January 21, 2010

Obama’s Bank Plan

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Paul Volcker has been championing stricter bank regulation for months now — and seemingly getting nowhere against the combined forces of Larry Summers and Tim Geithner. But I guess a 6′ 7″ former Fed chairman can still wield some clout after all.  Today, with Volcker at his side, Barack Obama announced his new proposal to limit bank size and risk:

“My resolve to reform the system is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low, and cannot refund taxpayers for the bailout,” President Obama said Thursday. “It is exactly this kind of irresponsibility that makes clear reform is necessary.”

Admistration officials said the new rules would force major institutions from J.P. Morgan Chase to Bank of America to decide the direction of their business. Banks shielded from risk through federal-deposit insurance, or aided in financial crises by low-interest loans from the Federal Reserve Board, would no longer be allowed to engage in trading unrelated to their customers’ interests, one senior administration official said.

Just how tough will these new rules be? We don’t know yet, since Obama offered no detail at his press conference. However, Tyler Cowen offers a list of things to watch for:

  1. Do its restrictions apply to subsidaries, affiliates, and holding companies in a meaningful way?  Can they apply?
  2. How do the restrictions apply to off-balance sheet activities, if at all?  Keep in mind the various lessons about the construction of synthetic asset positions.
  3. How will Congressional oversight committees apply and interpret the plan?  This is a big one.
  4. Can a financial institution avoid or sidestep the restrictions by changing its status as a commercial bank, legally speaking?
  5. If you cap bank size, are the new and smaller banks still “too big to fail” by prevailing standards?
  6. How does the proposal treat bank leverage, including implicit forms of leverage through off-balance sheet activities?  Does leverage get redistributed elsewhere?
  7. How does it affect the political economy of bank lobbying?

“I don’t pretend to know the answers to these questions,” Tyler says, “nor do I expect such answers to be announced on day one.” Me neither. But as we get them we’ll begin to know whether this is a serious proposal or just a PR move.

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WHO DOESN’T LOVE A POSITIVE STORY—OR TWO?

“Great journalism really does make a difference in this world: it can even save kids.”

That’s what a civil rights lawyer wrote to Julia Lurie, the day after her major investigation into a psychiatric hospital chain that uses foster children as “cash cows” published, letting her know he was using her findings that same day in a hearing to keep a child out of one of the facilities we investigated.

That’s awesome. As is the fact that Julia, who spent a full year reporting this challenging story, promptly heard from a Senate committee that will use her work in their own investigation of Universal Health Services. There’s no doubt her revelations will continue to have a big impact in the months and years to come.

Like another story about Mother Jones’ real-world impact.

This one, a multiyear investigation, published in 2021, exposed conditions in sugar work camps in the Dominican Republic owned by Central Romana—the conglomerate behind brands like C&H and Domino, whose product ends up in our Hershey bars and other sweets. A year ago, the Biden administration banned sugar imports from Central Romana. And just recently, we learned of a previously undisclosed investigation from the Department of Homeland Security, looking into working conditions at Central Romana. How big of a deal is this?

“This could be the first time a corporation would be held criminally liable for forced labor in their own supply chains,” according to a retired special agent we talked to.

Wow.

And it is only because Mother Jones is funded primarily by donations from readers that we can mount ambitious, yearlong—or more—investigations like these two stories that are making waves.

About that: It’s unfathomably hard in the news business right now, and we came up about $28,000 short during our recent fall fundraising campaign. We simply have to make that up soon to avoid falling further behind than can be made up for, or needing to somehow trim $1 million from our budget, like happened last year.

If you can, please support the reporting you get from Mother Jones—that exists to make a difference, not a profit—with a donation of any amount today. We need more donations than normal to come in from this specific blurb to help close our funding gap before it gets any bigger.

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