Congress: We Can't Help the American Public Because The Dog Ate Our Homework → Washingtons Blog
Congress: We Can't Help the American Public Because The Dog Ate Our Homework - Washingtons Blog

Thursday, October 29, 2009

Congress: We Can't Help the American Public Because The Dog Ate Our Homework

Elizabeth Warren sums things up pretty succinctly:

The banking lobby is as powerful and deeply entrenched as ever, but it was powerful in the 1930s, too. Nonetheless, the New Dealers learned the Great Lesson: Powerful insiders cannot be permitted to write the rules, and prosperity and security depend on a playing field that supports a vibrant middle class. Today, we face a similar set of questions as we faced then. Will the institutions that created the crisis continue calling the shots and writing the rules, or will Washington take the side of families? Have we learned the Great Lesson?
To date, of course, the White House and Congress are siding with "the institutions that created the crisis" and not families.

As PhD economist Craig Pirrong makes clear, all of the talk of "reform" and "regulation" coming out of Washington is just for show (without any substance), to appease the populist anger:
Rather than a serious effort to address systemic risk, this [proposal on bank oversight] seems to be populist boob bait, a response to popular outrage against taxpayer banking bailouts, rather than a serious attempt to address TBTF. Not a surprise, and quite understandable, but not a major improvement of incentives.
Indeed, a 725-word story from Harper's proves (again) that Congress is trying to fool the American people:
Everyone rational knows that there is an enormous need to seriously reform the derivatives market, but [on October 7th, the House Financial Services] committee, headed by Congressman Barney Frank (D-Wall Street), invited a panel of eight guests who were distinguished by their uniformly pro-industry positions...

In response to complaints from Americans for Financial Reform, which represents hundreds of consumer groups and labor unions, the committee issued an invitation—the night before the hearing was held — to Rob Johnson of the Roosevelt Institute. For the committee, the last minute inclusion of Johnson — a former managing director at Bankers Trust Company and former economist at the Senate Banking Committee and Senate Budget Committee — apparently constituted sufficient balance.

Predictably, witnesses at the hearing trotted out positions urging caution in regard to the matter of reform. Derivatives and other exotic financial devices have reaped the finance industry vast profits, but for Hixson of Cargill the common man and woman would be the real losers if Congress were to act too severely. “We offer customized hedges to help bakeries manage price volatility of their flour so that their retail prices for baked goods can be as stable as possible for consumers and grocery stores,” he told the committee’s wagging heads. “We offer customized hedges to help a restaurant chain maintain stable prices on their chicken so that the company can offer consistent prices and value for their retail customers when selling chicken sandwiches.”

Johnson, who came last, offered the only serious critical viewpoint, saying that the American public had been “quite demoralized by…the bailouts that we experienced last fall.” After about five minutes of his testimony, Congresswoman Melissa Bean—another industry-funded committee member who chaired the hearing because Frank was absent—had heard enough. “I’m just going to ask you to wrap up because we’re running out of time,” she told Johnson.

Johnson gamely continued. “When I hear the testimony today that are largely financial institutions and end users, I believe that I represent a third group that comes to the table, which is the taxpayers, the working people of the United States,” he said.

“I do need a final comment,” Bean interjected seconds later.

That put an end to Johnson’s testimony. “I was just called to this hearing last night, so I will provide detailed comments on your bill and a statement for the record that will finish my comments,” he concluded.

About five days later Johnson submitted his full testimony to the committee, to be included on its website along with the statements of the other eight panelists. When it wasn’t posted, Johnson asked Lynn Parramore, editor of the Roosevelt Institute’s blog, to see what was up. Parramore emailed and spoke to staffers at the Financial Services Committee, and received a number of explanations for why Johnson’s testimony had not been posted: first she was told it hadn’t been received, then that it had to be submitted as a PDF, then that the committee was having IT problems. “I couldn’t decide whether it was incompetence or mischief, but I began to suspect the latter,” Parramore told me.

Finally, she was informed that the committee’s general counsel would not allow posting of the testimony because Johnson had not submitted it during the hearing. (Of course, since Johnson had been invited at the last minute it was impossible for him to fulfill this pointless requirement.) So you still can’t read Johnson’s prepared testimony at the committee website, but you can check it out on the Roosevelt Institute’s blog.

Meanwhile, Frank’s committee has put forth its “reform” bill. “Too tepid, too weak, too late,” Johnson says of the legislation. “Very industry influenced. We had a crisis and they are pandering to the perpetrators.”
Yves Smith summed it up well:
The House Financial Services Committee has refused to publish his testimony, offering “the dog ate my homework” level excuses.


  1. There is a common fallacy that expresses itself in these sorts of discussions, one that should be repeatedly brought up. This is a good place to air that fallacy again.

    Just because a view is centrist, -or popular among the idiot masses- does not mean it holds water, has any viable capture of the truth, or a monopoly or even some verification of the moral course.

    In fact, most of these discussions are so far off base, the opposite -should be accepted as the overwhelming norm.

    Human competence at anything other than things like laziness, lying, sex and murder is a nearly completely captivating myth, -simply because of a common and vile human conceit.

    We are the "cretins" so often referred to -by those who toss out the term in an effort to make their own shit -appear to stink less.

    We all know the Congress is currently splayed, spread eagle in bed with the banks. That continuous sucking and slurping sound is exactly what you think it is.

    And yes, the word "whores" is appropriate to the vile occasion of this debacle.

    But to jump to conclusions and suggest that the "peephole" need their own bailout -to level the playing field- or -to deal with their own continued misery -is simply drilling another, -even larger- hole in the bottom of this rapidly sinking boat.

    This may come as a shock to some, and limit a lot of the silly plans being tossed about by others, -but folks-, -all these things cost money.

    And, the country is currently being run on borrowed money.

    Debt and insolvency are the well understood -if too often ignored- problem.

    The problem is NOT that the borrowed money is being given to the wrong people.

    The problem is the lack of any appreciation for how to gauge the problem of the total lack of human progress in the immediately preceding century, and then to look behind us even further to see where it was we left off on the path toward some sort of viable civilization.

    Plotting a cogent course is rarely accomplished by simply dropping everything and running away from our demons, -or- by picking up our scabbards and pitchforks and running after the scoundrels.

    Be smart, like Stalin, and simply invite the scoundrels to a meeting -instead.

  2. Simply: Obama is a weak man and an appeaser. He is not an FDR (or a TR, for that matter) and he will not take bold steps or oppose people of power.
    Given that, what do we expect?

  3. It seems clear to me, one of the first things needed to be done, is to shut down the stock markets.

    There is no basis for allowing Wall Street to continue on with this massive fraud. Bankrupt companies are being pumped up with government money to look like they are solvent, when they clearly are not.

    The potential for and ongoing evidence of widespread corruption is simply far to great to allow the markets to remain open under this set of economic conditions including but not limited to the stimulus factors implemented by a partisan Executive fearful of and actively manipulating and muzzling the free press.

    This is nothing like what anyone ever bargained for.

  4. In pandering to big money, the government is ignoring its proper job, to its ultimate peril.

    The government's primary purpose is to see that people have something to do. They can be peasants working the fields, they can be wage slaves tending machines, they can be cops with white gloves directing traffic. What people do isn't important, the fact that they're happy (or not) isn't important. The only important thing is that they're busy doing something. That's what counts.

    What the government - every government - must avoid are large masses of idle people. It makes no difference if the idle are happy or unhappy, rich or poor. The danger is simply that they're idle, and so are a tempting target for anyone who wants to whip them up & put them to his own use. Such as a charismatic "man on horseback" who uses popular discontent to dispose of the government & put himself in power at the barrel of a gun.

    As Thoreau said, "That governs best which governs least". Thoreau gives us the essence of the solution: The more the government has to employ people merely to keep them busy & off the streets (the Soviets, anyone?) the more the government is a collective nuisance to the rest of us. It is therefore clear the primary indicator of a government's success is not the GDP or Wall Street or the amount of money in circulation, but the (honest & true) unemployment rate. Combine this with median income & you have real indicators of national wealth. Not the phony recovery we see now.

    The American government was captured by special interests a long time ago. This problem did not start in the '70's or '80's as many suppose. Given the American Revolution was not a popular, broadly based revolt, the problem may go right back to our founding, so many years ago.

    So what kind of government functions best? A government of the people sounds like a good idea, but a government that fears its people is a lot better bet. A fearful government is a government that concentrates on its primary job. Which is keeping the masses fat & happy. Any way it can. This seems to have been forgotten. The Civil War was a popular revolt. No one wants to go through that again.

  5. I second Anonymous 5:46. Obama is an appeaser. He is in the grand tradition of Alan Greenspan, who eased us into the current mess.

    It's the only kind of politician that survives in our corrupt system, I guess. You get taken out by the Big Money otherwise.

  6. Laws and regulations are worthless if they are not enforced. For example, There were laws and regulations already on the books that would have prevented the crisis from happening if the cops had been doing their jobs, and there are laws and regulations in place that would have resolved a great deal of the mess as soon as it began to develop. These laws and regulations simply were not enforced, either under the Bush or Obama administrations.

    Karl Denninger at The Market Ticket has been documenting this for years. His latest posts on the subject are damning.

    Is The Press Waking Up?

    The FDIC Must Be Indicted


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