Is Big Finance Too Big To Save? Joint Economic Committee Hearing Tomorrow
Congress is back this week and various committees are positioning themselves to have influence over the broader financial sector reform process that continues to take shape.
First out of the block is the Joint Economic Committee, with a hearing tomorrow morning on the central issue of the moment: "Too Big To Fail or Too Big To Save? Examining the Systemic Threats of Large Financial Institutions."
It's always hard to tell how the interpersonal dynamics of any hearing will play out, but this looks to be a broad strategic discussion of the big picture. The fundamental principles of our financial system are on the table and there is a pretty straightforward, but also incredibly difficult question before us: How do we prevent this system from repeatedly damaging the US and global economy?
The panelists are, from left to right (which is also initial speaking order): Joseph Stiglitz, me, and Thomas Hoenig.
Stiglitz, of course, is a prominent critic of the Obama administration's handling of the banking system (and more). His most famous recent contribution to the debate was an article in Vanity Fair (reviewed here) in which he blames free market ideology - if you free it, we will all do well - for the boom and megacrash. The Columbia University professor represents the left of the spectrum and received a Nobel Prize for thinking about the economics of information, how markets really work, and many other ideas that policy should have heeded more over the years (homepage; Wikipedia bio). He is also a font of great quotes and quite capable of producing verbal fireworks.
Hoenig, on the other hand, is much more low key. He's the president of the Federal Reserve Bank of Kansas City (bio, speeches), but shot to national fame - and became a prominent feature of discussions on the Internet - with a brilliant speech in early March (reviewed here) in which he called, from a free market perspective (!), for temporary bank nationalization. Or perhaps he sees - correctly, in my view - the administration's approach as a form of de facto state control, with all the complications and distortions that this is likely to produce, and is arguing that nationalization and then re-privatization for some of the largest banks is the only way to bring the market back in.
I'm in the center seat and - just like on any airplane ride - have to decide if I talk more to the person by the window or on the aisle. I'm invited to play the role as the centrist which, given my views on the issue (be tough on bankers; bring in the Department of Justice's Antitrust Division; reinforce the criminal penalties for executive bad behavior) tells you something about where this debate is heading.
But one of my main points is that this debate is not really about left vs. right in any meaningful sense. Sure, the word "nationalization" is a hot button for polarization, but I don't think anyone wants the government to run the banking system - in fact, I expect to agree fully with what I think Hoenig will say, i.e., the Obama administration is running the banks right now, this is bad and needs to stop. The question to my mind is: What politically feasible exit strategy makes most sense, in terms of protecting taxpayers and facilitating an economic recovery?
I see the current debate - and tomorrow's hearing - as much more "left-center-right deeply suspicious of big finance" vs. "centrist supporters of big finance" (in Treasury and, it seems, the White House). The latter group will not be at the table on Tuesday but their ideas and approach constitute the backdrop for the whole conversation.
Are there workable and preferable alternatives to the administration's "financial rescue" policies?
April 20, 2009; 6:01 AM ET
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