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  • Simon Johnson Argues For Shrinking 'Too Big To Fail' Banks

    Simon Johnson--Professor of economics at MIT , a member of the Panel of Economic Advisers for the Congressional Budget Office , former chief economist for the IMF --and his co-conspirator at Baseline Scenario , James Kwak --formerly a McKinsey consultant and now a student at Yale Law School--came out with a new book this spring. 13 Bankers follows a theme that Johnson has been pushing for the last few years: the danger of concentrated financial power. He spoke about the book, and his argument that the 'too big to fail' banks need to be harnessed before financial crisis hits yet again, in this Thoughtcast interview: Simon Johnson Defies 13 Bankers "Too Big to Fail" from thoughtcast on Vimeo . For more on 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown , including an excerpt, click here .

  • The Push For the Consumer Financial Protection Agency and the Push-Back From the US Chamber of Commerce

    The White House is pushing Congress to create a Consumer Financial Protection Agency . The creation of the new agency would be part of the Obama administration's larger package of financial regulatory reforms. And Austan Goolsbee of the president's Council of Economic Advisors says the new regulations will "re-establish rules of the road" as they apply to consumers: The US Chamber of Commerce has been leading the charge against the creation of the CFPA. The Chamber's David Hirschmann called it "an unnecessary big government solution," last month, after a revised version of the the CFPA proposal was announced. Click here to read the Chamber of Commerce's list of objections to the CFPA. The battle lines look familiar to University of South Carolina professor of history Lawrence Glickman . In a guest post at Baseline Scenario , Glickman, author of Buying Power: A History of Consumer Activism in America , sees the roots of today's opposition to the CFPA in the push against the creation of a Consumer Protection Agency in the 60s and 70s. Read Consumer Protection Redux: The Lessons of History here .

  • James Kwak on New CAFE Standards and Job Loss

    President Obama announced new CAFE standards this week. For cars and light trucks up through model year 2016, according to the standards, the Corporate Average Fuel Efficiency should reach 35.5 miles per gallon. In his speech , the President said the new standards would--in addition to reducing CO2 emmissions--eventually save consumers money, and create jobs: The fact is, everyone wins: Consumers pay less for fuel, which means less money going overseas and more money to save or spend here at home. The economy as a whole runs more efficiently by using less oil and producing less pollution. And companies like those here today have new incentives to create the technologies and the jobs that will provide smarter ways to power our vehicles. Keith Hennessy , senior economic adviser to President George W. Bush, looked at analysis the National Highway Traffic Safety Administration did in 2008, and noted that the Obama plan looks like a scenario the NHTSA drew up. And in that scenario, there is a cumulative job loss of nearly 50,000 . Over at Baseline Scenario , James Kwak works up some supply curves to address this issue. The argument that aggressive CAFE standards costs jobs is based on the straighforward notion that cars cost more to build, the price goes up, causing demand to go down, and then fewer cars get made. The Obama plan assumes that cars will cost, on average $1300 more (they also estimate that the average fuel savings over the life of the car will be more than double that--but it is less clear the impact that has on the consumer decision at time of purchase). Kwak draws that up like this: But Kwak writes that this argument neglects the fact that the car now is more fuel efficient: That’s good, and it means that people will be willing to pay more for it. In other words, the demand curve shifts outward, so at equilibrium, quantity will be Q2, which is somewhere between Q0 and Q1. Q2 will still be less than Q0; otherwise, the free market would have come to that equilibrium by itself. (If people valued the increased fuel efficiency at $1300 or more, the industry would already have done it, at least according to a pure free-market argument.) So things are not as bad as in the picture above. Kwak also says the cars are more expensive because there is moe "stuff" going into the cars. Someone has to make that stuff, so even if fewer cars are sold, that in itself doesn't mean fewer jobs. For the full detail of Kwak's argument, you need to go to his post at Baseline Scenario . The NHTSA report Hennessy refers to is available here .

  • Simon Johnson: Break Up the 'Banking Elite'

    Simon Johnson was chief economist for the International Monetary Fund in 2007 and 2008. Now he is a professor at MIT, is a senior fellow at The Peterson Institute for International Economics , and blogs about the global economic crisis at The Baseline Scenario . For the last several months, he has been among the most vocal public economists warning that the US government's response to the crisis is far from enough. Now, in a new piece for the May issue of The Atlantic , Johnson warns that the very people who lead the way into the financial crisis--the management of America's biggest banks--are being given too much say in how to respond to the crisis. In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people. But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them. Read The Quiet Coup from The Atlantic here . Johnson has been making the rounds today to sound the warning in person. You can watch the five-minute version, from MSNBC: Or for a more extensive, 50-minute version from On Point with Tom Ashbrook , download the podcast or listen here :