من المحق بشأن الإصلاح المالي في الولايات المتحدة؟

Feb 24, 2016 Jeffrey Frankel

كمبريدج ــ بعد ثماني سنوات من إشعال شرارة أزمة كادت تطيح بالنظام المالي العالمي، لا تزال الولايات المتحدة مبتلاة بقدر عظيم من الارتباك حول الإصلاحات المطلوبة لمنع تكرار الأزمة. وفي حين يستعد الأميركيون لاختيار رئيسهم القادم، تتجلى الحاجة الملحة إلى تكوين فهم أفضل للتغييرات السياسية الكفيلة بالحد من مخاطر الأزمات في المستقبل ــ وأي الساسة أكثر ميلاً إلى تنفيذها.

الواقع أن الأميركيين على يقين من أمر واحد، وهو أنهم غاضبون إزاء تصرفات القطاع المالي. وينعكس هذا في نجاح أفلام هوليود الأخيرة مثل The Big Short (الذي نال عن حق قدراً كبيراً من الإشادة لأنه جعل الأدوات المعقدة مثل المشتقات المالية مفهومة في الإجمال). كما ينعكس في حملة الانتخابات الرئاسية الحالية ــ وخاصة في الدعم الملحوظ لمحاولة السيناتور بيرني ساندرز اليسارية الفوز بترشيح الحزب الديمقراطي.

في صميم حملة ساندرز يكمن اقتراح يقضي بتفكيك البنوك الكبيرة في وال ستريت إلى قِطع صغيرة، وبالتالي ضمان عدم وجود أي بنك كبير إلى الحد الذي قد يؤدي معه إفلاسه إلى تعريض بقية النظام المالي للخطر. والواقع أن جاذبية هذا الهدف مفهومة، ولكن تحقيقه يستلزم الاستعانة بمطرقة ضخمة.

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0 Comments on this paragraph, 33 Comments on this article

Jeffrey Frankel Mar 5, 2016

Robert Bruce,
You are right "The art for the politicians, as always, is to pick the right insiders." So it is not a truism to point out that Senator Sanders errs in saying that he would automatically exclude anyone with Wall Street experience from his administration. Even now, he has not admitted that he turned out to have been mistaken in trying to block Gensler. The example is of much wider significance: it reveals a preference for simplistic anti-Wall-Street slogans in place of the sort of attention to detail that is necessary to achieve effective regulation. Or so it seems to me.
JF
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Ben Leet Mar 3, 2016

The "outstanding debt" of "domestic financial sector" was 120% of GDP in 2008, a record high (from Flow of Funds, Table D.3). I think bank reserve ratio should rise as the "outstanding debt" to GDP ratio rises. I suggest everyone read the Friedman paper on what Sanders would do, the long version. Sanders focuses on the shift in income distribution over the past 30 years, and redressing this imbalance goes a long way to restoring shared prosperity. Breaking up the banks is OK, too big fail means too big. Sanders: http://www.dollarsandsense.org/What-would-Sanders-do-013016.pdf
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Robert Bruce Mar 1, 2016

The article states a truism - that only those from inside the banking industry can possibly know enough to put in place smart regulation. The art for the politicians, as always, is to pick the right insiders.

But regardless of the individual, any regulator is blocked from using the one tool that would make a difference. Increase in bank shareholder equity needs to go far beyond the modest tweaks applied so far - Martin Wolf and others suggest at least 10%! The problem is that no national government could implement change on this scale in isolation. Just like tax havens, the rewards to any state of growing a big domestic banking industry by offering looser regulation are simply too great. One of many reasons why we need to start thinking now about a "Global Economic Community" capable of creating a more regulated single Global market.

Robert P Bruce - author www.TheGlobalRace.net
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E Walker Feb 28, 2016

Breaking up banks is only the first step. The second step is breaking up large aggregations of capital like hedge funds. There is no need for gigantism in capital, whether it's banks, insurance companies or hedge funds.
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M M Feb 28, 2016

In today’s fast moving and globalised world, financial regulations become obsolete before they are even implemented, if they ever get that far. Dodd-Frank and other financial regulations were reactionary in nature rather than the remedy. What I and some commentators on PS have been saying all along, today the former BOE Governor M. King said it in “plain English”: Another financial crisis is "certain" and will come sooner rather than later. Without reform of the financial system, another crisis is certain, and the failure ... to tackle the disequilibrium in the world economy makes it likely that it will come sooner rather than later". The only thing Mr Preacher has done was to put the financial world on “tranquilizers” thus buying himself some time until he gets out of his Presidency.
- Steve Hurst Feb 29, 2016
  
  @MM
  
  It is simply ingenious for MK to suggest the 'system' is at fault. Business no matter how large or small is run by individuals. Individuals make decisions not a system. Individuals overrule risk analysis assessments. Individuals opt to takeover corporations without due diligence of account inspection eg RBS ANB Amro. Individuals corrupt data - eg GS Fabulous Fab. And so the list goes on and on. MK and others simply wish to say the problem is not here its there, waving vaguely away. How can identifying the problem be so difficult. Thats easy, nobody wants to own it. Far better some nebulous 'system' owns it.
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hari naidu Feb 27, 2016

It seems no one takes you on CFTC/Gensler appointment which Sanders opposed. I, as a commodity/trade policy guy, lobbied hard for him. He was an insider who knew how OTC was being manipulated & wanted to make it transparent during his hearings. I applauded all he did to control what was happening in Chicago. But the Congressional lobby was dead against regulating OTC - opaque as it was. LIBOR was actually Gensler's personal triumph because he was able to lock it in. He knew from his previous job what the hell was going on...
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Edward Laxton Feb 27, 2016

The crux of this piece seems to be an argument that breaking up mega banks won't eliminate finance sector catastrophes and secondly is long and hard to achieve. This feels like a straw man fallacy.

We don't know where the next financial meltdown will come from. Maybe it will be "hedge funds, investment banks, and other non-bank financial institutions" or maybe it will be Deutsche Bank. Or maybe Chinese banks.

Secondly, who is arguing that there is one solution (breaking up banks) to the systemic instability in financial markets that has taken hold since the 1980s (starting with the Savings & Loan bailouts) and reaching its apogee in 2008? This is not a game of whack a mole - the sector is endemically unstable since the era of deregulation and global capital flows was ushered in. It needs multiple, bold measures.

What we can say with some confidence is that TBTF was baked into the risk-taking behaviour of bank managers and their underwriting, and bank bondholders and shareholders. It's reflected in bank appetite for debt rather than equity. Banks were (and are) guilty of privatising the highly profitable upside of risk-taking, safe in the knowledge that any downside has been socialised (to taxpayers and Central Banks).

Breaking up mega banks is one measure that starts to get banks to follow the normal rules of capitalism - bad management is rewarded by losses to bank shareholders and ultimately bank managers in terms of smaller bonuses or ultimately unemployment in the event of the bank's bankruptcy.

The second major measure is to drastically deal with the banks' balance sheets and forcing a much greater equity buffer to absorb losses in the event of poor loan underwriting.

Lastly is to split investment banking from normal commercial/retail banking and make the latter safe and boring as it was in the 1970s.

The finance sector nearly destroyed capitalism in 2008. The timid and halfhearted responses of governments and regulators since then, is indicative of regulatory capture and an outsized finance sector in the West. If there is another way to retain mega-banks but still ensure that bad behaviour and excessive risk-taking are punished by the real threat of bankruptcy, please tell me.
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Steve Hurst Feb 26, 2016

@Jeffery Frankel

re yr reply to DR

I greatly enjoyed that. Excellent. Better than the article I think. Thank you. The problem remains that voters - not just in the US - are enjoying their own irrational abberrance in response to bankers and regulators irrational exuberance outcomes.

Voters in such a mindset are unlikely to be guided by complex nuanced grey-scale economic arguements when the real world events are black and white - foreclosure and redundancy and career closure. Its ballot box payback and it is everywhere.

This is the real cost of the financial crisis and lousy governance and quite frankly it is hard to find an administration anywhere that has been on the ball.

Since the name Clinton has come up I would like to point out that 911 was a traceable outcome of the Clinton administration ignoring high level security advice that the walk-on walk-off approach desired and lobbied for by the US domestic airlines was a dangerous security issue. That error was then carried onward by Bush

I am not saying that any particular adminstration is better or worse than another, or that the US is better or worse than elsewhere, but simply that there are major issues everywhere you look. That may well have always been the case. The difference now is the internet and peopel are better, if brief in content, informed and object to a status quo which is really a stagnation quo
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Jose araujo Feb 26, 2016

I think this is a great piece, and the only fault is the lack of specifics.

I also think that the discussion should move from preventing the too big to fail to who pays when this banks fail?

It also should be centered on the value proposition of financial institutions. The "natural" value creation models of financial institutions have nothing to do with size. The larger you are, the closer you are from the portfolio efficiency point, so all banks should have the same risk/return, and the to big to fail question is irrelevant.

Now can a bank be more efficient if they it is small? Can they have a better grasp on risk of the loans they make? I think they can, but also they will be riskier...

In conclusion, reforms should be made to stop criminal activities and fraud, they are the one who make banks fail, its not size its management.
- Steve Hurst Feb 28, 2016
  
  Since the number of bankers incarcerated following the crash is tiny any talk about reform is a joke. If in the face of demand for reform next to nothing happens - when processes are already available - why should reform occur.
  
  Courts have no trouble convicting ridiculous petty theft like somebody picking up a bottle of water in a riot or donuts thru a previously broken shop window in a riot but jurisprudence fails to deal with manipulation of trading figures affecting national figures. What sort of joke is this
  
  I suggest anybody takes a day out and visits a local court, or simply checks court records. There you will find a minor credit card theft ie damage against the banking system is often treated more severely than rape. It is obvious that some crime is first amongst equals.
  
  The simple fact bailouts were made and the cost passed to the taxpayer openendedly tells you the relationship is symbiotic and the very basis of the symbiotic relationship will continue
  
  Before anybody talks about reform they need to seek full and due consideration of existing law before the statute of limitations expires. Oh it has, never mind, lets press on with the lip gloss
  
  It is because of the conspicuous lack of action that trumpet voluntary is being heard and as usual it is played on an organ, in this case it is the public organ of the ballot box
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- Jeffrey Frankel Feb 27, 2016
  
  Jose Araujo,
  Thanks very much for your comment. It is not possible to go into a lot of specifics within the space constraints of an op-ed, of course. But I have now posted a more extensive policy-wonkish version on my blog: //www.jeffrey-frankel.com/2016/02/27/who-is-right-on-us-financial-reform-sanders-clinton-or-the-republicans/.
  JF
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Brett Blake Feb 26, 2016

I guess 6 million foreclosures (and counting) and a few million careers prematurely terminated are a small price to pay for capital formation (ie: concentration) and [a lack of] growth.
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Jeffrey Frankel Feb 26, 2016

My reply to Dani Rodrik

I don’t understand why Dani and some of the other commentators have interpreted my argument as based on political constraints. Let me make my view more clear. My view is that if Bernie Sanders were elected president, his financial, fiscal and economic policies would leave us worse off than if Hillary Clinton were elected president.

If I had wanted to base my argument on politics, I would have said this: Donald Trump and Ted Cruz are such unappealing characters that even McGovern, Dukakis or Mondale could attract more votes. The only thing that could get Trump or Cruz elected president would be if the Democrats were foolish enough to nominate a self-described democratic socialist.

But the argument in my column was not political. It was that Sanders’ financial policies, even if enacted, would be less likely to reduce financial crises than if Clinton’s financial policies were enacted. I thought I was clear on this.

The end of my piece concluded that we should vote for leaders who will enact better policies. (Obviously I meant Hillary.) Dani and many others think that it is more important to vote for leaders who want to break the banks into many little pieces under the theory that the banks will then have less money to contribute to politicians. I could note that 17,838 little US auto dealers had no trouble buying their way out of the CFPB. But I want to attempt a broader argument. What do you think politicians use all that money for? It doesn’t go into their pockets, for the most part (at least not in the US). Rather the money goes to running for office: campaign advertisements and getting out the vote. In my view, voting for the right people (by which I mean those who will enact the right policies) is a far more direct strategy than the convoluted Rube-Goldberg chain of causality which says you should vote for the people who want to break up the banks in order to reduce the amount of money in politics so that there will be fewer ads trying to dissuade you from voting for the right people.

JF
- stephan Edwards Feb 26, 2016
  
  @Jose
  
  Because end the end neither Goldman Sachs nor JP Morgan give a damn for people payed by the hour. Their policies strictly benefit the bottom line of the company. I think JP Morgan Goldman Sachs have pretty much proved they believe the best use of the blue collar workers are mowing lawns or fertilizer take your choice. Financial stability such has it was after they shipped most blue collar jobs overseas with cheering of the Wall Street financiers. Died in 08 when the banks got taxpayer subsidized bailout. The working class we got a lecture on how helping us would be a moral hazard to us, Tough Sh-t if it leaves you homeless and unemployed. Jesus might love a banker I ain't gonna try.
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- Jose araujo Feb 26, 2016
  
  @Stephen
  
  And why wouldn't Goldman Sachs and JP Morgan be interested in financial stability?
  
  And not all people in Wall Street are dumb has coconuts (those support Trump and other like him), actually there are very smart people over there, with good values and principles. Actually I wouldn't be surprised if many were social democrats or progressists.
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- Petey Bee Feb 26, 2016
  
  @Stephan Edwards,
  also not in the interest of the middle class.
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- stephan Edwards Feb 26, 2016
  
  Clinton's financial policies will be what the folks paying her 200, ooo dollars for a 20 minute speech tell her they are. I am not a hypocrite I will probably hold my nose and vote for her. But I am not blind to the fact she is a wholly owned product of Goldman-Sachs and JPMorgan and will carry out THEIR policies. Which is to say the policies in their interests not the working class.
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Greg Feigel Feb 25, 2016

This article starts off by asking “Who’s Right on US Financial Reform?” and ends up giving a political answer. In other words, it is a one-sided argument.

Sure. There a number of former notable Goldman employees who’ve shown responsible behavior, Neel Kashkari being the most recent example. However, cronyism and minimal criminal culpability remain the hallmarks of government. The financial sector looks the same way, more now than ever. The government and financial sectors have merged in a symbiotic way. Is this a solution?

In other words, “We’ll keep doing what we’re doing and everyone gets a payoff and no one goes to jail.”. Great job if you can get it. Next best would be professor of economics.

The SIFI designation is a regulator’s dream come true. It, like “risk” is vaguely defined despite tens of thousands of pages of law and regulations, with thousands more pages to come. For you the regulator, these definitions will be what you want them to be. Then you litigate with a legion of lawyers behind you, and a large tax-payer funded budget.

Add that solid, underlying questions regarding the constitutionality of the structure of the CFPB. And don’t forget pending litigation regarding not only possible unconstitutional abuse of administrative law courts, but also “confidential settlements” and extra-judicial czar-like proclamation of fines and penalties. Other than that, the CFPB is working great.

Some might say the Gordian know of derivatives needed a major pruning and write-down at the outset, rather than the building of a lot of structure that legitimizes much of that garbage.

In the real world, people don’t solve problems by creating tens of thousands of pages of rules, regulations, policies and procedures. Most people solve problems in simple, clear, effective ways. Occasionally governments do the same, see Glass-Steagall. People on al sides of the argument see that clearly.

Sometimes the answer is not big, powerful government as a default solution. Sometimes declaring that the process of expanding the government is “…far from complete…” and calling for more legislative action on new law to “..push for their enactment, and then implement them effective…” is just the wrong answer.
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Dani Rodrik Feb 25, 2016

In a way, and ironically, this piece makes a great argument for Sanders' advocacy of breaking the banks. As Frankel underlines, a major reason serious reform - such as raising bank capital significantly - has not taken place and many others have been gutted is the political power of the banks. Frankel lauds Clinton because her proposals are less ambitious and more in line with the political constraints. But wouldn't it be better to cut down the financial industry to size so it does not rule politics in the first place?
- Greg Feigel Feb 25, 2016
  
  You say, “But wouldn't it be better to cut down the financial industry to size so it does not rule politics in the first place?”. That is the question.
  
  I’d add, “…or vice versa?”.
  
  The relation is dangerously symbiotic, evidence of Stigler’s Regulatory Capture. And all sides benefit handsomely.
  
  What is most frightening about business, to whatever extent one has fear, is dwarfed by the threat of Cronyism which wields the powerful sword of government at its side.
  
  One could extend the question…”Are the government and the financial sectors both too big?” And, does this work to the detriment of the Real Economy?
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- Steve Hurst Feb 25, 2016
  
  @Danu
  This is nothing new and will not stop, the idea multinational banks are anything other than too big to fail is a fantasy. Look at what is going on in the eurozone, do you think Germany can cope with Deutsche Banks 75 trillion USD derivatives liability coming home, 20x German GDP
  
  "Give me control of a nation's money and I care not who makes it's laws" — Mayer Amschel Bauer Rothschild 19th century. How far back do you want to go
  
  Debt is control both politically by government of voters, and by banks of government and the public. As debt grows then control grows
  
  'Debt is such a powerful tool, it is such a useful tool, it's much better than colonialism ever was because you can keep control without having an army, without having a whole administration.' Susan George
  
  This whole article is a fantasy. America wanted all this debt and sought it. Now the fallout is being handed onto future generations and as they gain a voice they are unhappy.
  
  'Blessed are the young for they shall inherit the national debt' Pres Hoover - except nobody asked them and many do not have a job
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Steve Hurst Feb 25, 2016

So what youre really sayng is Krusty the Clown and Sideshow Bob are not up to the job and Marge Simpson is. I presume the idea is to influence Sideshow Bob supporters. If so - Why on earth are you writing on this outlet. How many Millennials - who apparently are the mainstay of support for Sideshow Bob - are going to read this or are even interested in the whys and wherefores. I agree with your unstated implication that it is amazing that few who support Krusty or Sideshow will be debating the intricacies of regulatory agencies budgets or the CFPB - or the Dodd Frank - over their Krusty burger or Col Sanders Kentucky fried, and just want to hear the dog has gone to the vets and wont be messing on the lawn, but thats the way it is
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dan baur Feb 25, 2016

The only reform needed is to stop bailing out left and right and to stop micromanaging the economy - a beast that clearly neither you, nor anyone else is capable to control.
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dan baur Feb 24, 2016

As a Clinton adviser, who exactly do you have in mind: "US needs leaders with the wisdom, experience..."? Do you think you might have any bias that might cloud your judgement?
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stephan Edwards Feb 24, 2016

Wall street cut it's own throat between making sure that they got bailed out through their cronies in government and the visible face of globalization. Main street rightly or wrongly reads this has we got ours we own the government so F--K you Main street. Paying out bonus' on top of getting bailed out didn't help things. They break the laws pay minor fines relative to profits and keep getting away with it. The regulators, The treasury people are all perceived as beholden if not blatantly owned by the big banks. Main Street hates the Banks flatly and without question. You got bailed out they got a lecture about Moral Hazard. Effectively the financial elites told Main Street to sit on it and rotate and you folks can't figure out why people hate you? Frankly I don't know anyone who pisss on banker if he was on fire. The republicans hell the political class in general is owned by Wall Street and Main Street hates you all with a passion. You did it to yourselves.
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Petey Bee Feb 24, 2016

I understand that the act of "setting the clock back on regulation" already happened, in 1999 with the repeal of Glass-Steagall, under Pres. Clinton. I understand that Hillary is her own person, but given her given her affiliation with beneficiaries of the repeal, who went on to benefit from bailouts meant to protect the commercial banking side, its hard to imagine her leadership as a "way forward".
- Petey Bee Feb 26, 2016
  
  But wasn't a big part of the problem that banks were exercising less and less restraint, to issue mortgages with the intention of securitizing them into investment products? Wasn't the repeal of Glass Steagall, if not the cause, at least the high point of a pretty long and steady process that was moving in that direction? Wasn't that process of deregulation steadily co-developing with consolidation in the financial industry?
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- Jeffrey Frankel Feb 24, 2016
  
  Petey Bee,
  No, it's not disingenuous at all. I am saying that proposals to reverse the repeal of Glass-Steagall are a red herring. The same with proposals to break banks up into such tiny bits that government could in the future let them fail without threatening the financial system and economy. As Hillary Clinton says, the important policy steps that can be taken lie elsewhere (some of which were in the Dodd-Frank legislation).
  JF
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- Petey Bee Feb 24, 2016
  
  In other words, blaming Republicans for blocking the reinstatement of regulations seems a bit disingenuous given Dems supported the original repeal.
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Rick Lipinski Feb 24, 2016

If the author believes, as stated, that large banks cause systemic risk then isn't it worth the time and complexity to eliminate/mitigate that risk? I refuse to believe that simply because a problem is complex that we should ignore that problem, as seems to be suggested by the author.
While other reforms area also needed, as discussed in the article, the reckless deregulation of the banking industry in the 90s must be reversed.
- stephan Edwards Feb 24, 2016
  
  I hate to be the one to break the news. They or something much like them will pass. Right or wrong Main Street main Street and the Voters hate Wall streets guts. Any politician looking for reelected is going to have to make public moves against Wall Street or seen for what they are Wall Street puppets. One of the few things Trump & Sanders have in common is a visceral rage against Wall Street. Anyone wanting to be elected this year is going to reflect that. Any perception of business as usual will likely lead to uncontrollable violence. The Hatred is that deep and that justified. Something will have to be publicly done or the public rightly or wrongly will see it has:
  Washington Inc a totally owned Subsidary of Goldman Sachs and JP Morgan. Jamie Dimon Chairman and CEO and order giver.
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- Jeffrey Frankel Feb 24, 2016
  
  Rick Lipinski,
  I don't know how you could have inferred that I am in favor of ignoring the problem. Rather I am in favor of policy steps to move the financial system in the right direction, some of them big (e.g., raising capital requirements on banks AND NON-BANKS) and some of them smaller (e.g., tax carried interest as regular income). I think it is important to support the politicians and officials who pursue such measures. I don't really support politicians who make sweeping feel-good proposals that will never be enacted and that probably wouldn't help even if they were enacted.
  JF
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