Monday Links: Banks Winning, Volcker’s ATM, TARP Paybacks

This is a really solid Bloomberg story on lobbying and how the bank lobby has really won, even if new regulations are passed. This is called putting things in proper perspective:

Still, the firms that helped precipitate the worst financial crisis in 70 years have so far sidestepped proposals that would have split investment and commercial banking, capped pay or seriously hurt their ability to make money…

That banks are making any headway “is astonishing,” said Travis Plunkett, legislative director at the Washington-based Consumer Federation of America.

“Some members of Congress seem to have memory loss,” Plunkett said. “They are forgetting that the very institutions whose amendments they’re proposing were the entities that helped cause our nation’s financial collapse. The banks are playing death by 1,000 cuts.”

The Wall Street Journal quotes Paul Volcker at length today from one of its recent conferences. He calls into question the premise of financial innovation, saying the only great innovation of the last twenty years was the ATM machine.

The whole thing’s worth your attention:

I was listening to this, and I found myself sitting next to one of the inventors of financial engineering. I didn’t know him, but I knew who he was and that he had won a Nobel Prize, and I nudged him and asked what all the financial engineering does for the economy and what it does for productivity.

Much to my surprise, he leaned over and whispered in my ear that it does nothing—and this was from a leader in the world of financial engineering. I asked him what it did do, and he said that it moves around the rents in the financial system—and besides, it’s a lot of intellectual fun.


I have found very little evidence that vast amounts of innovation in financial markets in recent years have had a visible effect on the productivity of the economy. Maybe you can show me that I am wrong. All I know is that the economy was rising very nicely in the 1950s and 1960s without all of these innovations. Indeed, it was quite good in the 1980s without credit-default swaps and without securitization and without CDOs.

I do not know if something happened that suddenly made these innovations essential for growth. In fact, we had greater speed of growth and particularly did not put the whole economy at risk of collapse. That is the main concern that I think we all need to have.

— The LA Times’s Michael Hiltzik has good instincts in his latest column, which questions whether the U.S. should have let the banks pay back their TARP bailouts so soon. There are still a ton of losses facing the financial system, most ominously with commercial real estate. But this is a good angle:

To put it another way, by allowing the banks to exit the emergency program that saved their butts in the fall of 2008, is the government giving up what could have been an effective tool of leverage over this misbehaving industry?

After all, the TARP loans made the government a shareholder in some of the nation’s biggest financial institutions. Treasury officials had pledged that they wouldn’t exercise that power to influence corporate decisions — which prompts another question: Why not?

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.