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#Krugman gets it wrong again on the banksters

He writes:

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.

There's at least one other question:

Are we going to prosecute the banksters for their crimes?

This is a question Krugman seems unable to address. By his silence, he indicates quite precisely the bounds of acceptable discourse on what passes for the left in Versailles. But what kind of regulatory regime can succeed, if criminals are allowed to go free?

NOTE Yves is doing great work on Geithner, AIG, and Lehman. Follow it.

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mass's picture
Submitted by mass on

precisely so we wouldn't get into the "too big to fail" position again. Not to mention, these big banks are HORRIBLE for consumers because they don't give a crap, they have so much of the market. A well respected doctor I know had over ten thousand dollars stolen from his bank recently while in the process of refinancing his home. The stolen money was returned by the bank but before he got his money back a mortgage check bounced. The bank took full responsibility and he was not charged a fee for the bounced check. However, now he can't refinance for 6 months. See he bounced a mortgage check and they have a policy any bounced mortgage checks and you can't refinance for 6 months. Yeah, they know the whole story, but that's their policy so...

Seriously, so is Krugman happy with Dodd's consumer protection/fox monitoring the hen house plan?

CMike's picture
Submitted by CMike on

Here's what he says in his column today:

...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 of Connecticut. It’s significantly weaker than the Frank bill, and needs to be made stronger, a topic I’ll discuss in future columns.

CMike's picture
Submitted by CMike on

When he was writing about "the only question" with which to be concerned, Krugman was responding to a specific false choice being introduced by a member of the Senate in the matter of a certain bankster privilege:

...Senator Richard Shelby of Alabama, in a letter attacking the Dodd bill, 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, because they do: whatever people like Mr. Shelby may say now, 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.

Prosecution for crimes all ready committed is solely an Executive Branch issue these days. It's obvious neither house of Congress is capable of whipping up public indignation with Pecora Commission type hearings. Such action is off the table as surely as is the passage of any credible legislation that would have the effect of withdrawing the implicit government backing that is the foundation of today's mega-bank system.

three wickets's picture
Submitted by three wickets on

No amount of weak regulatory legislation would have as much impact on bad behavior in the financial markets as removing the implicit government backing and safety net for excessive risk taking at large banks and their partners. The general population does not have an equivalent safety net. Krugman says the choice is for regulation, never mind that the proposed regulation is weak at best. Krugman does not say there is a choice for removing the implicit government guarantees. Krugman is advocating for lemon corporate socialism, and using the Republicans (again) as a foil to justify support for weak financial reform.

CMike's picture
Submitted by CMike on

Simon Johnson says [my emphasis]:

Which Part Of “Too Big To Fail” Do You Not Understand?

How would any administration put a huge bank into any kind of “resolution” (a FDIC-type bank closure, scaled up to big banks) when it knows that doing so would trigger default across all the complex pieces of this multinational empire?

You could do it if you are willing to accept the costs – and if you understand there are big drawbacks to providing an unconditional bailout of the 2009 variety. But will a future administration be willing to take that decision? The Obama administration was not – and big finance will only become bigger and more complex as we move forward.

...[T]he structures in place last year remain unchanged today. If a megabank shut-down under pressure was impossible for our policymakers last year, how exactly will the situation change after the Dodd bill passes – remembering that our current policymakers or a close facsimile will run this country for the indefinite future?

Banks that are “too big to fail” are simply too big. Making them smaller may not be sufficient to prevent major crises in the future...but rolling back our biggest and most dangerous banks certainly is necessary. And there is simply no evidence that banks on today’s modern scale convey any benefits to society.

Massive banks cannot be controlled, at least not in the US context; we are not Canada. “Smart regulation” in this context is an oxymoron. Our regulators have been captured by the ideology of finance for 20 years; the big banks industry are not about to let them out on parole now.

For a long while, the Obama administration insisted that size caps for banks were not on the table.

...[T]here is no size cap in Senator Dodd’s bill.

...[W]hy not pursue the Volcker Rules in full?

...[T]he White House, Senator Dodd, and perhaps even Barney Frank are all stuck on one issue – they can’t contemplate making our biggest banks smaller (or even limiting their size).


Submitted by gmanedit on

said don't forget that Krugman is a member of the Group of Thirty and serves as its left gatekeeper. His role is to establish and police the leftmost acceptable policy.

*Story of my life. People say, "How do you know that?" and I say, "Some guy on some blog." You can't save everything.

CMike's picture
Submitted by CMike on

Was that blogger saying Krugman has Paul Volcker under his heel or something more along the lines of Krugman has Keith Olbermann on speed dial?

He may be the most left of the Establishment figures but his Conscience of a Liberal ain't a bad read - so there's that, at least. Oh, and that graphic you linked's missing a spoke.

Submitted by lambert on

2007... We were all so innocent then! I should really do a mea culpa on not getting the role of finance, when I wrote that post. Then again, my background was the political blogosphere, which didn't prepare me for political economy.

And yes, Conscience of a Liberal is a good read. I remember, for example, Krugman making the obvious point that one reason people strained to get mortgages they couldn't really afford is that the schools are better in richer neighborhoods.

Krugman is one of the best of 'em. We all honor him for standing up during the Bush regime when nobody else did. That said, he's hammering the left end of the Overton Window firmly shut on two big issues at least: One was single payer, and the other is the criminality of our financial overlords. Those are not small issues.

Submitted by gmanedit on

"he's hammering the left end of the Overton Window firmly shut on two big issues at least." It's his liberalism that lets people think, If Krugman is for it, that's good enough for me.

Submitted by lambert on

If Krugman's argument is that there are false choices, he could:

1. Introduce one choice, or

2. Introduce one of several possible additional choice.

Surely, Krugman did #1.

If he had wished to do #2, he would not have written "the only question," but (to pick but one of the ways to express the idea that you wish to attribute to him) "one obvious question."