Economics, Financial Services, Pethokoukis

The GOP edges a bit closer toward breaking up the big banks

The Financial Times headline, “Republicans join liberal view of megabanks,” could probably use a qualifier. This is still a minority position within the GOP, though far less so among conservatives. Still,  it is an idea with surprising momentum given that bank collapses no longer fill the news. The FT:

What was once dismissed as a fringe idea during the debate over the 2010 Dodd-Frank law that reformed US financial regulation is becoming part of the conversation in Washington, as lawmakers consider additional measures that threaten the largest US banks. These include forced divestments and higher capital requirements.

“The Republican response to Dodd-Frank’s overkill is to break up the banks. The far left also wants to break up the big banks,” said Jaret Seiberg, senior policy analyst at Guggenheim Securities. “There are . . . serious threats here.”

Continued concern about Too Big To Fail and another financial crisis is one factor driving the idea on the right. But so too is concern about the future of center-right politics and policy in America after a consecutive calamitous presidential elections. Some conservatives want to make more clear the distinction between being pro-market and being pro-business. They see a large and concentrated financial sector as being the result of corporatist policies rather than as a market outcome. It is also a way of signaling middle-income voters that center-right policymakers are concerned about more than just the capital gains rates paid by the wealthy, particularly those on Wall Street. They want to see the GOP as pro-family, pro-growth, and pro-market.

But there are other financial reform ideas that should be looked at. Columbia University’s Charles Calomiris, also an AEI adjunct scholar, offers some recommendations for regulatory reform with an emphasis on market rules clear, simple, hard, and meaningful. These include:

  • The reform of the regulatory use of ratings that would quantify the meaning of debt ratings and hold Nationally Recognized Statistical Rating Organizations (NRSROs) financially accountable for egregious inaccuracy in forecasting the probability of default of rated debts;
  • The use of loan interest rate spreads as forecasts of non-performing loans for purposes of budgeting capital to absorb loan default risk;
  • The establishment of a transparent and simple contingent capital (CoCo) requirement that incentivises large banks to replace lost capital in a timely way (rather than disguise losses and avoid replacing lost capital);
  • The setting of simple cash requirements for banks (this would not resemble the complicated and poorly conceived new ‘liquidity’ requirements created by the Basel III process);
  • The creation of a simple macro prudential rule to govern the variation in capital requirements over time and, which would trigger changes only under extreme circumstances, based on objective, observable criteria;
  • A reform of resolution procedures for large financial institutions that would require a pre-specified minimum haircut on unsecured creditors whenever the resolution authority employs taxpayer funds in the resolution (i.e. whenever there is a departure from the enforcement of strict priority in the resolution process);
  • The establishment, as part of the ‘living wills’ of global financial institutions that govern their prospective resolution, of clearly demarcated lines of legal and regulatory jurisdiction (‘ring fencing’) over the disposition of all the assets and liabilities within a bank.

 

 

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30 thoughts on “The GOP edges a bit closer toward breaking up the big banks

  1. “•The reform of the regulatory use of ratings that would quantify the meaning of debt ratings and hold Nationally Recognized Statistical Rating Organizations (NRSROs) financially accountable for egregious inaccuracy in forecasting the probability of default of rated debts;”

    Gets my vote. What a collection of corrupt and inept organizations. However, front running the NRSROs is one of the easiest ways to make piles of money.

    Need a lagging indicator? This one has two legs amputated.

  2. Why not let someone compete with the Fed’s issuance of money and stop guaranteeing losses? Let the free markets work as they are supposed to and stop trying to enable the central planning types.

  3. Jindal’s plan is predictably stupid. By removing the income tax, which is applied progressively, and replacing it with a sales tax, which is regressive, he further pushes down the poorest people in the country. Only Mississippi and Alabama are bigger cesspits of poverty.

    • Jindal’s plan is predictably stupid. By removing the income tax, which is applied progressively, and replacing it with a sales tax, which is regressive, he further pushes down the poorest people in the country. Only Mississippi and Alabama are bigger cesspits of poverty.

      Ever hear of incentives? Without an income tax the state would encourage more people to work. And without the handouts he would encourage people to look after themselves as they should.

      And if you look at the median household income in Louisiana and compare it to the EU it actually looks quite good since it is higher than Sweden, France, Spain, Portugal, Italy, France, etc.

      • “Ever hear of incentives? Without an income tax the state would encourage more people to work. ”

        This is a preposterous canard, and demonstrates the same contempt for people Romney did. People don’t need tax incentives to work or get a job. This is ridiculous conceit, and a hateful piece of purile ignorance.

        Laffer pushed the same idea with his lunatic theories. He was really convinced that people were intrinsically lazy and what they really needed was lower tax rates so it would spur them to work.

        The laziest parasites in America push this idea: academics.

        • This is a preposterous canard, and demonstrates the same contempt for people Romney did.

          Romney was a fool who never could stand on principle or make a rational argument. It seems that you are incapable of making a rational argument either because I do not see much in the way of a response.

          People don’t need tax incentives to work or get a job.

          When they can make just as much by staying at home they will not work. The solution is to let them keep what they earn because it is after all their money, and to stop robbing some to pay for the benefits of others.

          This is ridiculous conceit, and a hateful piece of purile ignorance.

          Hate? I am not the one arguing for theft. You are.

          Laffer pushed the same idea with his lunatic theories. He was really convinced that people were intrinsically lazy and what they really needed was lower tax rates so it would spur them to work.

          I am not defending Laffer or saying anything about his theory. Deal with what I am actually saying, not straw men.

          The laziest parasites in America push this idea: academics.

          Not at all. Academics are overwhelmingly statists and push bigger government and taxation just as you do.

          • “Romney was a fool who never could stand on principle or make a rational argument. It seems that you are incapable of making a rational argument either because I do not see much in the way of a response. ”

            I just made a rational argument but you just refused to see it. I’ve been in the workforce since I was 15 years old. Not once in my life have I seen or even heard of a person who changed his attitude towards making a living because of tax policy. The assertion is utterly ludicrous on it’s face. And either you admit that to yourself, or keep deluding yourself.

            “The solution is to let them keep what they earn because it is after all their money, and to stop robbing some to pay for the benefits of others.”

            Right- like those bloodsuckers maintaining the Sixth Fleet, the ones who man over 1000 military bases throughout the world- you know, the lazy ones.

            Grow up. This is Archie Bunker scholarship.

          • I just made a rational argument but you just refused to see it. I’ve been in the workforce since I was 15 years old.

            I started at age 11.

            Not once in my life have I seen or even heard of a person who changed his attitude towards making a living because of tax policy.

            Well, you are debating with one. I stopped working because I could not understand why it made sense to spend so much time and money working only to give more than half of what I earned by working to the government.

            The assertion is utterly ludicrous on it’s face. And either you admit that to yourself, or keep deluding yourself.

            Since I changed my own work habits because of taxation it is clear that I am not fooling myself. And if you understood your own history you would know that many high earners chose not to work during periods of high taxation. Reagan used to only make one picture a year because it made no sense to make two. But that is all anecdotal so let us move to the data. Here is a graph of Disposable Income for a Hypothetical Single Parent with One Child, by Earnings, in 2012. Why would someone work if the increased earnings do not translate into higher disposable income?

            See the problem?

          • ‘Well, you are debating with one. I stopped working because I could not understand why it made sense to spend so much time and money working only to give more than half of what I earned by working to the government. ”

            Well, you’re a lazy son of a bitch who takes no pride in his labor, and apparently believed that his life was filled with so little promise, you wouldn’t take a job that could lead to more earnings and more responsibilities.

            You’re some “Conservative.” I also think you’re a liar.

          • Well, you’re a lazy son of a bitch who takes no pride in his labor, and apparently believed that his life was filled with so little promise, you wouldn’t take a job that could lead to more earnings and more responsibilities.

            Actually, I loved my job and had no problem with working. It was a job with a lot of promise, a huge amount of responsibility and offered me a great deal of enjoyment. I simply had a problem with spending 60 hours a week and seeing more than half of what I earned go to the government.

            This does not mean that I do not ‘work’ or that I have no earnings. In fact in the first year after I ‘retired’ I wound up making as much as my 15 years of full time employment. But I paid little in taxes because the government has different rules for unearned income. Not only does it tax dividends and capital gains lightly it allows prudent planners to defer paying their taxes for a very long time even as it has tax treaties that would allow for a very small eventual tax hit. When you can wind up extracting $10 million and only wind up paying $1.5 million in taxes I would say that you have many options.

            The same rules are in place in your country where the very wealthy have ways to shelter much of their income no matter how much Congress may want to extract their pound of flesh. It is only those that have a earned income and have to keep working that get wiped out.

            You’re some “Conservative.” I also think you’re a liar.

            I am not and have never been a ‘Conservative’. I am a libertarian who believes that I own my own body and mind and any earnings that come my way because of the use of that body and mind. As any rational person does, I look around and see what the rules permit. And when they allow you to earn huge amounts while you are permitted to pay little in the way of taxes as well as to shelter earnings for a very long time I use those rules just as everyone else is entitled to.

            That does not make me lazy. Just smarter than you seem to be.

          • “Actually, I loved my job and had no problem with working. It was a job with a lot of promise, a huge amount of responsibility and offered me a great deal of enjoyment. I simply had a problem with spending 60 hours a week and seeing more than half of what I earned go to the government. ”

            Uh-huh. So you threw away your dignity and your potential for growth and professional development to stay on your ass. Since when did “half” of what you ever earned “go the government” that you could walk away from for welfare?

            Even if your choice was true, which I doubt, I have nothing but contempt for someone who would choose to be a slacker.

            “This does not mean that I do not ‘work’ or that I have no earnings. In fact in the first year after I ‘retired’ I wound up making as much as my 15 years of full time employment.”

            “I am a libertarian”

            You tell ‘em. You’re a “libertarian.”

            I’ll bet. Give me the name of that horse.

          • Uh-huh. So you threw away your dignity…

            No.

            …and your potential for growth and professional development to stay on your ass.

            No again.

            Since when did “half” of what you ever earned “go the government” that you could walk away from for welfare?

            Who said that I took welfare? I said that I was eligible for free gifts courtesy of the Feds and the Ontario government. I did not bother taking those gifts. Like I said, I earn more per year now than I did when I worked even as I spend most of my time with my family. And when you count income taxes, employment insurance, government pension plans, property taxes, sales taxes, fees, charges, and duties, you give up more than half of what you earn to the government. Fortunately, if you do not earn your money by working the highest marginal tax rate is cut in half and even that can be lowered by using proper planning.

            Even if your choice was true, which I doubt, I have nothing but contempt for someone who would choose to be a slacker.

            Who is a slacker dumdum? I am far more productive than I used to be when working because I have full responsibility over what I do.

            You tell ‘em. You’re a “libertarian.”

            Of course I am. It is the only moral philosophy and the only one that does not rely on the initiation of violence to meet its ends. Unlike you, I do not want to steal from people and tell them what to do.

    • By removing the income tax, which is applied progressively, and replacing it with a sales tax, which is regressive, he further pushes down the poorest people in the country“…

      Hmmm, so stealing from the productive (is there another way to accurately describe what progressive really means?) in order to pander to the supposed poor is a good idea?!?!

      I don’t totally agree with Jindal’s idea either but why should the more productive people pay even one more penny in taxes than a poor person?

      • “I don’t totally agree with Jindal’s idea either but why should the more productive people”

        “productive” your ass…..

        What a dope.

        • maxie boy as usual, long on whine and short on substance: ““productive” your ass…..

          What a dope“…

          So I’m sure maxie the absymally stupid & proud of it has some credible references to back up his whine but he doesn’t want to share, right?

  4. “Reagan used to only make one picture a year because it made no sense to make two. But that is all anecdotal so let us move to the data.”

    This is f&&king insipid:
    1) Reagan already had a job. Its not as if he went off the dole.
    2) I doubt the story is even true, given Reagan’s meagre output and third tier status as an actor. If Reagan felt this way, how come none of his contemporaries did? These guys banged out five films a year without flinching.

    You can’t be taken seriously.

    • This is f&&king insipid:
      1) Reagan already had a job. Its not as if he went off the dole.

      He did have a job but he did not make as many pictures as he could have because of his tax planning.

      2) I doubt the story is even true, given Reagan’s meagre output and third tier status as an actor. If Reagan felt this way, how come none of his contemporaries did? These guys banged out five films a year without flinching.

      You can’t be taken seriously.

      This shows exactly how ignorant you are. In one of his lectures, tax lawyer Charles Adams, who has written one of the best books on tax history, For Good and Evil: The Impact of Taxes on the Course of Civilization, when talking about how doctors handle high marginal tax rates, brought up Reagan. He pointed out that when someone commented on how great a swing the president had, Reagan said that after he reached the top tax bracket, he would stop working and would play golf for the rest of the year. Many doctors did exactly the same thing, which is why so many actors and doctors were such great golfers. Today an actor can register a production company in Bermuda and make all the films that s/he can because the marginal tax rate is quite manageable and the tax planners allow earnings that will never be taxed as long as they stay with the production company.

      As with real estate, you know far less than you think that you do. Like I wrote before, you are making Larry look like a genius in comparison.

      • “2) I doubt the story is even true, given Reagan’s meagre output and third tier status as an actor. If Reagan felt this way, how come none of his contemporaries did? These guys banged out five films a year without flinching.

        You can’t be taken seriously.”

        Sir, the story has to be urban legend. Work with me here, son. Reagan was a third rate actor, and never had the star power or commanded the money that major studio actors did.

        Here’s the filmography for Reagan, including “Bedtime for Bonzo” and other forgettable works:

        http://www.aei-ideas.org/2013/01/the-gop-edges-a-big-closer-toward-breaking-up-the-big-banks/?replytocom=223270

        Here’s Bogie’s:

        http://en.wikipedia.org/wiki/Humphrey_Bogart_filmography

        Here’s James Stewart’s:

        http://en.wikipedia.org/wiki/James_Stewart_filmography

        Now by the 50s Reagan moved to doing mostly television, and this is when the tax rates were highest. But it didn’t stop any of these other actors.

        This is where you got the story from:

        http://toomuchonline.org/the-tax-that-turned-ronald-reagan-right/

        “At his Hollywood height, actor Ronnie Reagan was making $400,000 per picture. With the top federal tax rate over 90 percent, Reagan used to tell his White House chief of staff Donald Regan, he always chose to “loaf” around rather than make more than two pictures a year.”

        This was during the war years, when FDR sharply raised taxes. Yet, Reagan pumped out as much or more as the other stars did! In one year, he cranked out six films! The story is no doubt bulls^hit.

        • Sir, the story has to be urban legend. Work with me here, son. Reagan was a third rate actor, and never had the star power or commanded the money that major studio actors did.

          He did not need to make many movies to reach the top marginal rate, which was confiscatory. Neither did most actors. And as Adams pointed out, it was not just actors but doctors and other high income professionals who did exactly the same thing. They worked hard for a while and when they maxed out they went golfing. The tax rate was why there were so many golf jokes about doctors then and why there are so few now. Why do you think that so many artists, sports figures, and actors wind up in places like Monaco and wind up with production companies overseas where global earnings could not be taxed?

          And let us not forget that even in the 1940s and 1950s some actors and performers found it easy to get around the high marginal tax rates due to loopholes. Bob Hope wound up being a billionaire while working for free while some of the studio heads and hotels where he performed paid him in options to purchase land at a fixed price. Other actors would make a movie and wind up getting free housing in expensive European destinations, free clothing, vehicles, etc. Some of those guys wound up with lower effective tax rates than Romney’s 14% but most simply did what other high earners did; stop working and go golfing.

      • “This shows exactly how ignorant you are. In one of his lectures, tax lawyer Charles Adams, who has written one of the best books on tax history, For Good and Evil: The Impact of Taxes on the Course of Civilization, when talking about how doctors handle high marginal tax rates,”

        WOW, MAN!! THIS INCREDIBLY OBSCURE WORK OF ECONOMIC THEORY GOT ALL OF 28 REVIEWS ON AMAZON!! I’m sure to make it next on MY list!

        Jesus H. Christ……

        • WOW, MAN!! THIS INCREDIBLY OBSCURE WORK OF ECONOMIC THEORY GOT ALL OF 28 REVIEWS ON AMAZON!! I’m sure to make it next on MY list!

          Jesus H. Christ……

          It is the best book on the History of Taxation so you should put it on your list. Of course, you have never been willing or able to learn very much so for you anything that does not already agree with your faith based narrative may be a waste. That said, my point has been made and is easily supportable. The data shows that people will change their work habits depending on the incentives. When taxes are high people work less and ask for as many nontaxable benefits as they can get. When taxes are low they work much longer and prefer to get pay instead of benefits that they value less.

          A perfect example is France, where the government’s attack on successful people has driven those that have the options to other jurisdictions where they and their money are treated much better. Sadly, you idiot lefties are just as incapable of learning as the idiots on the right.

          • “It is the best book on the History of Taxation so you should put it on your list”

            If you say so. After all, you’re such a paragon of logic why WOULDN’T I just blindly believe you?

            Pro tip: Next to books, there’s something called “real life.”

          • Pro tip: Next to books, there’s something called “real life.”

            Which is what you are ignoring. In the real world people do not like to be taxed and will do what they can to avoid it, even if it means working less.

    • This is f&&king insipid:
      1) Reagan already had a job. Its not as if he went off the dole.

      He did have a job but he did not make as many pictures as he could have because of his tax planning.

      2) I doubt the story is even true, given Reagan’s meagre output and third tier status as an actor. If Reagan felt this way, how come none of his contemporaries did? These guys banged out five films a year without flinching.

      You can’t be taken seriously.

      This shows exactly how ignorant you are. In one of his lectures, tax lawyer Charles Adams, who has written one of the best books on tax history, For Good and Evil: The Impact of Taxes on the Course of Civilization, when talking about how doctors handle high marginal tax rates, brought up Reagan. He pointed out that when someone commented on how great a swing the president had, Reagan said that after he reached the top tax bracket, he would stop working and would play golf for the rest of the year. Many doctors did exactly the same thing, which is why so many actors and doctors were such great golfers. Today an actor can register a production company in Bermuda and make all the films that s/he can because the marginal tax rate is quite manageable and the tax planners allow earnings that will never be taxed as long as they stay with the production company.

      As with real estate, you know far less than you think that you do. Like I wrote before, you are making Larry look like a genius in comparison.

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