So we’ve spent a fair amount of time on the CFPA; I need to move over and start blogging about all the other parts of the financial reform (which I’ve should have been doing all along). A lot of this battle is still up in the air – note Frank’s reversal on whether or not to have an insurance fund – and I think it’s worth commenting on as it unfolds.
For those who follow it who are also on twitter, I’d suggest adding @fsforum to your reader (Name: Financial Ser. Forum, Bio: An economic policy group representing the CEOs of 18 financial institutions.) You can see what the lobbyists are thinking, or at least broadcasting, in real time. From them I see that JP Morgan CEO Jamie Dimon is pushing hard the argument that there are “a lot of legitimate reasons to be large.”
Nate Silver sees breaking up the biggest banks as the big issue for 2010:
It’s becoming increasingly likely that regulation of the banking and financial sector is liable to be the issue that dominates the first half of 2010. Why? Well in the first place, it’s badly needed — there is fairly broad consensus among economists and regulators that there is still very profound systemic risk in the banking industry…
From a 30,000-foot view, the debate will be between the Volckerists and the Summersists, with the Volckerists arguing that large financial institutions need to be broken up — probably through something resembling a modern Glass-Steagall Act — and the Summersists arguing instead for more extensive regulations.
The First Time I Heard Standard Oil Name Dropped
I think he’s right, and as a fun aside for the Friday, here’s how I know the momentum has changed to the ‘Volckerist’ team. Back in early April, I went to A New Way Forward Protest March in San Francisco, protesting under the banner of “Nationalize, Reorganize, Decentralize”. It was a small crew – I was there, Nemo was there (“I am now officially a kook”), people who show up for every protest regardless were there, socialists and “Google Ron Paul” people got along very well, and the guy who shows up with a really elaborate sign was there.
Have you ever been to a small random protest before? There’s always one guy (it’s usually a guy) with a really elaborate homemade sign. There’s probably a practice sign made in advance. Notes are taken, drafts worked on. Here was that guy for our protest:
I was hoping to make a sign that said “I like banks like I like my women – small and well-capitalized” but I didn’t even get that far. The sign that guy was wearing made him King of the protest.
Now do you know who is wearing that sign? Alan Fucking Greenspan: “If they’re too big to fail, they’re too big…In 1911 we broke up Standard Oil — so what happened? The individual parts became more valuable than the whole. Maybe that’s what we need to do.” Sometime during the 6 months between April and now, the former Federal Reserve Chair’s opinion on the size of the banking sector converged to the kooky old dude with a really elaborate sign at an impromptu San Francisco march (notice his first argument is Standard Oil; Will Greenspan bring up Ma Bell next?).
The Standard Oil allusion was the cutting edge of the Volckerist crew back in April; now everybody, even Alan Greenspan, is name-dropping it. That’s amazing.
Digging into the Research Journals for Ammo
Do you know what else I notice? Now the other team, the ones for keeping the huge scale of the largest big banks, are the ones who are bringing out esoteric research to try and make their point instead of simply assuming the presumption of the elite public opinion is with them. Before, it was our side. Check out this geek from March: “Consistent with the exercise of market power this research I’ve found indicates that there appears to be an asymmetric response in the adjustment of interest rates for large banks blah blah blah blah.”
Now it’s them! Check out James Kwak looking actually looking at the research brought up in a Wall Street Journal editorial by Charles Calomiris that claims the wave of bank consolidation raised total factor productivity about .4%/year during the wave of mergers, (James immediately catching that this gain was almost certainly from technological advances during the time period). But their team is the one bringing out the esoteric research to try and justify why it’s worth keeping big banks around, arguing that all this crisis was worth a .4% gain in TFP as found in some research buried deep somewhere.
I think a lot of it is going to be open for debate over the next few weeks and months, so I’ll try to keep this blog ahead of it.