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Monday, March 29, 2010

Paul Krugman: Punks and Plutocrats

Will Republicans dare to oppose financial reform?:

Punks and Plutocrats, by Paul Krugman, Commentary, NY Times: Health reform is the law of the land. Next up: financial reform. But will it happen? The White House is optimistic, because it believes that Republicans won’t want to be cast as allies of Wall Street. I’m not so sure. The key question is how many senators believe that they can get away with claiming that war is peace, slavery is freedom, and regulating big banks is doing those big banks a favor. ...
We have already ... stepped in to rescue troubled financial companies, so as to avoid a complete collapse. And you should bear in mind that the biggest bailouts took place under a conservative Republican administration, which claimed to believe deeply in free markets. There’s every reason to believe that this will be the rule from now on: when push comes to shove, no matter who is in power, the financial sector will be bailed out. ...
The only question now is whether the financial industry will pay a price for this privilege, whether Wall Street will be obliged to behave responsibly in return for government backing. And who could be against that?
Well, how about John Boehner, the House minority leader? Recently Mr. Boehner gave a talk to bankers in which he encouraged them to balk efforts by Congress to impose stricter regulation. “Don’t let those little punk staffers take advantage of you, and stand up for yourselves,” he urged — where by “taking advantage” he meant imposing some conditions on the industry in return for government backing.
Barney Frank, the chairman of the House Financial Services Committee, promptly had “Little Punk Staffer” buttons made up and distributed to Congressional aides.
But Mr. Boehner isn’t the problem: Mr. Frank has already shepherded fairly strong financial reform through the House. Instead, the question is what will happen in the Senate.
In the Senate, the legislation on the table was crafted by Senator Chris Dodd... It’s significantly weaker than the Frank bill, and needs to be made stronger.... But no bill will become law if Senate Republicans stand in the way of reform.
But won’t opponents of reform fear being cast as allies of the bad guys (which they are)? Maybe not. Back in January, Frank Luntz, the G.O.P. strategist, circulated a memo on how to oppose financial reform. His key idea was that Republicans should claim that up is down — that reform legislation is a “big bank bailout bill,” rather than a set of restrictions on the banks.
Sure enough, a few days ago Senator Richard Shelby of Alabama ... claimed that an essential part of reform — tougher oversight of large, systemically important financial companies — is actually a bailout, because “The market will view these firms as being ‘too big to fail’ and implicitly backed by the government.” Um, senator, the market already views those firms as having implicit government backing...: in any future crisis those firms will be rescued, whichever party is in power.
The only question is whether we’re going to regulate bankers so that they don’t abuse the privilege of government backing. And it’s that regulation — not future bailouts — that reform opponents are trying to block.
So it’s the punks versus the plutocrats — those who want to rein in runaway banks, and bankers who want the freedom to put the economy at risk, freedom enhanced by the knowledge that taxpayers will bail them out in a crisis. Whatever they say, the fact is that people like Mr. Shelby are on the side of the plutocrats; the American people should be on the side of the punks, who are trying to protect their interests.

    Posted by on Monday, March 29, 2010 at 12:09 AM in Economics, Financial System, Politics, Regulation | Permalink  Comments (91)


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