The future of teaching?

Hayek and Keynes battle it out … in an econ hip hop video!

A Hooray for Volcker

Who would have thought one ever would be jubilant about a government taking advise from Paul Volcker? Obama appears willing to shift gears on Wall Street, after having met with Volcker over the past days. From the FT:

“President Barack Obama proposed breaking-up Wall Street banks on Thursday in a markedly tougher stance on regulatory reform, which he said would rein in excessive risk taking. If enacted by Congress, his proposals would lead to institutions such as JPMorgan Chase splitting up to obey a new prohibition on banks engaging in proprietary trading or investing in hedge funds.”

Of course, he

” [...] was immediately accused of adopting a populist message to cushion the electoral blow delivered by the Democratic defeat in Tuesday’s Senate race in Massachusetts.”

Well, finally! It is not clear to me why anybody would be accused of changing policies after an electoral loss, but more importantly, in this instance populism is a positive. Sure, Rob Reich is cynical about the shift, and Simon Johnson adds that

“[t]he spin from the White House is that the president and his advisers have been discussing this move for months. The less time spent on such nonsense tomorrow the better. The record speaks for itself, including public statements and private briefings as recently as last week — this is a major policy change and a good idea.”

What, though, is going to be written in law? Yves Smith sends a cautionary note:

“This is going to be very difficult to implement at this juncture, unless Team Obama has a purely regulatory solution. This should have been implemented months ago, when the banks were on the ropes and beholden to Washington. They are now emboldened and will fight tooth and nail. And the report at the Financial Times says the plan will require new legislation. Given how derivatives reform was gutted and health care reform was botched, what do you think the odds are that something with teeth will be voted in? Pretty close to zero.”

So does Robert Reich:

“The House has already completed its work on financial reform and may be reluctant to start over. The Senate is in disarray since Chris Dodd, chair of the Banking Committee, announced recently he wouldn’t seek reelection, and is poised to compromise with Wall Street on a number of big issues. Neither chamber has shown any interest whatsoever in resurrecting Glass-Steagall or limiting the size and risk of big banks. In other words, much of the game is over.”

And yesterday he wrote that what really matters for electoral successes are neither the banks nor health care, but jobs. He might be right. Nevertheless, if Obama starts listening to Volcker instead of Summers/Geithner, it’s a step in the right direction.

Wow! Peterson Institute is … right!

It doesn’t happen all too often, but this piece by Morris Goldstein on Peterson’s “realtime”-feature — elsewhere called a blog, I suppose — is dead on.

“On January 14 President Obama announced that he would ask Congress to impose a “financial crisis responsibility fee” on the 50 largest financial institutions. The fee (hereafter referred to as the tax) would be applicable to all financial institutions with more than $50 billion in consolidated assets. If it becomes law, approximately 35 US banks and 15 US subsidiaries of foreign banks are expected to have to pay the tax. The tax rate would be 0.15 percent of the firm’s covered liabilities, where covered liabilities are defined as global assets minus the sum of Tier 1 capital (i.e., capital of a higher quality) and FDIC-assessed deposits (or insured policy reserves for insurance companies). Banks could satisfy their tax liability over a 10-year period. It has been estimated that the tax would generate about $90 billion in revenue for the Treasury—roughly the same amount as the estimated remaining taxpayer loss in the Troubled Asset Relief Program (TARP).”

Of course, the banks hate this. They feel vilified, and, according to the NY Times, are looking for a legal battle on the (un–)constitutionality of this tax.

%$#&%)@ them!

Goldstein quotes Angelides, Chairman of the Financial Crisis Inquiry Commission, trying to gauge the degree to which Goldman Sachs benefited from government support:

“…It seems to me that you (Goldman-Sachs) survived with extraordinary government assistance. There was $10 billion in TARP funds, $13.9 billion as a counter party via the AIG bailout. By your own form 10-K, you said that you issued $28 billion in debt guaranteed by the FDIC, which you could not have done on the market but for that. You were given access to the Fed window and the ability to borrow at next to nothing. You became a bank holding company over the weekend. You had access to TALF. You benefited from a ban on short selling… And you got relief, some relief from mark-to-market rules….”

And Goldman was arguably the least damaged of the big banks. Most important, though, is that the true societal costs are much higher than taxpayer losses in TARP:

“Contrary to what the banks have been arguing, that fair share goes well beyond repaying the TARP with interest. After all, the collateral damage from this crisis—to which the large banks and securities firms contributed more than anyone else—encompasses, inter alia: the most serious US downturn since the Great Depression; a 10 percent unemployment rate; and much lower tax revenues, along with massive increases in both the US budget deficit and ratio of US public debt to GDP.”