MUST READ: CSS press statement regulatory protections preserve jobs.pdf (application/pdf Object)

CSS press statement regulatory protections preserve jobs.pdf (application/pdf Object)


The Coalition for Sensible Safeguards is an alliance of consumer, labor, scientific, research, good government, faith, community, health, environmental, and public interest groups, as well as concerned individuals, joined in the belief that our country’s system of regulatory safeguards provides a stable framework that secures our quality of life and paves the way for a sound economy that benefits us all. For more information about the coalition, see http://www.sensiblesafeguards.org/about_us.

PRESS STATEMENT

‐For Immediate Release‐
Sept. 7, 2011
Contact: Rich Robinson, Public Citizen, (202) 588‐7773 or rrobinson@citizen.org; Brian Gumm, OMB Watch, (202) 683‐4812 or bgumm@ombwatch.org

President, Congress Must Acknowledge Regulatory Protections Preserve Jobs, Strengthen Our
Economy and Nation

A Statement from the Coalition for Sensible Safeguards

(WASHINGTON, D.C.) – On Thursday, President Barack Obama will announce a much‐anticipated jobs plan. Congressional Republicans have already previewed their response: stepped‐up attacks on the standards and safeguards that protect our air, our water, our food, our nation's working families and our economy. They will continue this line of attack despite the fact that deregulation led the country down the road to financial collapse and 8 million lost jobs, as well as a growing body of evidence that public protections can prevent significant health care costs and help provide the much‐needed economic stability that spurs job creation. The president and Congress need to acknowledge deregulation's role in American job losses if we are going to have an honest conversation about job creation and our regulatory system.

A recent survey of business economists – including those who work in the private sector – found that 80 percent believe our regulatory system is good for the economy. Others have pointed out that not only are regulations a necessary foundation for any business, deregulation can actually have a negative effect. When Congress and executive branch agencies rolled back the long‐standing regulatory standards of the Glass‐Steagall Act of 1933, blocked the Commodity Futures Trading Commission (CFTC) from regulating financial derivatives and
refused to enforce the financial rules that were still in place, it facilitated the financial meltdown of 2008 that created the recession and our massive jobs deficit.

As lawmakers work to put Americans back to work, they need to keep in mind that regulatory standards encourage industries to innovate, to shift to creating products for the future and to step into new opportunities. Enforcing and strengthening environmental and safety standards, for example, can also encourage American businesses to become industry leaders in emerging sectors.

Financial safeguards are crucial. They help set the rules of the road, and they can also protect the economy from reckless, irresponsible behavior that has pushed the financial sector to the brink and severely damaged millions of Americans' credit ratings and retirement funds.
It is also important to remember that the benefits of regulations far outweigh their costs. The latest Office of Management and Budget (OMB) report shows that from 2001 through 2010, the benefits of major regulations reviewed substantially exceeded their costs. It put the total annual benefits “between $132 billion and $655 billion, while the estimated annual costs are in the aggregate between $44 billion and $62 billion.” That estimate puts benefits at 2 and 15 times more than the cost.

Gutting standards and competing in a race to the bottom on wages and public protections undermines U.S. business competitiveness for the future. Americans need high‐quality, stable jobs that provide for their families and their futures. Congress and the president must focus on helping to create those jobs while preserving and strengthening the system of safeguards that is good for our health and safety, our economy, our families and our communities.

###

Businessman Behind Effort To Dismantle Health Care Hints At Campaign Against Federal Banking Regulation

By Lee Fang on Aug 22, 2011 at 7:30 pm

Leo Linbeck III 

ThinkProgress previously reported on the network of front groups advancing the “Health Care Compact,” a massive deregulation idea to turn over federal money used for health reform, Medicare, Medicaid, and other health programs to state governments along with the power to use that money however they see fit, even if it has nothing to do with actual health care. The idea, hatched earlier this year by a political operative named Eric O’Keefe, is designed to dismantle major safety net programs and energize Tea Party activists into the 2012 elections.

Gov. Rick Perry (R-TX) recently signed a Health Care Compact bill into law. But just as the group begins to gain ground, Leo Linbeck III — the wealthy heir to the Linbeck construction fortune in Houston financing the Health Care Compact group — is signaling that organizers may look beyond health care soon. Linbeck, an active participant in public online forum on Pajamas Media called the Belmont Club, described his next steps in posting on July 18 (view a screenshot here):

The cancer is well-advanced. Therapies that rely upon the federal government to self-restrain will not work. The states must engage. We are left, then, with two broad options:
1. Compacts, that allow for piecemeal deconstruction of the federal state (BTW: Gov. Perry signed the Health Care Compact yesterday, making it the fourth state to join. There will be a big push in 2012 in many more states, and we are adding an Education Compact and Banking Compact to the mix.)

If the Banking Compact looks anything like Linbeck’s Health Care Compact, he could obliterate what’s left of the Securities and Exchange Commission, the Commodities Futures Trading Commission, and the other financial regulators that are already under-staffed and partially captured by bank lobbyists. Linbeck’s “piecemeal deconstruction of the federal state” will be as disastrous for banking regulation as it is for health care. 

Moving authority for banking regulation from the federal government to the states has been tried, with results that have hurt consumers and enriched financial industry corporations. For instance, credit card deregulation in the 70s allowed credit card companies to comply only with the regulations of the state they are based in. Credit card executives lobbied the South Dakota and Delaware to lift the cap on interest rates, which averaged about 12 percent in most states before deregulation, and before long credit card companies had the power to hike rates as high as they wanted. While President Obama has made steps to finally reign in out of control usury, with credit card reform and the Dodd-Frank Act, a move back to state-based regulation will amount to an even greater level of bank-led cartels. 

Linbeck has aligned himself with a network of front groups associated with the Tea Party billionaires Charles and David Koch. Linbeck’s top operative, Eric O’Keefe, has spent a career setting up libertarian and anti-government front groups on behalf of his wealthy patrons. And while Linbeck does not call himself a Tea Party activist, he characterizes Obama’s slightly left-of-center approach with doomsday rhetoric. “Should Obama win and enter Washington as Napoleon entered Moscow, the question is how our nation will respond,” he warned before the 2008 elections.

The Debt Ceiling Debate That Didn't Happen

War and Debt

By MICHAEL HUDSON

To begin with the most obvious question: If governments run up their debt in the process of carrying out programs that Congress already approved, why would Congress have yet another option to stop the government from following through on these authorized expenditures, by refusing to raise the debt ceiling?

The answer is obvious when one looks at why this fail-safe check was introduced in almost every country of the world. Throughout modern history, war has been the major cause of a rising national debt. Most governments operate in fiscal balance during peacetime, financing their spending and investment by levying taxes and charging user fees. War emergencies push this balance into deficit – sometimes for defensive wars, sometimes for aggression.

In Europe, parliamentary checks on government spending were designed to prevent ambitious rulers from waging war. This was Adam Smith’s great argument against public debts, and his urging that wars be financed on a pay-as-you-go basis. He wrote that if people felt the economic impact of war immediately – rather than postponing it by borrowing – they would be less likely to support military adventurism.

This obviously was not the Tea Party position, nor that of the Republicans. What is so remarkable about the August 2 debt ceiling crisis in the United States is its seeming dissociation with war spending. To be sure, over a third ($350 billion) of the $917 billion cutback in current spending is assigned to the Pentagon. But that simply slows the remarkable escalation rate that has taken place from Iraq to Afghanistan to Libya.

What is even more remarkable is that last month, Democrat Dennis Kucinich and Republican Ron Paul sought to make President Obama obey the conditions of the War Powers Act and get Congressional approval for his war in Libya, as required when warfare goes on for more than three months. This attempt to apply the rule of law to the Imperial Presidency was unsuccessful. Obama clamed that bombing a country was not war. It was only war if a country’s soldiers were being killed. Bombing of Libya was done from the air, at long distance, and perhaps also by drones. So is a bloodless war really a war – bloodless on the aggressor’s side, that is?

Here was precisely the situation for which the debt ceiling rule was introduced in 1917. President Wilson had taken the United States into the Great War, breaking his election campaign promise not to do so. Isolationists in the United States sought to limit America’s commitment, by imposing Congressional oversight and approval of raising the debt ceiling. This safeguard obviously was intended to be used against unscheduled spending that occurred without Congressional approval. 

The present rise in U.S. Treasury debt results from two forms of warfare. First is the overtly military Oil War in the Near East, from Iraq to Afghanistan (Pipelinistan) to oil-rich Libya. These adventures will end up costing between $3 and $5 trillion. Second and even more expensive is the more covert yet more costly economic war of Wall Street against the rest of the economy, demanding that losses by banks and financial institutions be passed onto the government balance sheet (“taxpayers”). The bailouts and “free lunch” for Wall Street – by no coincidence, Congress’s number one political campaign contributor – cost $13 trillion.

It seems remarkable that Obama’s major focus on the debt ceiling is to warn that Social Security funding must be cut back, along with that of Medicare and other social programs. He went to far as to say that despite the fact that FICA wage set-asides have been invested in Treasury securities for over half a century, the government might not send out checks this week.

A radical double standard is at work for democracies. Wall Street investors certainly had no such worry. In fact, interest rates on long-term Treasury bonds actually have gone down over the past month, and especially over the last week. So institutional debt holders obviously expected to get paid. Only the Social Security savers were to be stiffed – or was Obama simply trying to threaten them, so as to depict himself as a hero coming in to save their Social Security by negotiating a Grand Bargain?

Wall Street had it right. There was no real crisis. Authorization to raise the public debt ceiling is not a proper occasion to discuss long-term tax policy. Since 1962 – just as the Vietnam War was starting to escalate – it has been raised 74 times. This averages out to about once every eight months. It is like going to a Notary Public – just to make sure that the President is not doing something wrong. Mr. Obama could have asked for a limited vote just on this, without riders. Never before have riders such as this been attached. And even more remarkably, there was no attempt to impose a rider restricting the Obama Administration from spending any more funds on Libya, without getting an official Congressional declaration of war.

Obama could have invoked the 14th Amendment to pay. He could have taken the proposal made by Scott Fullwiler and other UMKC economists for the Treasury to issue a few $1 trillion coins and pay the Fed for Treasury securities, to retire. But Mr. Obama steered right into the debate, turning it into a discussion of how to cut back Social Security and Medicare in the emerging U.S. class war, rather than over extending the Oil War to North Africa.

The first great victory for the financial sector in America’s domestic class war was the Bush “temporary” tax cuts on the wealthy. This aggression was not undone in order to restore budget balance. No temporary tax cuts were revoked, no loopholes closed. The burden of balancing the budget was pushed even further onto the Democratic Party’s own base: urban labor, racial and ethnic minorities, the Eastern and Western seaboards. Yet the Democrats split 95/95 on the vote to raise the debt ceiling by slashing social spending on their major voting constituency.

Voting constituency, but not campaign contributors. That looks like the key to how the debt crisis has unfolded. Although leading Democrats such as Maxine Walters Waters, Dennis Kucinich, Henry Waxman, Barney Frank, Edolphus Towns, Charles Rangel and Jerrold Nadler opposed it (and on the Republican side, Ron Paul, Michele Bachmann and Ben Quayle), much of the principled opposition has come from traditional Republicans. Reagan’s Assistant Treasury Secretary Paul Craig Roberts accused the deal as being too right-wing and favoring the wealthy to a degree threatening to bring on depression.

The essence of classical free market economics was to restrict Executive power – in an epoch when war-making power was the major abuse of national interests. Just as the lower house of bicameral legislatures had taken over the power to commit nations to permanent national debt – rather than royal debts that died with the kings, as were the norm before the 16th century – so parliaments asserted their rights to block warfare.

But now that finance is the new form of warfare – domestically, not externally – where is the power to constrain Treasury and Federal Reserve power to commit taxpayers to bail out financial interests at the top of the economic pyramid? The Fed and other central banks claim that their political “independence” is a “hallmark of democracy.” It seems to be rather a transition to financial oligarchy. And now that finance has joined with the oil industry, major monopolies and privatizers of the public domain, the need for some kind of Congressional oversight is as necessary as was parliamentary power over military spending in times past.

No discussion of this basic principle was voiced in the debt-ceiling debate. Even critics who voted (ostensibly) reluctantly (so as to provide plausible deniability to what no doubt will be their later condemnations of the deal when election time comes around) acted as if they were saving the economy. The reality is that there is now little hope of rebuilding infrastructure as the president promised. Cutbacks in federal revenue sharing will hit cities and states hard, forcing them to sell off yet more land, roads and other assets in the public domain to cover their budget deficit as the U.S. economy sinks further into depression. Congress has just added fiscal deflation to debt deflation, slowing employment even further.

How indeed will they explain all this in the November 2012 elections?

Michael Hudson is a former Wall Street economist. A Distinguished Research Professor at University of Missouri, Kansas City (UMKC), he is the author of many books, including Super Imperialism: The Economic Strategy of American Empire (new ed., Pluto Press, 2002) and Trade, Development and Foreign Debt: A History of Theories of Polarization v. Convergence in the World Economy. He can be reached via his website, mh@michael-hudson.com

More Power Over Wall Street, but Little Chance to Discuss It

by Jesse Eisinger
ProPublica, May 4, 2011, 3:09 p.m

The most notable thing about the first-ever news conference of the Federal Reserve chairman, Ben S. Bernanke, last week was what wasn't discussed: banking regulation.
We hardly need more evidence that the most powerful banking regulator in the world, one that just became even more powerful after financial reform was passed, is also the least examined. Mr. Bernanke's opening remarks were about monetary policy and the economy. When he answered questions, he repeatedly referred to the Fed's "dual mandate" -- to keep inflation low and stable and to maintain full employment for the economy.

About The Trade

In this column, co-published with New York Times' DealBook, I monitor the financial markets to hold companies, executives and government officials accountable for their actions. Tips? Praise? Contact me at jesse@propublica.org

But that's not the Federal Reserve's true dual mandate. The Fed is indeed the steward of the economy, but it also has to regulate the financial system, making sure banks are safe and sound.

In the years before the financial crisis, the Fed was a miserable failure in that role, a creature of the banks, not a watchdog. The news conference was an opportunity for Mr. Bernanke to demonstrate what the Fed had learned from the crisis about banking oversight. After all, a collapsed financial system does spectacular damage to an economy.

There's more to discuss about this now than ever. Under the giant Dodd-Frank package, the Fed was given an expanded regulatory role. The new consumer financial products regulator is housed within the central bank. The Fed also now officially oversees investment banks, which it had to rescue during the crisis. Congress broadened the Fed's remit to cover nonfinancial institutions deemed "systemically important." Congress created a new role, the "vice chairman of supervision," to raise the prominence and importance of its responsibility. (It remains unfilled.) Perhaps most important, the Federal Reserve is supposed to play a major role in taking over big banks that fail.

Banking supervision has always been something of a backwater at the Fed. Within the institution, the sexy stuff is monetary policy. That's where most of the resources and attention goes. The chairman and the board spend a disproportionate amount of their time on it, and monetary policy expertise largely dictates the selection of board members. Many question that mind-set.

"Either expressly or implicitly, the Fed permeates every part of the Dodd-Frank reform," says Dennis Kelleher, the chairman of Better Markets, a new Washington advocacy group that aims to be a Wall Street watchdog. "Yet there is no indication that the leadership of Fed understands or is undertaking its new role as systemic risk regulator. It's not on the mind of the Fed chairman."

Without much public comment, the Fed is making critical decisions about the banks today. It just ran a round of stress tests for the banking system in which most banks came up smelling like roses.

Most big banks were allowed to pay dividends and pay back the government's Troubled Asset Relief Program money. Yet the economy is weaker than the Fed expected and the real estate market, which makes up the bulk of banks' exposure, is having a second downturn.

What gives the Fed so much confidence that the banks are properly valuing their assets and are adequately capitalized?

For a brief moment back in 2009, it was actually considered as bizarre to give the Fed more power. Christopher Dodd, then the chairman of the Senate Banking Committee, proposed creating a new financial regulatory infrastructure, stripping the Fed of its mandate.

Sadly, the bill was so dead on arrival it wasn't clear if even Mr. Dodd supported the Dodd bill. Nonetheless, removing banking regulation from the Fed's umbrella would have some clear advantages. Monetary policy is a pretty hard job. It might make some sense to split off regulation just to ease the burden.

And monetary policy can be in conflict with banking regulation. A central bank might prefer to shore up investor confidence and move on from a financial crisis without taking punitive action against wrongdoers, thinking that aggressive action might undermine faith in the system. Sound familiar to anyone?

Mr. Bernanke's news conference was also supposed to be a step toward realizing the Fed's new commitment to "transparency."

That's certainly welcome, but it has only gone so far. Congress repeatedly asked for more information on extraordinary actions taken by the Fed during the financial crisis, but was met initially with stonewalling. The central bank fought a lawsuit initiated by Bloomberg News to release data on what kinds of securities it bought during the financial crisis and from whom. When it lost and was finally forced to release the information, it did so in a fashion that it made assimilating the information difficult.

Earlier this year, when the Fed conducted its second round of bank stress tests, it made less information public than it had in the first round in 2009.

"Regulation needs accountability and transparency, and the Fed is just not set up to be accountable or transparent,"

says Mike Konczal, a fellow at the Roosevelt Institute, a liberal think tank focused on financial matters.

The sight of a Fed chairman answering reporters' questions in declarative English certainly was a departure from tradition. On Thursday, Bernanke is giving a speech on banking regulation. Let's hope that brings a comparable approach to regulation, which is ultimately far more significant.