.

Defanging Dodd-Frank, a sweeping law that created a consumer protection agency and reined in mortgage practices and derivatives trading, would also seem to contradict Mr. Trump’s anti-Wall Street language from the campaign trail. . .

But the president has spoken out against Dodd-Frank, claiming that eliminating it would benefit working people, even as he stocks his administration with former Goldman executives and billionaires.

His allies in Congress began their legislative assault on Dodd-Frank on Monday, introducing a measure to repeal a Securities and Exchange Commission regulation that requires oil companies to publicly disclose payments they make to governments when developing resources around the world. The regulation was tangential to Dodd-Frank’s mission of reforming Wall Street but was included as a bipartisan effort intended to shine a light on potential bribes.

Republicans argue that the rule puts American companies at a disadvantage; the House Financial Services Committee has called it a “politically motivated mandate.” And the rule has some powerful opponents in the industry, including Exxon Mobil and, according to one account, its former top executive, Rex W. Tillerson, Mr. Trump’s pick for secretary of state. . .

This effort is just the beginning. House Republicans are also moving bolder legislation that would repeal crucial provisions of Dodd-Frank, including the so-called Volcker rule, which prevents banks from making risky bets with their own money. And they are exploring ways to use the budget process to potentially defund some of the law’s most contentious provisions.

Still, each strategy has its limits. The House legislation to repeal Dodd-Frank could stall in the Senate, where it needs 60 votes. And even though the Congressional Review Act requires only a majority of lawmakers to repeal a rule, only 10 or so Dodd-Frank rules are vulnerable to this process.

“It is the height of hypocrisy for Republicans to now be wasting time attacking rules signed by the former president, which went through a rigorous vetting process,” said Representative Louise M. Slaughter of New York, the top Democrat on the rules committee. . .

Despite the obstacles, there are a number of different tactics that Republicans can use to try to dismantle Dodd-Frank. . .

The Congressional Review Act, passed some 20 years ago as part of [Newt Gingrich’s] Contract With America, provides lawmakers at least 60 days to introduce legislation disapproving major new regulations. The lawmakers can ultimately repeal the regulations with support from just a majority of lawmakers and the president. The Congressional Research Service has determined that rules sent to Congress on or after June 13 of last year are vulnerable to repeal. . .

But Republicans have identified dozens of potential rules to override, some of which arose from Dodd-Frank, according to congressional documents reviewed by The New York Times.

Republicans can target a derivatives rule adopted last year by the Commodity Futures Trading Commission, a Consumer Financial Protection Bureau rule for prepaid debit cards and a rule approved by banking regulators that imposed capital requirements for banks that trade derivatives. The threat also applies to any unfinished rules that the consumer bureau completes, including its looming crackdown on payday lending.

The S.E.C. oil-payment rule is the first of five Obama administration rules scheduled to be challenged this week. The House rules committee advanced the legislation to repeal that rule on Monday over the objections of the panel’s Democrats, who argued that Republicans were misusing the Congressional Review Act to undermine Dodd-Frank.

The oil-disclosure policy has already had a tortured history. The S.E.C. completed the rule in 2012, with the support of antipoverty groups like Oxfam and the One Campaign, but the American Petroleum Institute, the trade group representing Exxon Mobil and other oil companies, sued the agency and won.

In 2013, a federal judge in the District of Columbia vacated the rule. It took the S.E.C. another three years to redo the rule, which it finally did in June of last year, opening it to Republican attack under the Congressional Review Act. . .

If the Congressional Review Act is a scalpel, then the Financial Choice Act is a sledgehammer.

The legislation, introduced last summer by Representative Jeb Hensarling, the chairman of the House Financial Services Committee, represents the most comprehensive response to Dodd-Frank yet.

The bill would repeal the Volcker rule as well as the so-called Durbin amendment, which set a limit on fees retailers are charged for debit card transactions. It would replace Dodd-Frank with a more flexible regulatory structure.

After a false start under President Obama, Mr. Hensarling’s plan to repeal and replace Dodd-Frank could gain new life from Mr. Trump.

“Republicans on the Financial Services Committee are eager to work with the president and his administration to unclog the arteries of our financial system so the lifeblood of capital can flow more freely and create jobs,” Mr. Hensarling said in a statement.

He hopes to pass the bill this year — with his committee expected to take it up in the coming weeks — but that is no sure thing.

For one thing, the deep-pocketed banking lobby is not unanimous in its support of Mr. Hensarling, a Texan with a populist streak whose plan is arguably more geared toward small banks than big ones. Many of the biggest banks, creatures of habit that have already adjusted to much of Dodd-Frank, would prefer specific accommodations, rather than wholesale repeal of the law.

Mr. Hensarling’s plan would also need to merge with legislation offered by Senate Republicans. And even then, they would need some Democrats to reach 60 votes.

House Democrats have vowed to fight Mr. Hensarling.

“This bill is so bad that it simply cannot be fixed,” Representative Maxine Waters of California, the top Democrat on Mr. Hensarling’s committee, said of his bill last year. . .

Disaster Capitalism

You may recall a blog we posted on January 18 entitled  “Infrastructure Dollars Might Divert to the Very Rich.” It was written by Norm Alster for the New York Times and, as the title clearly implies, his fear is that the President’s promise of a $13 billion infrastructure repair program, rather than being the hoped-for relief for our struggling out-of-workers, be simply another boondoggle to line the pockets of rich industrialists with taxpayers’ money. 

Now comes another warning, more worrisome than the first, from Naomi Klein, author of The Shock Doctrine: The Rise of Disaster Capitalism. Ms Klein sees a prevalent pattern reaching back to the Iraq war and before where unscrupulous politicians and capitalists work together to either create new or make use of existing disasters  in order to release billions of public dollars, “disaster money,” which will eventually find its way into their pockets. In an interview published in the newsletter The Intercept  she discloses to Jeremy Cahill her fears  for how this administration may handle the $13 billion infrastructure repair program  based on how an earlier administration handled the Katrina disaster in New Orleans.

Remember—to succeed at Disaster Capitalism you must first establish clearly that a disaster exists, something our president is good at and has done well. The blog that follows is condensed from the original article:

trump-pence-disaster-capitalism-1485210840-article-headerIn this 2005 photograph, a man watches a house burn on Napoleon Street as helicopters try to extinguish the fire in Hurricane Katrina-ravaged New Orleans.

At the time Katrina hit New Orleans, [Mike] Pence [now Vice-President] was chairman of the powerful and highly ideological Republican Study Committee. On September 13, 2005 — just 14 days after the levees were breached and with parts of New Orleans still underwater — the RSC convened a fateful meeting at the offices of the Heritage Foundation in Washington, D.C.

Under Pence’s leadership, the group came up with a list of “Pro-Free-Market Ideas for Responding to Hurricane Katrina and High Gas Prices” — 32 policies in all.

What stands out in the package of pseudo “relief” policies is the commitment to wage all-out war on labor standards and on the public sphere. . . Also notable is the determination to use any opportunity to strengthen the hand of the oil and gas industry.

The first three items on the RSC list are “automatically suspend Davis-Bacon prevailing wage laws in disaster areas,” a reference to the law that required federal contractors to pay a living wage; “make the entire affected area a flat-tax free-enterprise zone”; and “make the entire region an economic competitiveness zone (comprehensive tax incentives and waiving of regulations).”. . .

All these measures were announced by President George W. Bush within the week. Under pressure, Bush was eventually forced to reinstate the labor standards, though they were largely ignored by contractors. There is every reason to believe this will be the model for the multibillion-dollar infrastructure investments Trump is using to court the labor movement. Repealing Davis-Bacon for those projects was reportedly already floated at Monday’s meeting with leaders of construction and building trade unions.

Back in 2005, the Republican Study Committee meeting produced more ideas that gained presidential support. . . . from calling on Congress to repeal environmental regulations on the Gulf Coast, give permission for new oil refineries in the United States, and to greenlight “drilling in the Arctic National Wildlife Refuge.”

All these measures . . . were immediately championed by the president under the guise of responding to a devastating storm.

The oil industry wasn’t the only one to profit from Hurricane Katrina, of course. . .

The companies that snatched up the biggest contracts were the familiar gang from the invasion of Iraq: Halliburton’s KBR unit won a $60 million gig to reconstruct military bases along the coast. Blackwater was hired to protect FEMA employees from looters. Parsons, infamous for its sloppy Iraq work, was brought in for a major bridge construction project in Mississippi. Fluor, Shaw, Bechtel, CH2M Hill — all top contractors in Iraq — were hired by the government to provide mobile homes to evacuees just 10 days after the levees broke. Their contracts ended up totaling $3.4 billion, no open bidding required.

And no opportunity for profit was left untapped. Kenyon, a division of the mega funeral conglomerate Service Corporation International (a major Bush campaign donor), was hired to retrieve the dead from homes and streets. The work was extraordinarily slow, and bodies were left in the broiling sun for days. Emergency workers and local volunteer morticians were forbidden to step in to help because handling the bodies impinged on Kenyon’s commercial territory.

AshBritt, a company paid half a billion dollars to remove debris, reportedly didn’t own a single dump truck and farmed out the entire job to contractors. . . .

After all the layers of subcontractors had taken their cut, there was next to nothing left for the people doing the work. For instance, the author Mike Davis tracked the way FEMA paid Shaw $175 a square foot to install blue tarps on damaged roofs, even though the tarps themselves were provided by the government. Once all the subcontractors took their share, the workers who actually hammered in the tarps were paid as little as $2 a square foot. “Every level of the contracting food chain, in other words, is grotesquely overfed except the bottom rung,” Davis wrote, “where the actual work is carried out.”

In Mississippi, a class-action lawsuit forced several companies to pay hundreds of thousands of dollars in back wages to immigrant workers. Some were not paid at all. On one Halliburton/KBR job site, undocumented immigrant workers reported being wakened in the middle of the night by their employer (a sub-subcontractor), who allegedly told them that immigration agents were on their way. Most workers fled to avoid arrest. . . .

NEW ORLEANS - AUGUST 31: People wait for assistance after being rescued from their homes a day earlier in the Ninth Ward as a small fire burns after Hurricane Katrina August 31, 2005 in New Orleans, Louisiana. Devastation is widespread throughout the city with water approximately 12 feet high in some areas. Hundreds are feared dead and thousands were left homeless in Louisiana, Mississippi, Alabama and Florida by the storm. (Photo by Mario Tama/Getty Images)People wait for assistance after being rescued from their homes a day earlier in the Ninth Ward as a small fire burns after Hurricane Katrina August 31, 2005 in New Orleans, Louisiana. Devastation is widespread throughout the city with water approximately 12 feet high in some areas. Hundreds are feared dead and thousands were left homeless in Louisiana, Mississippi, Alabama and Florida by the storm. (Photo by Mario Tama/Getty Images)

In the Katrina aftermath, the attacks on vulnerable people, carried out in the name of reconstruction and relief, did not stop there. In order to offset the tens of billions going to private companies in contracts and tax breaks, in November 2005 the Republican-controlled Congress announced that it needed to cut $40 billion from the federal budget. Among the programs that were slashed were student loans, Medicaid, and food stamps. In other words, the poorest people in the United States subsidized the contractor bonanza twice: first, when Katrina relief morphed into unregulated corporate handouts, providing neither decent jobs nor functional public services; and, second, when the few programs that directly assist the unemployed and working poor nationwide were gutted to pay those bloated bills. . . .

God spare us that the above scenario should stand as a model to our present administration  for the repair of the broken infrastructure in this country!