I know people are tired and skeptical about diaries with the word breaking in them. But the article below was posted on the Wall Street Journal website at 11:05.
For a while now Former Federal Reserve Chairman Paul Vockler has criticized the Administration's approach with the respect to the mafia, er, the Big Banks. In this light, this article is very good news:
Mr. Obama's proposal is expected to include new scale restrictions on the size of the country's largest financial institutions. The goal would be to deter banks from becoming so large they put the broader economy at risk and to also prevent banks from becoming so large they distort normal competitive forces. It couldn't be learned what precise limits the White House will endorse, or whether Mr. Obama will spell out the exact limits on Thursday.
Mr. Obama is also expected to endorse, for the first time publicly, measures pushed by former Federal Reserve Chairman Paul Volcker, which would place restrictions on the proprietary trading done by commercial banks, essentially limiting the way banks bet with their own capital. Administration officials say they want to place "firewalls" between different divisions of financial companies to ensure banks don't indirectly subsidize "speculative" trading through other subsidiaries that hold federally insured deposits.
The proposal could have the biggest effect on Bank of America Corp., Wells Fargo & Co., and J.P. Morgan Chase & Co., which control a large amount of U.S. deposits, as well as Goldman Sachs, Morgan Stanley and Citigroup Inc., which have a large presence on Wall Street.
Make no mistake, the devil is in the details here. But this is a direct assault on the Big Commercial and Investment Banks. As the Journal notes:
"The proposal represents a sharply different philosophical shift from the view of banking over the past decade, which saw widespread consolidation among large financial institutions to create huge banking titans"
Now that is change I can believe in. It will be fun to see the teabaggers rally to defend Goldman and Chase. This step is long overdue, and something I think we can all on this site applaud. Which would be a good thing given the last few days.
Update #1
Via Bloomberg, Obama in an Interview with ABC News:
We’ve got a financial regulatory system that is completely inadequate to control the excessive risks and irresponsible behavior of financial players all around the world,” Obama said in an interview with ABC News broadcast tonight...
People are angry and they’re frustrated,” Obama said in the ABC interview. “From their perspective, the only thing that happens is that we bail out the banks.
Thank God for that last quote. It is overdue, but welcome nonethelss.
Update #2
In many ways the best part of this story is that Obama is finally listening to someone else beside Summers and Geithner. In the comments, Mark Louis notes that Axelrod met Elizabeth Warren, another critic of the Obama Administration's passivity on the Financial Reform Issue.
At this point I have no idea why Summers has any credibility at all. The reason the stimulus package was too small is largely attributable to him:
Since the election, as the economy continued to worsen, the consensus among economists kept rising. A hundred-billion-dollar stimulus had seemed prudent earlier in the year. Congress now appeared receptive to something on the order of five hundred billion. Joseph Stiglitz, the Nobel laureate, was calling for a trillion. Romer had run simulations of the effects of stimulus packages of varying sizes: six hundred billion dollars, eight hundred billion dollars, and $1.2 trillion. The best estimate for the output gap was some two trillion dollars over 2009 and 2010. Because of the multiplier effect, filling that gap didn’t require two trillion dollars of government spending, but Romer’s analysis, deeply informed by her work on the Depression, suggested that the package should probably be more than $1.2 trillion. The memo to Obama, however, detailed only two packages: a five-hundred-and-fifty-billion-dollar stimulus and an eight-hundred-and-ninety-billion-dollar stimulus. Summers did not include Romer’s $1.2-trillion projection.
Update #3
Via Noweasels, here is a link to the New York Times Article
Update #4
See KingofSpades diary on Obama pressuring Dodd to keep the new Consumer Protection Agency.