Wall Street is not going to play as dominant a role in the economy as regulations reduce “some of the massive leveraging and the massive risk-taking that had become so common,” President Barack Obama says.
In other words the government will control the economy and the regulations that have been known in the past to create stagnant and depressed economies, will be put in place and recovery will be slim to none.
The changes in the role of Wall Street and the huge profits that came from that risk-taking could mean other adjustments as well, Obama said in an interview in this week’s New York Times Magazine.
The risk taking was somewhat forced upon financial institutions by the government and their sub prime push. Organizations such as ACORN and big Democrat donors who were proponents of the GSEs like Freddie and Fannie, exclaimed there were no issues with the fundamentals of these institutions or the sub prime markets when there were plenty of warning signs and republicans tried to curtail the crash in 2006 (when Democrats controlled Congress).
“That means that more talent, more resources will be going to other sectors of the economy,” he said. “I actually think that’s healthy. We don’t want every single college grad with mathematical aptitude to become a derivatives trader. We want some of them to go into engineering, and we want some of them to be going into computer design.”
Is everyone getting this? The government is sounding more and more like the USSR. Do people recall how the USSR told you what job you would get based on your skills and qualifications or the government would decide if you would be an athlete at a young age!? I would have been a gymnast if I grew up in the USSR back in the 80′s – the state is trying to control your life – so long freedom!
The Obama administration is trying to restore more regulations on the financial sector to avoid some of the risk-taking that helped cause the current economic problems.
I guess I should point to my recent flashback post of Milton Friedman(world renown economist) who states what massive regulations do to an economy and that the government cannot fix the economy.
“Wall Street will remain a big, important part of our economy, just as it was in the ’70s and the ’80s,” he said. “It just won’t be half of our economy.”
Obama, obviously didn’t study very much in college (definitely not economics), or he is just so egotistical that he feels that the things Carter did just didn’t work because it was Carter, but he can do the same thing and it will be different. The economy in the late 70′s early 80′s was a disaster. The economy began to recover after massive tax cuts for corporations and individuals and when the government got out of the way – Reagan did this and Obama is the antithesis of Reagan – why does he think that doing the opposite of what was done in the 80′s to get the economy back on track will work?
Obama said he expects that government efforts to fix the economy will cause long-term changes.
Sure, because the government is just so efficient at everything else. It’s also amusing that this class warfare is so “put-on” because most of his cabinet came from Goldman Sachs or has ties to and donors from Wall Street. Wall Street contributes on average more to Democrats than Republicans. Almost everyone, including Obama himself, have received kickbacks from Wall Street or have worked there at one point.
Citigroup CEO Vikram Pandit’s job security is increasingly in jeopardy as momentum grows in Washington to oust him.
With the bank stress tests wrapping up, sources tell The Post that regulators think they might have to make the bold move of removing Pandit to signal Washington is taking as hard a line with the banks as it did with General Motors when it effectively ousted GM CEO Rick Wagoner.
The talk of Pandit being dismissed comes amid speculation that a visit to Citi’s offices by Treasury Secretary Timothy Geithner a week and a half ago might have been to discuss a change at the bank’s helm. However, people familiar with the meeting said the visit was simply to conduct a checkup on the bank.
Pandit, who took over in December 2007 from the deposed Charles Prince, has voiced his commitment to breathing life into the troubled bank, and is widely seen as not being part of Citi’s problem.
However, amid criticism that Citi hasn’t moved fast enough to clean up its balance sheet and speculation that Citi may need to raise more cash amid rising writedowns from consumer debt, sources said there’s a growing sense Pandit might have to be sacrificed.
Pandit inherited the mess of Citigroup at the end of 2007 and has done a fairly decent job at getting it back on track or at least moving in the right direction. Obama should know all about inheriting messes, since that’s all he can say when he speaks about the economy – does that mean we can oust him since the economy hasn’t turned around since his election? They run a big risk by doing this of completely demolishing Citigroup and the financial system. Pandit’s strides over the past year and his business strategy going forward have helped the company, but it will take time. If they oust him before real results can be seen, we may see the collapse of this company. But then again, that may be what the government wants in order to force these institutions into nationalization.
This is so completely anti-capitalist it isn’t funny! The government should not be allowed to go over the heads of the board of directors or scare a company into making a decision that befits the government’s agenda. Who in their right mind would ever want to become the CEO of a floundering company, when the MSM has put their entire focus and scrutiny on your job performance without giving you a chance to actually enact the appropriate changes? The government and the MSM turn this into a public side show and a witch hunt – something that the Obama Administration is incredibly good at. They turn the focus off of those who really caused this mess, namely the government and some prominent democrats, and spin it into another AIG debacle. This is shameful.
Credit Suisse has caught onto this game and they’re not happy. They are in fact warning about the over-involvement of the government in private business affairs.
The chairman of Swiss banking giant Credit Suisse on Friday warned against excessive government intervention in the lending policies of banks that have been bailed out by the state.
“In view of the growing number of banks relying on government support, however, I have concerns that excessive state intervention regarding the lending policies of banks or the realignment of their structures could have negative implications for the entire sector,” said Walter Kielholz.
Many of Credit Suisse’s competitors, including local rival UBS, US banks Citigroup and Goldman Sachs, have received state funding to weather the financial crisis.
Credit Suisse has turned to private investors, but has not taken government funds.
Kielholz acknowledged during the bank’s annual general meeting that state intervention had been necessary to prevent a meltdown of the entire financial sector.
However, he said the action by governments to inject funds into banks was already giving rise to a “two-tiered banking system.”
“This has led to a distortion of competition, particularly in the refinancing market or in terms of client guarantees,” he explained.
“There is also uncertainty about how and when governments will be able to exit their stakes in these companies,” he added.
In addition, he cautioned against over-regulation of the sector, saying that while stricter supervision has been prescribed for the sector, the “benefits of additional regulation have yet to be demonstrated.”
“In particular, I believe there is a risk that these changes could be exploited as a means of ushering in protectionist measures,” he warned.
The media and the Administration are already out there spinning the results of the stress tests. I wouldn’t be surprised if they say that all banks “passed.” But the real suckers would be those who invest in this “bump” in the market before another drop this summer. The banks are still not viable and many are being propped up by distortions in their books and “funny money.” If the results were great in the first place, the government would not have delayed the release of the reports. I wonder if the politicians on Capitol Hill really think we are that dumb!? Roubini, a noted economist and known as Dr. Doom, has been correct on most of his statements about the markets and about banks – he says the following:
The spin machine about the banks’ stress test is already in full motion. Some banking regulators have already served up–to The New York Times–their spin that all 19 banks that are subject to the stress test will pass it. In other words, not one will fail.
But let’s look at the actual data. The macro data for the first quarter on the three variables used in the stress tests–growth rate, unemployment rate and home-price depreciation–are already worse than those in the U.S. government baseline scenario for 2009. They are, in fact, even worse than those for the stressed scenario for 2009.
The government used assumptions for the macro variables in 2009 and 2010 that are so optimistic that the actual data for 2009 are already worse than the adverse scenario. As for some crucial variables, such as the unemployment rate–key to proper estimates of default and recovery rates for residential mortgages, commercial mortgages, credit cards, auto loans, student loans and other banks loans–the current trend shows that by the end of 2009 the unemployment rate will be higher than the average unemployment rate assumed in the more adverse scenario for 2010, not for 2009. Put plainly, the results of the stress test–even before they are published–are not worth the paper on which they are written.
Let us look at how the stress tests are done. According to the U.S. government, there are two scenarios: a more optimistic “baseline scenario” for 2009 and 2010 for the three macro variables (gross domestic product, unemployment and home prices); and a more pessimistic “alternative adverse scenario.”
The baseline scenario assumes–based on the average of the forecasts by the consensus of macro forecasters at the time when the stress tests were announced–that GDP growth will be -2.1% in 2009 and 2% in 2010; that the unemployment rate will average 8.4% in 2009 and 8.8% in 2010; and that home prices will fall 14% in 2009 and 4% in 2010. In the alternative adverse scenario, GDP growth is assumed to be -3.3% in 2009 and 0.5% in 2010; the unemployment rate is assumed to average 8.9% in 2009 and 10.3% in 2010; and home prices are assumed to fall 20% in 2009 and 7% in 2010.
The description provided by the government of the stress test also shows graphs–but not actual figures–for the quarterly behavior of the three macro variables in 2009 and 2010 for both scenarios. Based on these quarterly graphs, in the first quarter of 2009 the unemployment rate would approximately average 7.7% in the baseline scenario and 7.8% in the adverse scenario; the GDP growth rate would be -1.9% in the baseline scenario and -2.1 in the adverse scenario; and home prices would fall 4% in the baseline scenario and by 7% in the adverse scenario.
How do these scenarios actually stack against actual figures for the first quarter of 2009, with current consensus forecasts and with current likely paths for these macro variables?
Many of us didn’t need anymore evidence to know that Barney Frank was a huge player, if not the main player, in the housing market meltdown that took place under his watch. His ineptitude or unwillingness to believe that there were problems with the housing market bubble, when he had the chance, prove this:
Volcker was just another political pawn in Obama’s game to get to the highest office. By name dropping during his debates or letting the press know some of his “advisers” he won over some of the more gullible voters that may have believed this old technique.
No offense, but name-dropping is an extreme turn-off to me. You most definitely should surround yourself with solid people, but the person running for office or applying for a job should be competent and experienced enough in the first place.
As an early supporter of Barack Obama, Paul Volcker gave the young presidential candidate gravitas and advice. He frequently sat by Mr. Obama’s side at key economic events, and started carrying a cellphone for the first time, just to be able to brainstorm with the candidate from the campaign trail.
In the Obama White House, the role of the 81-year-old former chairman of the Federal Reserve has been more limited.
The one-time central banker has been put in charge of a presidential advisory board that hasn’t yet had a formal meeting. It has been nearly a month since he has seen Mr. Obama. Mr. Volcker hasn’t been a main player in key decisions handling the global financial crisis.
He hasn’t even had one formal meeting!? Well, I guess his involvement in being part of an Anti-Stimulus campaign (Committee for a Responsible Federal Budget) for the betterment of the economy may have something to do with it – mind you it was February of 2009 (not that long ago) that he joined.
Treasury Secretary Timothy Geithner unveiled the administration’s plans for handling troubled financial institutions and the housing crisis without seeking input from Mr. Volcker, associates say. “Paul was surprised” at the failure to consult him, particularly on issues of financial rescue after his dominant role in resolving financial crises in the 1980s, says one person who has spoken to Mr. Volcker recently.
On the eve of one announcement, a Wall Street executive ran into Mr. Volcker at a cocktail party and asked what he expected from the Treasury secretary’s imminent announcement. “I have no idea what Tim’s going to say,” he responded, according to somebody there.
Seems like Paul Volcker’s fiscal restraint and tighter monetary policy was not part of the Obama agenda… So, no need to consult the man.
When Mr. Obama announced the blue-ribbon advisory group on Feb. 6, he praised Mr. Volcker as “one of the world’s foremost economic policy experts.” With big names like General Electric Co. Chief Executive Jeffrey Immelt, the group, Mr. Obama said, would provide “voices to come from beyond the Washington echo chamber….” At a ceremony in the White House’s East Room, the president added that the group would “meet regularly” with him.
So far, the full group hasn’t met. “The whole organizational side of this has been a nightmare,” Mr. Volcker says. A White House spokeswoman says it will hold its first quarterly meeting in mid-May.
First of all, Immelt is an incompetent hack pretending to be a CEO. General Electric has bombed since he took over, so to expect that he would have anything of value to add is hilarious. The other bit of hilarity in this is that they did not plan to have a “meeting of the minds” until mid May with all of the economic turmoil currently going on? That’s insane and should give us insight into the poor management/governing abilities and practices of this administration.
Mr. Volcker’s advice hasn’t always been heeded. The former Fed chairman urged the administration to “slow down” its push for regulatory changes. “Paul thought it was important to take enough time to fill holes in the regulatory framework and not get caught up in the current atmosphere,” says former Securities and Exchange Commission Chairman William Donaldson, who’s on the Volcker panel.
When a former Fed official, attorney John Walker, recently met Mr. Volcker, Mr. Walker told him the administration “isn’t getting the best use of you.” Mr. Volcker shrugged it off, saying he’s comfortable with his role. Mr. Walker says Mr. Volcker added: “I’m 81 years old.”
Paul, you are making too much sense for these guys even at the age of 81 – please stop!… Heh
