Obama Administration is Taking Steps to Shrink the Financial Sector

Due to the capital requirements in the Dodd-Frank bill, we've seen some of the bigger financial institutions start to downsize - specifically GE and MetLife. There is some expectation that others will follow. Here is how Fed Chair Janet Yellen described that:

“We’re beginning to see discussions that these capital charges are sufficiently large it’s causing those firms to think seriously about whether or not they should spin off some of their enterprises to reduce their systemic footprint,” Federal Reserve Chairman Janet Yellen told the House Financial Services Committee on Wednesday. “And frankly, that’s exactly what we want to see happen.”

But as Matt Yglesias points out - the Obama administration seems to be working another angle on this. It doesn't have as much to do with shrinking individual financial institutions so much as it does with reducing the overall size of the entire sector. To get a look at the big picture, he points to two new rules recently released by the administration and a third one that is on the way.

First of all is the crackdown on corporate inversions. These are vehicles to avoid corporate income taxes by buying a company that is headquartered in another country. As Yglesias points out, stopping them does more than raise additional revenue for the federal government.

Thomson-Reuters estimates that $1.3 billion in fees have been paid to investment banks for work on tax inversions since 2011, amounting to a bit more than 5 percent of the overall merger and acquisition market. All that is now set to vanish, according to the Wall Street Journal's John Carney, who notes that beyond direct fee collection, major Wall Street banks are also primed to lose because "if inversion deals dry up, fees earned from underwriting bonds and bank loans connected to them will do the same."

Second is the crackdown on investment advisors - who will now be required to offer advice that is in the best interests of their clients rather than line their own pockets with fees. The White House Council of Economic Advisors expect that this will save investors $17 billion a year.

Finally, the administration has been working for several years on a rule that is aimed at preventing American banks from doing business with the kind of shell companies that have been the focus of revelations in the Panama Papers.

What Yglesias noticed in all of these efforts is that they are aimed at "shrinking the financial sector as a whole by cracking down on many of its sources of revenues." But it is even more than that. Beyond reducing the size of the sector, it is the type of activity that is being targeted.

All three new rules shrink the financial sector by cutting down on lucrative activities that have nothing to do with finance's core social purpose of channeling funds to economically useful activities.

In the March/April/May 2015 edition of the Washington Monthly, Daniel Carpenter wrote a prescient article that took issue with Thomas Piketty's singular focus on raising taxes as a way to combat income inequality. He suggested that a real solution must also include stronger financial regulation. When Yglesias suggests that these new rules are focused on "channeling funds to economically useful activities," he is reinforcing that point.

On the campaign trail, Bernie Sanders often says that the business model of Wall Street is fraud. That is a crowd-pleasing slogan in this post-Great Recession era. But it overstates the case. What these regulations from the Obama administration are doing is cutting off activities that might not have been criminally fraudulent, but have grown the sector by engaging in the business of lining their own pockets without any public benefit.

None of this fits nicely on a bumper sticker and doesn't provide Democrats with a slogan to juice up their supporter's anger. But they address very real problems with the benefit of not throwing the baby out with the bathwater in ways that could potentially harm the economy. In other words, they are quintessentially Obama.

When it comes to specifics, the world is complicated and there are choices you have to make. The trajectory of progress comes in fits and starts and where you’re going is balanced by what is and where you’ve been. Progress in a democracy is never instantaneous and it’s always partial.

...It’s like steering an ocean liner and making a 2 degree turn so that 10 years from now we’re suddenly in a very different place. You can’t turn 50 degrees all at once because that’s not how societies - especially democracies - work. As long as we’re turning in the right direction and we’re making progress, government is working like its supposed to.

Launching a Radical Transformation of the Country

Here is an interesting take on what it would mean to start a political revolution in this country:

If a president wanted to launch a radical transformation of the country, he would start it in the Civil Rights Division.

For some background, the Civil Rights Division is part of the Department of Justice that was formed by the Civil Rights Act of 1957 to enforce federal statutes prohibiting discrimination on the basis of race, sex, disability, religion, and national origin. You might remember that it was when President Bill Clinton nominated Lani Guinier to head this division that the Republicans threw a bit of a hissy fit over her prior writings about voting rights. That eventually led to the nomination and confirmation of Deval Patrick - who went on to be the Governor of Massachusetts.

During the presidency of George W. Bush, this is how Joseph Rich, former chief of the voting rights section, described what happened.

Over the last six years, this Justice Department has ignored the advice of its staff and skewed aspects of law enforcement in ways that clearly were intended to influence the outcome of elections.

It has notably shirked its legal responsibility to protect voting rights. From 2001 to 2006, no voting discrimination cases were brought on behalf of African American or Native American voters. U.S. attorneys were told instead to give priority to voter fraud cases, which, when coupled with the strong support for voter ID laws, indicated an intent to depress voter turnout in minority and poor communities.

That is why, since the early days of the Obama administration, when many on the left were focused only on whether or not DOJ was prosecuting Wall Street or members of the Bush/Cheney administration, I kept a pretty close watch on what was happening in the Civil Rights Division. It was initially headed by Tom Perez. When he moved on to become Secretary of Labor, President Obama nominated Debo Adegbile, but Republicans refused to consider him. Since then, the acting director has been Vanita Gupta.

While too many liberals have ignored what has been happening in this division, there is one group that has been zeroing in on it...the radical right folks at PJ Media - which is where the above quote came from. I noticed this back in 2011 when they ran an article documenting the progressive bonafides of the people being hired in the Civil Rights Division. Of course their hair was on fire about it all. But what they reported demonstrated that this administration was hiring some of the best and brightest progressive minds to carry on this important work.

In the more recent article, they are specifically reporting on people who have been hired to work in the voting rights section since 2011. If you take a look, you'll find people who have worked for the Lawyers' Committee for Civil Rights Under Law, the ACLU, the National Center for Law and Economic Justice, Common Cause, the Century Foundation, the New Organizing Institute, the Mexican American Legal Defense and Education Fund (MALDEF) and the Advancement Project. In other words, the voting rights section of the Civil Rights Division at DOJ is currently staffed by people with experience defending and championing the cause of civil rights. That's one of the ways that you "launch a radical transformation of the country."

P.S. This story is also a great example of why elections matter!

What Clinton/Sanders Did/Didn't Say About Their Opponent's Qualifications

The big discussion in the Democratic presidential primary today is about Bernie Sanders' remarks last night that Hillary Clinton is not qualified to be president. As this thing gets spun by the candidates, pundits, campaign staffers and surrogates, it has the potential to lose touch with what has/hasn't actually been said. So let's ground ourselves in the facts.

It all started with Clinton's appearance on Morning Joe yesterday. Here is the entire segment. Her response to the Sanders interview with NYDN goes from about 1:20 to 3:40.


Notice that at least three times, Scarborough directly asked Clinton whether or not Sanders is "qualified" to be president. But she consistently refused to answer the question on those grounds. That interview led to articles like this one in the Washington Post: Clinton questions whether Sanders is qualified to be president.

Former secretary of state Hillary Clinton on Wednesday questioned whether her rival in the Democratic presidential primary, Sen. Bernie Sanders (Vt.), is qualified to be president.

Perhaps responding to media reports rather than what Clinton actually said, here is Sanders at a rally last night:


Sanders use of "quote/unquote" certainly failed to capture what Clinton actually said.

Of course, this kind of exchange is nothing new in American politics. It is very common for candidates and campaigns to spin their opponents in the worst possible light in order to score political points. But it is also incumbent on all of us to weed through the exaggerations and base our conclusions on the facts. That's why I think that watching these two videos of the candidates themselves is important.

Beyond that, there are some substantial issues that the candidates are raising about each other that need to be addressed beyond barbs about the word "qualified." The NYDN interview raised some troubling questions about how well Sanders has thought through a lot of the issues he would face as president. And he has certainly made a point of questioning the role that money has played in Clinton's position on the issues.

In the end, a challenge to Clinton's qualifications to be president is perhaps more damaging to Sanders' credibility than it is to hers. So perhaps he would do well to address the problem posed by his own interview rather than simply launch a rather Rovian attack on her.

Cruz Gets Schooled on New York Values

You might remember that back in January during the Republican presidential debate in South Carolina, Ted Cruz attacked Donald Trump for his "New York values." Now, after his big victory in Wisconsin, Cruz has to compete with The Donald in that state where polls show him losing by over 30 percentage points.

Cruz is already back-tracking. Yesterday he told a crowd in the Bronx that when he disparaged New York values, he was talking about the ones held by "liberal Democrats" - not "American values" - because obviously, those are two very different things. According to Cruz, he is the arbiter of what qualifies as "American," and that certainly doesn't include liberals.

But leave it to a group of high-schoolers to give Ted Cruz a lesson in what New York values are all about.

Ted Cruz came to New York Wednesday talking about education, but he’s the one who got schooled...

Cruz was scheduled to speak at Bronx Lighthouse College Preparatory Academy until students wrote a letter to the principal asking her not to let Cruz come, prompting staffers to cancel the appearance.

"We told her if he came here, we would schedule a walkout," said Destiny Domeneck, 16. "Most of us are immigrants or come from immigrant backgrounds. Ted Cruz goes against everything our school stands for."...

“A group of students will be leaving during 4th period, as (an) act of civil disobedience in regards to the arrival of Ted Cruz to BLCPA,” the letter said. “We have all considered the consequences of our actions and are willing to accept them.”

“The presence of Ted Cruz and the ideas he stands for are offensive,” the letter said. “His views are against ours and are actively working to harm us, our community, and the people we love. “

This is one of those moments when the light of hope shines deeply into your soul with the message: "the kids are all right."

What Hillary Learned

I'm going to start off by suggesting that - if you haven't already - go read Martin's article where he puts Bill Clinton's election and presidency into perspective. That is important because it lays the groundwork for where Hillary Clinton was coming from when she lost the 2008 Democratic primary to Barack Obama. A lot of the mistakes she made in that campaign were actually replicas of things that had worked (and sometimes hadn't worked) for Bill Clinton. And they are the reason that some people went into this primary concerned about her prospects. But over the course of the last year or so, Hillary has demonstrated that she learned some things.

For 2016, what a lot of people wanted to see was a Clinton campaign staff that wasn't led by the likes of Mark Penn. This time around, it is not simply that she is being better served by people like John Podesta, Robby Mook, Maya Harris and Joel Benenson, she has put together a staff that is both diverse and creative.

Over 50% of the campaign is female. Of the campaign’s more than 500 staffers nationwide, more than one-third are people of color; nearly 40% of Hillary for America’s senior staff are people of color. Regional press secretary Tyrone Gayle points out that these numbers roughly reflect national demographics...

Each department boasts steals from impressive firms including IBM, General Assembly, Etsy, Yelp, Google, Gawker, Facebook, Kiva, and DreamWorks. The digital team has talent from the New York Times and the analytics team from New York University’s formidable think tank on housing policy. The number of people from within politics is striking—for being so low. Less than half of the analytics team and almost none of the tech team ever held a campaign position.

One of the critiques often leveled at Hillary Clinton is that - because of all of the attacks aimed at her - she has developed a "zone of privacy" that she protects too fiercely. That might still be an issue for her. But the event that I suspect has had the biggest impact on this election so far is the Benghazi hearing. What we witnessed was Clinton being subjected to every insult, lie and attack that Republicans could come up with for eleven hours. Not only did she respond by demonstrating her amazing command of the facts, she neither lashed out nor withdrew - but calmly and competently addressed the questions and withstood the onslaught. It gave an awful lot of people confidence that she'll be able to campaign and govern in an equally challenging environment.

The next move from Hillary that demonstrated what she's learned since 2008 was her willingness to embrace the legacy of President Obama and build a firewall of support among African Americans and Latinos. These were two separate decisions, but one wouldn't have happened without the other. While it's true that the Clintons have a history of involvement with communities of color, that connection was strained during the 2008 primary - especially for African Americans. It was important for Hillary to mend those fences. She has done a superb job on that front.

The result of those efforts are one of the biggest reasons why Clinton has such a commanding lead in this primary. To get a feel for that, take a look at the results of the 2008 primary.


Clinton is currently working on replicating her results from 8 years ago (gold). But to that she has now added the Southern states that were won by Obama. That has been accomplished primarily by her "firewall" of support from people of color in those states.

All of that relates to how Hillary Clinton is campaigning this time around. What remains to be seen is how she will govern if she wins. I suspect that she will implement a different theory of change from what we've seen with President Obama. That is to be expected. It is important for any president to play to their own strengths rather than attempt to replicate other's. On domestic policy, we already know that Clinton will work to maintain and build on the progress we've seen over the last 8 years. Where she has diverged slightly from Obama is on her approach to foreign policy - which is the one remaining area of concern for some of us.

Trade and Global Poverty

Recently I suggested that Democrats need to have a more thoughtful discussion about trade agreements. Teeing off of another excerpt from the Sanders' interview with the Daily News, Zack Beauchamp has written a must-read article about their impact on the very poorest people on earth.

He begins by pointing to the bar Sanders set for what would constitute fair trade:

I do believe in trade. But it has to be based on principles that are fair. So if you are in Vietnam, where the minimum wage is 65¢ an hour, or you're in Malaysia, where many of the workers are indentured servants because their passports are taken away when they come into this country and are working in slave-like conditions, no, I'm not going to have American workers "competing" against you under those conditions. So you have to have standards. And what fair trade means to say that it is fair. It is roughly equivalent to the wages and environmental standards in the United States.

Beauchamp goes on to discuss an outcome of Sanders' proposals to "reverse" NAFTA/CAFTA and get rid of permanent normal trade relations with China that is usually not included when we talk about trade agreements.

There's one big problem, according to development economists I spoke to: limiting trade with low-wage countries would hurt the very poorest people on Earth. A lot.

Free trade is one of the best tools we have for fighting extreme poverty. If Sanders wins, and is serious about implementing his trade agenda as outlined in the NYDN interview and elsewhere, he will impoverish millions of already-poor people.

It is worth noting that in 2015, the number of people around the globe who lived in "extreme poverty" (less than the equivalent of $1.90 a day) fell below 10% for the first time. Beauchamp notes research showing that:

The global decline in extreme poverty is inseparable from the global trading regime. When poor countries can sell cheap goods to rich countries, or bring in a lot of foreign direct investment, growth skyrockets. This means more jobs, better government services, and thus less poverty.

This poses a dilemma for Americans because, as Beauchamp points out, the same trade agreements that have reduced extreme poverty around the globe have eliminated jobs in this country. It is understandable that, for Donald Trump and his supporters, this is a simple matter that is covered by his mantra about "making American win again." But it poses a more complex challenge for liberals. A failure to acknowledge this dilemma constitutes what David Drezner calls, "economic nationalism from the left."
Beyond the economics, however, is the fact that reducing global poverty is also in our self interest. As President Obama said back in 2009, a peaceful world depends on it.

...a just peace includes not only civil and political rights -- it must encompass economic security and opportunity. For true peace is not just freedom from fear, but freedom from want.

It is undoubtedly true that development rarely takes root without security; it is also true that security does not exist where human beings do not have access to enough food, or clean water, or the medicine and shelter they need to survive. It does not exist where children can't aspire to a decent education or a job that supports a family. The absence of hope can rot a society from within.

President Obama has also suggested that - on almost every issue - our job as liberals is harder than the conservative's job.

After all, it's easy to articulate a belligerent foreign policy based solely on unilateral military action, a policy that sounds tough and acts dumb; it's harder to craft a foreign policy that's tough and smart. It's easy to dismantle government safety nets; it's harder to transform those safety nets so that they work for people and can be paid for. It's easy to embrace a theological absolutism; it's harder to find the right balance between the legitimate role of faith in our lives and the demands of our civic religion. But that's our job. And I firmly believe that whenever we exaggerate or demonize, or oversimplify or overstate our case, we lose.

We can add another item to that list: dealing with the complexities of how both our country and people around the globe can benefit from trade.

The Washington Playbook: If You're Not Responding Militarily, You're Not Responding

Richard Cohen has finally gotten around to writing about President Obama's interview with Jeffrey Goldberg that was the impetus for so much discussion almost a month ago. In doing so, he demonstrates exactly what the President referred to as the "Washington playbook." As a reminder, here is what Obama said to Goldberg about that.

“Where am I controversial? When it comes to the use of military power,” he said. “That is the source of the controversy. There’s a playbook in Washington that presidents are supposed to follow. It’s a playbook that comes out of the foreign-policy establishment. And the playbook prescribes responses to different events, and these responses tend to be militarized responses. Where America is directly threatened, the playbook works. But the playbook can also be a trap that can lead to bad decisions. In the midst of an international challenge like Syria, you get judged harshly if you don’t follow the playbook, even if there are good reasons why it does not apply.”

Cohen doesn't so much champion the Washington playbook as we criticizes Obama for not employing it. For example, here is what he writes on the President's statement about Russia's incursion into Ukraine.

It’s a rule that Obama himself should have followed. He speaks the unspeakable, conceding that eastern Ukraine, Moldova and Crimea are Russia’s for the taking. “Now, if there is somebody in this town that would claim that we would consider going to war with Russia over Crimea and eastern Ukraine, they should speak up and be very clear about it,” he told Goldberg.

Ambiguity is not Obama’s forte. Rather than keeping Vladimir Putin guessing — and maybe restrained — he signals the Russian president not to worry. Putin already has Crimea. He’s got eastern Ukraine. Will Moldova be next? Just a matter of time, it seems to me.

The playbook Cohen is working from assumes that the only possible response to Russia is a war. If President Obama isn't willing to do that in response to Crimea and eastern Ukraine, it's just a matter of time before Putin goes into Moldova.

What that completely ignores is that there are other possible responses - like economic sanctions that are coordinated with our international partners and the European Union.

Cohen also doesn't seem to think that President Obama is doing anything about the situation in Syria.

But the Syrian civil war has produced a humanitarian calamity, at least 250,000 dead and an almost unprecedented refugee crisis that is destabilizing Europe. Obama acts as though this is a minor matter, just another Middle Eastern dust-up, but the Syrian mess is an example of the slippery slope he does not mention when he mentions the one he wants to avoid. Like, possibly, Moldova, it is the consequence of inaction that may matter more than any action itself.

It seems as though Cohen is unaware of the fact that the U.S. is engaging in air strikes against ISIS in Syria. But even more importantly, Sec. of State John Kerry has been working tirelessly on the multilateral peace negotiations that are seeking an end to the Syrian civil war.

For people like Cohen, if the U.S. isn't using military intervention to wield it's way around the globe, it's not doing anything. That pretty much sums up the Washington playbook that President Obama refuses to implement.