The difference between populism and demagoguery is frequently very small, and while populism has been an effective vote getter in the past — though the “Cross of Gold” speech could never quite carry William Jennings Bryan to the White House — it has just as often proved to be bad economics.
Big bankers are not exactly the people who draw a lot of sympathy, and President Obama has recognized this.
PhillyDeals: Why big banks should be paying big taxes¹
By Joseph N. DiStefanoThe Obama administration wants the biggest banks to pay more taxes – and to make more loans.
The president says that’s not a contradiction. If the biggest banks can afford thousands of million-dollar manager salaries and “obscene” trader bonuses, he figures they can afford a $10-billion-a-year tax on bank investments to defray the cost of the 2008 bank bailouts.
Why just big banks, most of which already repaid what the United States invested in them, with interest?
“Too big to fail” banks are “imposing the most significant costs on the taxpayer and the economy as a whole, so we designed a fee that would put the burden on those institutions,” Obama adviser Gene Sperling told me in a White House conference call for us “regional reporters.”
But won’t higher taxes make big banks lend less, slowing the weak economy?
“I don’t buy that,” said John Chrin, who quit his job as a top JPMorgan Chase & Co. bank deal-maker last year to teach finance at Lehigh. The tax is “a blunt instrument,” but the president is right, he added.
The federal government saved the banks, not just by bailing them out, but by also stabilizing markets, he told me. Bankers need to show “self-restraint.”
Chrin’s old boss, JPMorgan chairman Jamie Dimon, warned Obama not to “punish” companies with higher taxes. But Chrin says his old bosses and clients ought to know better than to pocket the windfall. “The government is saying, ‘If you’re not going to regulate yourselves, then this is how we’re going to nudge you. You’re not getting a free ride.’
The important fact is in the third paragraph: most of the big banks already repaid the emergency loans, with interest. In not a few cases, the Obama Administration resisted letting the banks repay, because, as most people thought, the Administration wanted to have greater control over the banks.
Mr DiStefano noted the problem with what the Obama Administration wants: they want the banks to pay more in taxes, and to make more loans. But one of the reasons for the financial crisis was that too many banks made too many loans to people who weren’t good credit risks. Banks tightened up their lending requirements, to avoid doing again what got them into so much trouble in the past; that was absolutely the correct response. Now the President wants the banks to loosen those credit requirements — that’s what “making more loans” means — and the president wants to impose big, new taxes on the banks. He would concomitantly increase their exposure to risk, and try to reduce the profits they could make by taking those risks; he would ask the executives who run these banks to take greater risks with the banks’ money while restricting their individual compensation for doing so.
I’ll admit that the first thing that crossed my mind was that President Obama was thinking along the lines of the old Bank of the United States, but the cases aren’t quite parallel. President Jackson opposed the Second Bank of the United States in large part due to his belief that it was an institution which supported the elites at the expense of the common man. President Obama, with his great dislike of big bankers and Wall Street executives getting big bonuses, seems to base his policies similarly: he is looking to push the banks to take business decisions for populist political reasons rather than sound banking principles.
Yet, in one way, the banks were doing business along populist principles for the first part of this century: they were making loans with seemingly little regard for people’s ability to actually repay those loans, and were extending credit to the uncreditworthy, exactly the kind of thing that would have warmed the cockles of William Jennings Bryan’s heart. What President Obama wants the banks to do is exactly what got them into trouble in the first place!
Of course, I’m sure that the President thinks that it isn’t quite the same, and that with “proper” government supervision, loans wouldn’t be irresponsible or “predatory.” But what the President wants to see isn’t based on sound economics, but on his view of what political policies are best for the country.
It can be argued that the banks over-reacted to the losses, that they tightened credit too much. Such things are always something of a guess, and how much is too little or too much or just right — Goldilocks, are you there? — is an estimate based on the experience of the bankers, and isn’t always exactly right. But I’d rather have the people with experience taking these decisions, looking to the right reasons — sound business reasons — rather than politicians who want to please the voters but too often know nothing about business and economics.
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¹ – The Philadelphia Inquirer, Friday, 15 January 2010, p. D-3
BO = Tax & Spend, Tax & Spend, Tax & Spend, Tax & Spend, Tax & Spend, Tax & Spend, and RUN up MONSTER DEFICITS.
I remember the Dems telling all lenders “You better make x percent of loans to the lower class or we’ll be in your face.” It’s a historical fact. And then when lenders DID do that, those lower class couldn’t handle the debt burden and collapsed under the load, causing the lenders to collapse as well.
But of course the Dems blamed the lenders for being stupid (enough to follow federal regulations) in the huge bubble-burst. And now Obama wants to start it all over again, but with massive new taxes. It’ll work this time, he promises.
Barney Frank sure has a big set. He concocts forcing banks into bad loans, then chastises them for doing it.
Baltimore City has been trying to sue Wells-Fargo for red lining the city where to make bad loans. They did what Mr. Big Set told them to do. The city has gone to Fed Court once and was thrown out, and they want to try again. It’s just beautiful to watch Libs when they sue for doing what was required by the bank, and the bank did it. Now Baltimore is saying they should not have. Logic, what logic????
BO = Tax & Spend, Tax & Spend, Tax & Spend, Tax & Spend, Tax & Spend, Tax & Spend, and RUN up MONSTER DEFICITS.
But it’s alright to run up monster deficits fighting unnecessary wars?
Brief note – a government is NOT a business. A deficit is NOT an overdraft. Macroeconomics is NOT microeconomics. Government spending is NOT like business spending.
What do you think would happen if the government cut back on spending in the middle of a recession? Sorry – make that question do you know what economists with some clue as to what they’re talking about think would happen if the government cut back on spending in the middle of a recession?
There’s a hell of a lot to criticise in the current set-up and American government policy – but deficit spending, per se, is not it. You should be looking at monetary rather than fiscal policy – but, whoops, the people who pull your strings don’t want you doing that, do they? Considering class warfare is something you are not allowed to do, is it?
Yes, economists who know what they’re talking about (UCLA economists, for instance) instead of espousing the Keynesian death know a sharp reduction in federal taxing and outlays is economically beneficial.
A dumb statement, given the relative sizes of the Bush and Obama deficits.
Look at the Stimulus lately? $760 billion or so, and unemployment’s still up? Yeah, that’s working out real well …
You didn’t answer the question, Eric. What do you think would happen if the government cut back on spending in the middle of a recession?
Yes, economists who know what they’re talking about (UCLA economists, for instance) instead of espousing the Keynesian death know a sharp reduction in federal taxing and outlays is economically beneficial.
No cite given, I see…
Oh, stop with the “citation please” malarkey. That citation has been given multiple times and is common knowledge by now for anyone who frequents conservative sites. The UCLA economist info totally trashes FDR and proves FDR extended the Great Depression by his actions, actions which are being amplified by the Obama administration.
Oh, stop with the “citation please” malarkey.
As I thought – you’re speaking out of your ass. Again.
Pooter, how many times must I tell you to quit taking things out of context before you quit taking things out of context? That is a form of lying that you do on a very regular basis. I know I have personally pointed out your lifting things out of context for months now. Eventually, if you ever decide to be honorable, you will maintain context. Of course, I won’t hold my breath.
If government spending helped the economy, then why isn’t the Stimulus working? It was claimed by the Obamanauts that it would keep unemployment at 8%, it’s now at 10%. Like I said, how’s that working out?
You’ll note that Reagan did the opposite when he inherited a recession from Carter. Cut taxes and spending, and the economy recovered and was vibrant for the rest of the decade.
If government spending helped the economy, then why isn’t the Stimulus working?
The stimulus is working. However, the situation was worse than anticipated and the stimulus doesn’t work enough to cure all ills.
If there was no stimulus, the situation would be worse.
It was claimed by the Obamanauts that it would keep une<mployment at 8%, it’s now at 10%. Like I said, how’s that working out?
The claim was based on predictions, as you have been shown before, which were over-optimistic. The assumption that the policies did not have an effect is false.
I was diagnosed with muscular-skeletal strain, and given painkillers. It turned out that I had a spinal infection, and the pain got worse. However, this does not mean that the painkillers did not have an effect, or that I would have been in the same amount of pain without them.
Are you able to follow the anaology, or do you want me to make it simpler for you?
Oh, that’s where Phooey went! The Constitution Club wishes you all joy of him.