I could be wrong, but it seems to me that there's about a 90% chance that Hillary Clinton will be our next president. None of those Republican clowns can win. Bernie can't win and won't be nominated. Biden probably won't run. That leaves us with Hillary.
The last time I voted was in 2008, when I voted for Hope & Change. My decision never to vote again became set in stone when Hopey-Changey installed Tim Geithner at Treasury about one month later. Not only would America's financial system (the "FIRE" economy) not be reformed, it would also be defended every step of the way. And it was.
Here we are seven years later, and this time it will be Hillary Clinton's job to protect the status quo. All this will be obvious to most of you, but I wanted to get this post out of the way so I never have to write it again. It's a good time to do it because Hillary has finally come out with her economic and financial "reform" plans.
It's also a good time to remember that America's middle class is disappearing, the banks are making money hand over fist, and there's trouble brewing on the global economic front, just as there was in 2008. How this will affect the United States is not clear, but whatever happens won't be good. You can count on that much.
First, there are Hillary's proposals to "reform" the financial system. The children at Vox.com were impressed with Hillary's plan, but the The Atlantic's James Kwak, who actually knows something about the financial system, was not.
The 2008 financial crisis handed Barack Obama a clear mandate to fix a broken system. But Obama and his key economic advisers, Tim Geithner and Larry Summers, didn’t opt to go that route. Instead of undertaking structural reform, they proposed a long list of incremental improvements that eventually became the Dodd-Frank Act.
Seven years later, with her new proposals to reform Wall Street, Hillary Clinton is sticking with that strategy. There is plenty to feel vaguely positive about in Clinton’s plan: Tax high-frequency trading! Close the Volcker Rule loophole! Require firms to admit wrongdoing when agreeing to sweetheart settlements! Increase the maximum penalties that regulators can impose! What’s not to like?
Let’s start with what the Clinton plan isn’t. In less than two years, Franklin Delano Roosevelt passed the Glass-Steagall Act, the Securities Act, the Securities Exchange Act, and the Federal Housing Act—defining pieces of legislation that overhauled the regulatory framework for mortgage lending, banking, and the securities markets.
That's all clear enough—Hillary is no FDR.
By contrast, the Clinton plan is small-scale. It’s Dodd-Frank 2.0: a list of regulatory tweaks requiring various agencies to write complicated new rules governing obscure corners of the financial markets. Here are a few examples:
margin and collateral requirements on repurchase agreements
public disclosure requirements for repurchase agreements
increased reporting requirements for hedge funds and private equity funds
more transparency for exchange-traded funds
greater disclosure requirements for large banks
increased attention to cyber-preparedness by regulators
permanent funding for the SEC and CFTC
This is technocratic incrementalism, the idea that the best way to approach a very big problem—a complex, interconnected financial system anchored by large banks that are so poorly managed they are not even aware of the risks they are taking on—is with better disclosure here and stronger incentives there.
That was the philosophy of Dodd-Frank, which, with the exception of the Consumer Financial Protection Bureau, largely amounted to giving existing regulators a handful of complicated new tools (living wills, hedge fund registration, the Office of Financial Research, derivatives clearinghouse regulation, and so on). Now Clinton is offering more of the same.
More of the same. Read the rest of Kwak's analysis if you want the details.
And then there are Hillary's economic reforms, as described at the Huffington Post back in July.
Hillary Clinton gave a speech Friday that pledged to combat dodgy corporate management but offered only soft-touch policy solutions that included significant tax breaks for wealthy investors.
Advisors billed the talk as a major rollout of Clinton’s economic agenda. The candidate herself pitched her proposals as a way to break from failed policies that had damaged the economy.
But the speech eschewed any emphasis on income inequality, runaway finance, companies "too big to fail" or any of the economic issues animating the Democratic Party.
Instead, Clinton offered a mild-mannered, small-bore critique of "quarterly capitalism," a common corporate strategy that maximizes short-term profits over long-term investments...
Such short-term thinking is almost universally recognized as a problem. It's just not very high on the list of the country's economic woes. Companies can sacrifice long-term investments and ignore long-term risks by pursuing strategies that maximize returns to shareholders over the next few months. In the long run, that's bad for society and bad for corporate profits.
"Large public companies now return eight or nine out of every 10 dollars they earn directly back to shareholders, either in the form of dividends or stock buybacks which can temporarily boost share prices,” Clinton said in the speech. "Last year the total reached a record $900 billion. That doesn't leave much money to build new factory or a research lab or to train workers or to give them a raise."
But Clinton didn't call for corporations to give their workers a raise, or to tie CEO pay to the pay of average workers — or any other policy that would directly impact economic inequality. Instead, she focused on creating incentives for companies to better profit from longer-term investments. That means tax increases for investors cashing out shorter investments...
Here's America, falling apart at the seams, and Hillary is talking about tax increases on short-term capital gains in order to "incentivize" gamblers to make longer term investments. Note that everything Hillary has to say targets or speaks to the "investor" class (potential donors).
To ordinary Americans, she has nothing to say.
Thus everything Hillary wants to do is another form of "trickle-down" economics. I remember a time when people laughed derisively at that term. Now such policies form the status quo.
The populist appeal of increasing [shorter-term] capital gains taxes lies in the fact that wealthy people accrue the vast majority of capital gains.
Roughly half of all capital gains flow to the richest 0.1 percent of Americans, according to a Washington Post report.
But the ultimate effect on inequality would likely be limited — if rich taxpayers simply don't sell off their stock holdings for a longer time, they'll maintain a low tax rate, resulting in a more rational corporate strategy but similar income distributions.
The problem Clinton is trying to address had been well documented. There has been a decades-long divergence between the money companies borrow and the money they invest, as the Roosevelt Institute’s Mike Konczal and J.W. Mason pointed out earlier this year.
Rather than raising money to build better businesses, companies are, to a dramatic degree, raising money to pay shareholders.
And of course that includes stock buybacks too. The Fed gooses equities with zero rates, and thus corporations pay back shareholders (who are sometimes themselves) as stock values rise. This has been going on for many years.
It’s not just the cash-flush companies writing refund checks. Roughly 75% of all companies in the S&P 500 paid dividends and bought back shares in the trailing 12 months, according to new data from FactSet. Another 65 don’t pay dividends but did do buybacks during that time. In aggregate, companies spent more on buybacks over that period than they generated in free cash flow. The last time that happened was October 2009.
Nobody invests in America anymore because there's no point in doing so. Virtually every dime that can be squeezed out of the middle class and the poor has been taken. Real (inflation-adjusted) wage gains are non-existent for the bottom 99%, so nobody has more money to spend, and Americans have wised-up to the fact that taking on debt does not magically create the Good Life (if someone will extend them credit).
So Hillary will be handing out more of the same, whatever the future brings. Here's Kwak's final paragraph.
In the end, the Clinton plan looks like a laundry list of marginally better-than-nothing reforms that are likely to vanish into an abyss of rule-writing and regulatory dithering. If she wanted to position herself as the heir to President Obama—who talked a good game while leaving Wall Street largely as he found it—she couldn’t have done a better job.
The beatings will continue until morale improves.
We are so screwed
I realize this has nothing to do with the current post (except for maybe in a big picture sense), but I was wondering if you were at all familiar with John Gray and if so, what your take was. There seem to be at least few points on which you two might agree.
Posted by: Jeff | 10/12/2015 at 05:19 PM