GBP: The Credit CARD Act

Well, as the first salvo in a burst of blog posts over the next few days, here’s the second installment of my new series of posts called “The Good, The Bad, and the Presidential”.  This regularly-appearing series takes a look back at the various accomplishments made by President Obama in the first half of his term, and provides the same level of analysis longtime readers have come to expect from me.  Without further ado, here’s tonight’s accomplishment:

Welcome to the Corporate States of America?

Sorry for the long absence from writing; I’ve had too much work so far this semester, and as always, I care about the quality of these posts.  I do not just randomly throw whatever up here; I take time to research these posts.  As a result, yes, I am starting to write this on a Saturday night; this issue is too important to not write about.  Remember the Citizens United ruling?  We’re now seeing its full effects, and they are disturbing.  Several weeks ago, Target was called out for donating to a Minnesota candidate’s campaign based on his economic platform; this same candidate, it turns out, is against gay marriage.  Though the grassroots campaign against Target was successful, it turns out we were barely scratching the surface with the issue of corporate funding of campaigns.

Much larger than Target’s six-figure donation to MN Forward is the $10 million that the U.S. Chamber of Commerce has spent this past week trying to elect Republicans in recent weeks.  Now, the idea of the Chamber funding political attack ads is nothing new, and is even, albeit tacitly, accepted in American politics.  I don’t think special interest groups on either side of the political spectrum should be involved in politics, but that’s another post for another day.  What is really getting at me is the question of whether the U.S. Chamber of Commerce is spending foreign money on campaign ads, which is a violation of Federal law.

The Casualties of the “Beltway Bubble”

For what it’s worth, the Republicans don’t seem to be in favor of much of anything these days that actually makes sense.  On the one hand, I can understand their fixation on reducing the deficit; that is something this country needs to tackle before it gets much worse.  Then they say they are in favor of extending the Bush tax cuts; if they really wanted to cut the deficit, they’d let the tax cuts expire.  But of course, that doesn’t fit the “lower taxes for everybody and to hell with the consequences!” plank of their policies.  We’ve seen time and again this session that great ideas, (see: the public option, the climate bill),  go to the Senate to die.  Now, another program has fallen to the Senate obstructionism.  This time is a bit different, and a bit more worrisome too.

Is Wall Street Reform Destined to Fail?

By now, most of you have probably heard: on Thursday night the Senate passed Wall Street Reform after a debate that had proceeded remarkably smoothly up until the last week or so.  In fact, throughout the whole process, not much out of the ordinary for what the people should expect of the Senate happened until it came down to the wire and some of the most-controversial amendments came up for debate, including a proposal to limit ATM fees and exempt auto dealers from new regulations.  Neither of those made it into the final Senate bill, but plenty remains.  The real question is, will it work?  It is true that the Senate’s bill still has a lot in it, including some very promising provisions, and that the House of Representatives has its own bill that must now be merged in conference, however any number of things could be done to weaken it.

Unlike health care reform, however, most of the main parts of the financial reform bill should survive the conference committee; both the House and Senate bills are quite similar, with only a few parts needing attention.  According to Senator Chris Dodd (D-CT), quoted in the New York Times, “This is one of those rare occasions when the two bills really are very close to each other”.  Despite this, there are major differences in the way the bills treat proprietary trading, or the practice of banks profiting off of trades using their own money and interests rather than acting in a service to their clients, the CFPA, and the “resolution authority”.

In fact, I would seriously question Senator Dodd’s statement above, except for the fact that we all saw the health care debate unfold; if you want a reminder of what the effort to merge bills passed by the House and the Senate considered to be normal or even very different from each other, look no further than the health care debate.  As far as the actual conference goes, there are things I like about both bills, and things I don’t.

How Much Is That Election in the Window?

If you thought modern elections were brutal due to the volume of attack ads, hang on to your hats as things are about to get a whole lot worse.  Today, in a 5-4 decision, the Supreme Court ruled that many of the campaign finance restrictions are unconstitutional.  At the heart of the ruling in this case is the McCain-Feingold campaign finance law passed back in 2002.  Specifically, the law had restricted the ability for corporations to influence elections directly from their own pocket, according to the Wall Street Journal.  Of course, the primary effect of the law as we have known it was that it created the infamous Political Action Committees responsible for the worst attack ads that we have seen, including the Swift Boat Veterans for Truth back in 2004.  While PACs are no longer as necessary as they have been, they are still around, and will only be a part of the money rush, rather than being one of the primary means candidates finance their campaigns.  The flood of corporate money into campaigns is coming, and it may even be starting in time for the midterm elections.

In making their ruling, the Justices took a case that could have been decided narrowly and expanded it far wider than it perhaps should have been.  The case, Citizens United v. Federal Election Commission, was originally about whether Citizens United, one of those PACs, could air a documentary seen as portraying Hillary Clinton negatively in the run-up to one of the primaries.  The FEC said no, and well we all know what happened from there. The Supreme Court re-examined it this year after initially hearing the arguments last March, which in itself is rare.  When they did, however, they did so in a special session, before the normal term started.  At that point, it was pretty clear that something big was going to happen.

Oops, They Did it Again

Okay, I apologize for the facepalm-inducing title, but it grabbed your attention, didn’t it?  Happy bonus week to all, especially to those Wall Street bankers receiving performance-related bonuses for 2009.  As much as I think the bonuses themselves are a little too large given the recession, this post is not so much about them as it is about the hearings on the origins of the financial crisis taking place on Capitol Hill today.  Of course, the two are naturally linked, as the public outrage over seven- or eight-figure bonuses coming out of one of the worst years Wall Street has had in the last century will certainly add to the interest in enacting new proposals to limit these pay practices, and influence the tone and perhaps even the course of the hearings themselves.  In addition, these bonuses have caught the eye of federal financial regulators, who now want to do something about them.

Conducted by a bipartisan commission created for this purpose, the hearings on the causes of the financial crisis contain all the political theater you would expect from such a high-profile event.  In fact, the bank representatives at the hearings and administration officials, including Treasury Secretary Geithner, Federal Reserve Chairman Ben Bernanke, and FDIC Chief Sheila C. Bair, have been going after each other in the media over the last few days.  It is, in fact, the same tired old arguments we have been hearing from the bankers for the last couple of years.  In effect, they say that such high bonuses are necessary in order to keep the talent they have and be able to remain in business.

Federal officials, on the other hand are about as tired of hearing these arguments as we, the common citizens, are.  Now, they are discussing various ways to train the financial services industry that this is a practice that is frowned upon.  When training a dog, or teaching a child, for instance, positive reinforcement for good behavior is one of the best ways to achieve a desired end result.  That appears to be the core of the various strategies that the Obama administration is mulling over in response to concerns over bonuses.  However, outrage over bonuses is only part of the picture.  Recently, it came out that the government is probably going to take a large loss on the Troubled Assets Relief Program, or TARP legislation that bailed out several of the “too big to fail” financial firms, not to mention the automakers.  At a time when we are increasingly concerned about the national deficit, the government clearly wants some of that money back.

Of course, some companies have already paid back much of their bailout money, and it is unclear whether the new measures would affect only the firms that have not done so, or the industry as a whole.  However, the Huffington Post is reporting today that one of the proposals under consideration is essentially a tax on these “too big to fail” institutions.  In theory, this tax would only apply to the parts of the institutions whose actions directly led to the crisis and encourage these large institutions to break up.  Great idea, but I am highly doubtful it will actually work.  In practice, the only effect this tax will have is being passed on to consumers.  Nothing else will change except we will have given banks a new excuse to nickle-and-dime the consumer for everything.  Did you notice those new fees banks are imposing ahead of the credit card legislation slated to take effect in the next couple of months?  That legislation was a great idea, and it will help consumers overall, but banks have already adjusted.  The same will happen with this new tax.

Certainly, this idea will recover a fair amount of the TARP money that as invested in these institutions, but it will be coming out of the consumer’s pocket, rather than the bank’s.  It is a nice try, but it will not work as planned.  If the government really wants to avoid the “too big to fail” problem, the only surefire way would be to forcibly break up these institutions with the force of the law.  That in itself goes against the capitalist ideal, but hey, it would work.  Of course, another idea is to wait for consumers to shift to a smaller bank and leave the major institutions to handle the investment banking cash cows they love.  In fact, there is evidence that this may already be happening.

Rise and Fall: The G-20 is Set to Eclipse the G-8

Meeting for the third time in a year, the G-20 has certainly appeared to have some more influence than the G-8, the traditionally-dominant group on international economic matters.  Now, following a strong push by President Obama, the G-20′s influence will be formalized, as the New York Times reports.  Such a change is welcome; globalization has changed the face of international economics.  Quite frankly, the G-8′s dominance is a relic of the Cold War.  During the Cold War, the G-7, as it was then called since Russia was not yet a member for obvious reasons, deserved as much power and influence as it had as an international body.  It made complete sense to give the G-7 so much power and influence then, given that they truly were principal economic powers.

Now, times have changed.  Two decades removed from the fall of the Soviet Union, and with a more-integrated and decentralized world economy, more players deserve to be brought to the table.  Now, it is quite ridiculous that China and India, among others are not included in the world’s economic power structure.  As the CNN article states, the G-20 nations are collectively about 90% of the world’s economic output, making it a much more effective and relevant group to formulate international economic policy.

But how effective will it be?  One of the G-8′s strengths was that all the nations involved followed a similar agenda, making it easier to have a definite stance on issues.  The G-20, on the other hand, includes the most economically powerful members of the so-called “third world”, a term which itself is quickly becoming outdated.  These nations are still developing, and therefore have different economic concerns than the G-8 members.  I can see this going one of two ways: either this difference in priority will make the economic debates more vibrant and produce better policies for the world, or it will become completely deadlocked.  Either way, the time for a new order has been coming for a while, and the current economic conditions are the perfect time to give more players a seat at the table.

Protectionism or Fair Practice?

Well, here we go again. The U.S. is in yet another trade dispute with China.

After President Obama announced the imposition of a tariff on tire imports from China, the PRC retaliated with a similar measure placed on American automotive products and chicken meat, while complaining about the U.S. actions to the World Trade Organization.

On the surface China appears to be right in calling protectionism on the U.S. In reality, it is a fair move by the federal government in imposing the steep tariff. Currently, the trade imbalance is such that for every dollar spent on American goods flowing into China, the U.S. spends $4.46 on goods flowing in the opposite direction, as stated in the article linked above. What’s more, the Chinese government maintains the imbalance by keeping its national currency, the Yuan, unnaturally low in value, thus making Chinese goods cheaper than the same goods made elsewhere.

The way I see it, the issue boils down to this one simple idea: China wants to maintain this favorable trade relationship, while the U.S. wants to make things fair. The Chinese government complains that the tariff will cause jobs to be lost. However, tires make up a small sector of the Chinese economy, while entire cities in the Midwestern U.S. have been devastated by jobs lost to the trade imbalance. Trade is fine, when it is fair. However, trade with China is not fair at the moment. There is nothing wrong with outsourcing jobs to places that can provide labor cheaper, except in cases such as this when the cheaper price is obtained through unfair practices.