The financial overhaul bill: brought to you by Dodd and Frank

The New Neo Posted on by

I hope that this isn’t another bill we’ll have to pass to find out what’s in it. But that appears to be the case.

The much-touted compromise that’s finally been reached is an agreement mostly among Democrats. A spokesperson for Republicans, Judd Gregg of New Hampshire, says:

“This legislation is a failure on both counts,” Sen. Judd Gregg (R-NH) said in a statement that denounced the compromise as failing to address “shoddy underwriting practices” or problems with the government-sponsored entities Fannie Mae and Freddie Mac. “It will not encourage much-needed stability and confidence in our financial markets. It will not significantly reduce systemic risk in our financial sector.”

Here are some of those rumored changes involving derivatives:

…[F]inancial houses could continue interest rate, currency, gold and silver derivatives trading, as well as to hold derivatives that offset balance sheet risk. They are still required to “spin off only their riskiest derivatives trades, including particular forms of credit-default swaps, which are complex financial bets that exacerbated the financial crisis…In addition, banks will have two years to spin-off their derivatives trading, and can retain the operations under independently capitalized affiliates. This latter might do some good if it keeps the riskiest products off the balance sheets of the biggest banks ”” effectively creating a good bank / bad bank situation in advance…

And oops—getting back to my first sentence—there’s this, from a “teary-eyed” Chris Dodd of Connecticut, who sponsored the bill and whose name it bears, along with that of Barney Frank (there goes that word “ironic” again, because both are widely felt to have been instrumental in creating, supporting, and defending many of the conditions that led to the meltdown in the first place, especially the Fannie/Freddie excesses) [emphasis mine]:

It’s a great moment. I’m proud to have been here…No one will know until this is actually in place how it works. But we believe we’ve done something that has been needed for a long time.

We may not know how it will work, but the Wall Street Journal has helpfully provided a guide to its best guess at the provisions. I am not one who believes in completely unfettered laissez-faire capitalism, but I must say that I am extremely distrustful of the federal government’s (much less any bill designed by Chris Dodd and Barney Frank) ability to regulate financial institutions in a way that will not make matters worse. The fact that this bill ignores Fannie/Freddie does nothing to allay my fears.

If you take a look at the comments to the WSJ article, you’ll see that many remark on the latter omission, plus a chilling effect this bill might have on the mortgage market in general. I have no way to evaluate predictions such as this one by commenter “David Eyke,” for example, but those of you with greater expertise can talk amongst yourselves:

“PRE-EMPTION: Would allow states to impose their own stricter consumer protection laws on national banks. ”

This will make national mid-tier banks obsolete eventually. They won’t be able to afford to comply with disparate laws in fifty states in twenty years. The result will be we will be left with a few massive banks with the resources to comply with disparate rules and … credit unions.

Time to sell 5/3 and others of that size range. In time, our money supply will be almost completely dependant [sic] on four super banks.

There’s more in this article in The Street. One point it mentions is that the bill would re-institute a version of the Glass-Steagall rule (the so-called “Volcker rule”)—something I’ve suggested several times on this blog. So I can hardly be critical, can I?

However, if Joshua Brown is correct, I can, because he says the Volcker Rule in the Dodd-Frank bill is Glass-Steagall Lite:

The “teeth” of the Volcker Rule have been kicked in and there are enough holes elsewhere for White & Case to exploit on behalf of their clientele til the cows come home. The Dems unanimously voted for it. Interestingly, Republicans all voted against it. They didn’t think the final version was strict enough or that it did enough to prevent Too Big To Fail.

Hmmm—sounds like the two parties have exchanged roles this time, hasn’t it?

But I’ll leave the last word (for the moment, anyway) to the always-insightful Richard Fernandez:

Financial risk cannot be legislated away. Like energy, once in existence risk cannot be destroyed. It can only be moved around; assumed by someone. When it assumed for a fee the risk transfer is called insurance. When it is assumed by the taxpayer the result is something like Freddie Mac and Fannie Mae. Yet public or private the it remains in the system for so long as the transactions which gave rise to it are allowed. It is the distribution of risks that is affected by the bill. In that sense the spin-offs on derivatives trading mandated by Blanche Lincoln do not reduce total risk within the system. They simply prohibit banks from assuming it, assuming they do not simply reallow under other color through loopholes.

Ordering with Amazon

The New Neo Posted on by

Back when I first announced my affiliation with Amazon and then placed the advertising widgets on the blog (see right sidebar), several people wanted to know whether Kindle books were included. At the time, they were not. But I’m happy to report that they now are. So if you want to click through on the widgets and order Kindle books or Kindle devices through this blog, please be my guest!

Now back to our regularly scheduled programming.

The McChrystal decision

The New Neo Posted on by

A few new and interesting tidbits on the decision process:

(1) it was made quickly, in near-record time for the usually Hamlet-like Obama

(2) Secretary of Defense Gates initially advised against it, because he believed that McChrystal was vital to the war effort

(3) Obama’s audience with McChrystal lasted a mere 30 minutes

(4) although ostensibly the decision as to who would replace McChrystal was not made till after the firing/resignation, Petraeus was already waiting in the White House Situation Room

I offer the further observation that it is deeply ironic that Obama has chosen General Petraeus in order to implement an Afghan equivalent of the surge that Senator Obama criticized so heavily and so long in Iraq (including disapproval of Petraeus’s decisions)—despite, and even long after, its success there. When it was politically expedient, Petraeus was no good. Now that Obama needs him—well, politics makes strange bedfellows.

Reflections on the Rolling Stone McChrystal article

The New Neo Posted on by

Well, I’ve read the article that may be the undoing of General McChrystal’s military career, and perhaps even the Afghan war itself [I wrote that sentence before I saw the breaking news that McChrystal is gone and Petraeus has been named to replace him, a good choice, IMHO]. Who would have thought Rolling Stone would make history of this sort?

Not I. And perhaps not even McChrystal and his staff—although if not, they were tremendously naive and foolish.

And apparently not Michael Hastings, the man who wrote the piece, who professes in an interview of his own with Newsweek that he failed to see the brouhaha coming:

I’m actually shocked by the response. Because usually we end up ignoring Afghanistan, so I’m quite surprised it’s creating such a stir. I knew I had some decent material to work with, but I’m surprised at the level of involvement.

Well, having now read the article itself rather than just summaries of it, color me unsurprised at the flurry of attention (or course, hindsight is 20/20). I also see no reason to revise anything I wrote yesterday, the gist of which was that (1) it’s no surprise that McChrystal and staff were annoyed at Obama; but (2) it’s a big and very unfortunate surprise that they so openly voiced their dissatisfaction in front of a reporter of any sort, much less this one.

It seems, according to the Hastings interview, that McChrystal and staff only signed on for a two-day exposure to him, but that, due to (of all things) the Iceland volcano, the relationship ended up stretching into a month-long stay. It seems they let down their guard and began to forget—even though they never should have—that he was a reporter, and that everything they did and said was fodder for the mill of his particular sensibility. If so, this was an error of major proportions on their part. But perhaps, instead, the access and exposure was a deliberate attempt to get the word out, come what may.

A few more observations on the piece itself: it’s written in the modern style in which liberal use of the f-word telegraph’s the writer’s toughness and grit (and no, it’s not just the military who are cussing freely, it’s the author himself in his more descriptive moments, such as this one, that occurs very early in the article, and gives you an idea of its macho tone):

McChrystal takes a final look around the suite. At 55, he is gaunt and lean, not unlike an older version of Christian Bale in Rescue Dawn. His slate-blue eyes have the unsettling ability to drill down when they lock on you. If you’ve fucked up or disappointed him, they can destroy your soul without the need for him to raise his voice.

There’s actually a great deal more in the piece than the revelations about McChrystal and the Obama administration and its representatives, although that’s all we seem to hear about. There’s a lot of griping about the rules of engagement in this war, an important and valid controversy in any asymmetrical conflict in which we fight against a clandestine group infiltrated among the general population of a country.

Hastings throws in some gratuitous observations that are meant, I would guess, to be uncritically accepted by his generally liberal readership. For example, he writes, “A few days later, [McChrystal] echoed the [Bush’s] Mission Accomplished gaffe by insisting that major combat operations in Iraq were over”—when in fact they were over; Hastings makes no attempt to distinguish between major combat operations against Saddam Hussein’s military forces (which in fact was the aspect of the war to which Bush and McChrystal were referring) and the very different insurgency struggle which formed subsequently.

In other portions of his piece, Hastings makes it clear that he does not believe counter-insurgency operations can succeed in Afghanistan, and refers to their having been based at least in part on our failed policies in Vietnam. What he ignores is what many people ignore—the revisionist history of that war, which I’ve written about in a series of posts that can be found here—that indicate that the war against the Vietnamese insurgency was actually won on the battlefield but lost in the arena of public opinion in this country, shaped in part by a hostile press.

No one can possibly be happy with the Hastings article, with the possible exception of Hastings himself—who is enjoying his 15 minutes of fame and may try to segue it into more of the same—the editors of Rolling Stone, and Hillary Clinton, the single politician who comes off with praise in the Hastings piece. Even President Obama is probably highly displeased. The article not only exposes him to ridicule, it forces him into a situation in which he must make a decision (even failing to let McChrystal go is a decision of sorts), and in which none of the possible choices seems like a good one at this critical juncture in the Afghan conflict [NOTE: again, with the news of Petraeus’s appointment, I think Obama made the best decision possible, actually. Maybe it will even turn out to be a good one, and the whole thing a fortuitous opportunity to improve the Afghan situation—unless Petraeus is hobbled in the same way McChrystal was. One thing I’m pretty sure of is that he will be far more savvy about PR and press relations. Ever since Vietnam, these considerations have become nearly as important as the conduct of a war itself, since the military should always assume the press is hostile to the endeavor.]

[ADDENDUM: Here’s a cynical comment found at Gateway Pundit:

Obama picked Gen. Petraeus to destroy his career, and make it so that he can’t run in 2012.

I don’t think that was Obama’s primary motivation. I think he made this choice in an attempt to get out of a bad situation and also possibly retrieve something of value in Afghanistan. After all, to a certain extent, Obama “owns” the Afghan conflict now.

But if Petraeus’s mission does not succeed (and there’s a good chance it will not), it would certainly have the added perk (from Obama’s point of view) of hurting Petraeus’s chances of a successful run for office in 2012, if he has that in mind. But I’m not at all sure he has that in mind.]

[ADDENDUM II: Jules Crittenden has some trenchant observations on the subject. As does Gerard Vanderleun.]

A heartfelt thanks

The New Neo Posted on by

My semi-annual week of asking for donations has ended, and I want to thank everyone who contributed. It’s a cliche, but it bears repeating: no matter how small or large, every amount is deeply appreciated.

In these difficult financial times in particular, I know it’s not always easy. If you weren’t able to donate this time, maybe next time. Or maybe never, and that’s okay too. I appreciate every reader and commenter here. After all, without you, what would this blog be?

Many, many thanks.

How to get Obama’s attention: insult him

The New Neo Posted on by

Funny thing, isn’t it, how quickly McChrystal was summoned for a White House audience for his insubordination, whereas back when the president was mulling over the Afghanistan troop request, McChrystal could barely get a word with his commander-in-chief?

The following is from a report in September of 2009 (note, also, the contrast with Bush):

General McChrystal has not spoken with Mr. Obama since submitting his grim assessment of the war a month ago and has spoken with him only once in the 100 days since he took command of all American and NATO forces in Afghanistan. The lack of direct communication has generated criticism and fueled suspicions of strains between the White House and Kabul.

Mr. Obama’s predecessor, George W. Bush, made a point of speaking with his Iraq commander roughly once a week at the height of the war there, a habit that forged a close working relationship between them even if it effectively bypassed the normal chain of command. Mr. Obama’s aides said he relied on General McChrystal’s advice but did not feel the need to duplicate Mr. Bush’s personal engagement with battlefield generals.

The imperious presidency. Whatever happened to “dialogue?” I guess that’s just for enemies.

[ADDENDUM: Stars and Stripes reminds us that McChrystal was Obama’s “hand-picked” general.]

Loose lips: the McChrystal article

The New Neo Posted on by

General Stanley McChrystal, top guy in Afghanistan, was summoned to the White House with some splainin to do after an incendiary piece appeared in Rolling Stone in which the general and his aides criticized the US ambassador to Afghanistan, as well as President Obama and much of his administration, for its handling of Afghanistan.

I’m no fan of Obama. Nor do I have a military background. And yet even I know that what McChrystal did (or allowed to have done) in this piece is a no-no. Perhaps offering such public criticism is marginally acceptable once a military officer has retired, but certainly not while in the thick of things. Even afterwards, it can be controversial.

There are military codes of behavior and there are informal military traditions, and neither of them encompasses public criticism of a commander-in-chief, no matter what the disagreement. McChrystal could not have been so naive as to know that he did not risk being fired from his command and even further embarrassed and/or disciplined as a result, and blaming it on a civilian press aide (who already been fired as a result of the article) just doesn’t wash.

Disclaimer: I have not yet had time to read the Rolling Stone piece, just summaries and excerpts, although I certainly plan to read it later today. So I don’t know how many of the statements came directly from McChrystal and how many from his underlings. But it almost doesn’t matter; the article was written with his approval.

While I’m sure it was mega-frustrating to deal with Obama and his staff, McChrystal needed to approach this some other way. One wonders why he did not. Was he purposely falling on his sword, sacrificing a career that seemed increasingly worthless under the circumstances, in order to get the truth out about this administration (one he voted for, by the way)?

Was he driven temporarily insane by dealing with a president who seemed to understand nothing about the conduct of war, and who endlessly pondered, Hamlet-like, while McChrystal’s urgent requests for more troops went unanswered? Or did Rolling Stone end up slipping him and/or his aides a dram of sodium pentathol to make them talk?

[ADDENDUM: Here’s an interesting take on the matter from Blackfive.]