Re: Obama claims victory in financial overhaul deal
Personally, despite the criticism of both progressives and conservatives, I think Obama has managed to pass both meaningful health care reform and financial regulation reform.
The big banks may not fully realize it yet but they should be concerned that Sheila Bair, head of FDIC, stated after finreg passed that 'too big to fail is no longer an issue'. Also, I doubt there will be a political consensus for another large bailout. It should prove to be an interesting 4 months leading up to the November elections....
audio of an FDIC takeover
http://www.npr.org/templates/story/story.php?storyId=102384657
Arthur Levitt and Alan Greenspan seem to be recent converts to the inherent instability of financial markets and their inability to regulate themselves but they along with Robert Rubin strongly opposed these ideas as presented earlier by Brooksley Born
http://www.stanfordalumni.org/news/magazine/2009/marapr/features/born.html
http://fabiusmaximus.wordpress.com/2010/06/23/18311/
We are following Japan's path of decline. The real test comes later this year.
23 June 2010
by Fabius Maximus
Summary: a look at the US economy. Richard Koo’s dark forecasts have proven right so far. Now we test his last and most important prediction.
Most Americans knew 4 great things at the start of this recession, confidently explained by our experts. Richard Koo, economist for Nomura, said that time would prove all of these wrong.
1. Our banks were the strongest they had ever been on the eve of a recession. Unlike Japan’s before their 1989 crash.
2. We were free-market capitalists. Any banks that proved weak would be closed (as we did during the S&L crisis). Unlike Japan, that propped up their banks (becoming zombie banks).
3. We were smart. If the recession was deep, we would stabilize the economy with wise public spending, repairing and building our infrastructure (as FDR did during the depression). Unlike Japan, who channeled stimulus funds to politically powerful interests, wasting vast fortunes on large train stations in villages and bridges to nowhere.
4. Our economy was resilient and adaptable, so any recession would be brief. Unlike Japan, where the crash ushered in a 20 year (and counting) period of economic stagnation. The economy slumped every time the fiscal stimulus was slowed (either through higher taxes or spending cuts).
So far Koo is 3 for 3.
1. Much of our financial system collapsed. Large banks, investment banks, AIG (a weird hybrid), and the government-sponsored enterprises (Fannie Mae and Freddie Mac), and an ongoing stream of smaller banks.
2. We boldly closed small S&L’s during the 1990s. But when politically powerful banks tottered, our government politely asked how many billions would they like — on the easiest possible terms, at low rates, combined with a wide range of additional subsidies from the Fed.
3. We’ve spent — and continue to spend — tens of billions on fiscal stimulus. Some provides valuable support for the unemployed. Some has gone to the States, so that they can continue their feckless spending. Some has gone into visible infrastructure work (e.g., roads). Most of the rest has left behind little but public debt.
Now the fiscal stimulus slows. In the remainder of 2010 we’ll learn if Koo’s 4th proposition proves correct. The data already shows some slowing.
* The weekly leading index of Economic Cycle Research Institute (
http://www.businesscycle.com/) peaked in May and since crashed. See this graph (
http://www.reuters.com/article/idUSNLLIHE66M20100618) of its rate of change, and this long-term graph (
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/ECRI LT.jpg) as of last week (both from Bloomberg, posted at Zero Hedge). The Conference Board’s Leading Economic Index was flattish in April and May; see this report. (
http://www.conference-board.org/pdf_free/economics/bci/campam.pdf)
* One of the best economic indicators is new claims for unemployment insurance. It’s accurate weekly data on an important variable; about 80% of workers are eligible. Claims have been flat for since mid-December with an average of 463 thousand per week.
That’s 12 million people fired during the past 6 months, supposedly the 3rd and 4th quarters of this recovery! Worse, the unemployment rate is higher among uncovered workers — so the total jobs lost might be more than 15 million. Most of those people found new jobs, but often at lower wages — and often fewer hours.
* Broadly speaking, the economic indicators paint a mixed picture. Foggy, as usual at inflection points.
On a larger scale, the world economy is growing.
But there are strong headwinds from China’s attempts to slow crazy-high loan growth and Europe’s embrace of austerity economics. Nobody knows how this all plays out.
One likely outcome, if history is any guide: a weak economy implies disaster for the Democratic Party in the November elections. 
