Category Archive 'Dodd-Frank'

01 Oct 2015

Elizabeth Warren Purges Brookings Economist

, , , ,

ElizabethWarren6StrobeTalbott2
Elizabeth Warren & Strobe Talbott

This Robert Litan guy it seems deviated from the Party Line, and Strobe Talbott (my old boss at the Yale Daily News) followed Warren’s orders and executed him.

The Wall Street Journal tells the sad story:

President Obama has let Elizabeth Warren veto presidential appointments, and the power rush seems to have gone to her head. Now the Massachusetts Senator has forced the resignation of a Brookings Institution economist because he dared to report that new financial regulations will cost investors.

Robert Litan, a Democrat who has been affiliated with Brookings for decades, is nobody’s idea of a conservative. And he’s not philosophically opposed to financial regulation. He was among the first to endorse Ms. Warren’s proposal for an independent agency to protect financial customers. It was a terrible idea that has become worse in its execution. The 2010 Dodd-Frank law created the Consumer Financial Protection Bureau and the rest is overbearing bureaucratic history. But the point is that Mr. Litan was an ally of Ms. Warren before her election to the Senate.

She’s not the sentimental type. In July Mr. Litan told the Senate about his research into a Labor Department plan to force investors to move from brokers to fiduciaries. Mr. Litan testified that “the benefits of the rule do not outweigh its costs. In fact, during a future market downturn, we estimate the rule could cost investors as much as $80 billion.”

He added that “the notion that all retirement investment advisers should be held to a best interest of client standard is not controversial. It’s the way the Department proposes to implement it, which because of its costs and risks, will lead to many clients going without an adviser, or if they are able to retain one, only at substantially higher costs.”

Ms. Warren likes the Labor plan because it provides more work for bureaucrats and trial lawyers. So more than two months after the hearing, still unable to rebut Mr. Litan’s economics, she has attempted an assassination of his character. In a letter to Brookings President Strobe Talbott, Ms. Warren accused Mr. Litan of, among other things, “vague” disclosure regarding the funding of his research.

Vague? Here’s the note about funding that appears on the first page of his prepared testimony, which is available on the Senate website: “The study was supported by the Capital Group, one of the largest mutual fund asset managers in the United States.” Did Ms. Warren provide that much clarity in describing her own corporate legal clients prior to her 2012 election?

Brookings is telling reporters that Mr. Litan violated a rule of the think tank. As a non-resident fellow, he was not supposed to be identified as a Brookings scholar when he testified on the Hill. But we’re told that the rule is a recent creation and that when Mr. Litan realized his mistake after the July hearing, he apologized—and that Brookings didn’t have a problem with it until this week’s letter from Senator Warren.

Remind us never to share a foxhole with Mr. Talbott. We also wonder how Brookings scholars and donors feel about letting a Democratic Senator bully their institution into stifling independent research. And what is former Federal Reserve Chairman Ben Bernanke doing at Brookings while he’s also a senior adviser to Citadel, the giant hedge fund?

07 May 2015

Calculating the Impact of Dodd-Frank on Economic Growth

, , ,

DoddFrank2

Douglas Holtz-Eakin attempts to calculate the impact of the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) on the growth of the economy.

What did Dodd-Frank do to the effective tax rate on banks? Consider, first, the burden of complying with the new regulations. The American Action Forum’s analysis of the Federal Register indicates that the cumulative burden (including the market value of paperwork hours for compliance) is roughly $14.8 billion annually. Notice that after-tax income in the presence of the burden is:

[rL – C – Burden](1-tB)

where r is interest on loans (L), C is the cost of acquiring funds and other operations, and tB is the tax rate on banks. Suppose that instead of a burden, the same after-tax income was generated by simply raising the tax rate to t’. Then, by definition:

[rL – C – Burden](1-tB) = [rL – C](1-t’)

[which] can be re-arranged to yield:

t’ = tB + (1-tB)[Burden/(rL-C)]

To put some empirical meat on [this], the Federal Deposit Insurance Corporation’s (FDIC) Quarterly Banking Profile (QBP) provides information on taxes ($67.5 billion) and net income ($151.2 billion) that permit one to compute an initial tax rate of 31 percent. Using the AAF burden data and (11) yields an increase to 37.8 percent from compliance burdens.

A similar approach can be used to transform the roughly 2 percentage point rise in the leverage ratio of the banking sector (from 7.5 to 9.5 percent) from 2008 to 2014 into a rise in the effective tax rate. The banking sector responded to Dodd-Frank by holding more equity capital, thus require it to have greater earnings to meet the market rate of return – the same impact as raising taxes. In this case, the higher leverage ratio translates into a further increase in the effective tax rate to 40.3 percent, for a total rise of 9.2 percent.

Collecting results, the impact on economic growth is a decline in the per capital growth rate of 0.059 percentage points annually. Is this a big deal? Consider lowering the growth rate in the Congressional Budget Office baseline projections by exactly this amount between 2016 and 2025. The lower rate of economic growth translates into a total loss of $895 billion in GDP or $3,346 for every member of the working age (16 and older) population over those 10 years.

12 Oct 2011

Wall Street In Steep Decline

, , , ,

The left is protesting Wall Street while Barack Obama continues to whip up popular resentment of the US financial industry, but the massive regulation of that industry effectuated by Sarbanes-Oxley and Dodd-Frank are already making sure that liberals are not going to have the world center of finance capitalism based conveniently in Lower Manhattan when they feel like kicking it around some more.

As the Wall Street Journal reported yesterday, Wall Street is in serious decline. Jobs are evaporating.

New York City’s securities industry could lose nearly 10,000 jobs by the end of 2012, New York state’s comptroller predicted, a painful blow to the area’s economy and government budgets.

New York City’s securities industry could lose nearly 10,000 jobs by the end of 2012, New York state’s comptroller predicted, a painful blow to the area’s economy and government budgets, Aaron Lucchetti reports on Markets Hub. Banks in the New York area are also poised to shed jobs. Photo: AP.

In a report set to be released Tuesday, Comptroller Thomas P. DiNapoli also said bonuses are likely to shrink this year, reflecting lower profits on Wall Street.

Since January 2008, the securities industry in New York has seen 22,000 jobs evaporate. If Mr. DiNapoli’s prediction of 10,000 more jobs losses between August 2011 and year-end 2012 comes true, that would represent a decline of 17%. About 4,100 jobs have been eliminated since April, and deeper cuts are widely seen as inevitable given a recent flurry of corporate expense-trimming announcements.

There is a 1:1 relationship between recent federal regulations and Wall Street’s decline. Disgruntled lesbian rockers who think that capitalism has not been properly compensating them will soon have to go demonstrate in London and Abu Dhabi.

02 Jun 2011

The Schumer Three Step

, , , ,


Senator Charles E. Schumer

The Wall Street Journal finds Senator Chuck Schumer’s recent criticism of the regulatory impact on New York City’s financial industry of the Dodd-Frank bill, which he himself supported, to be an example of a recognizable pattern of political deception.

[W]ith Mr. Schumer, who voted to inflict this burden on an economy still struggling with high unemployment and slow growth, this is an all-too familiar pattern of behavior that can be summarized as follows:

Step One: Vote for destructive law.

Step Two: Complain about said law, while doing nothing to repeal it.

Step Three: Raise campaign money by showing to business community the volume of said complaints.

It was almost easy to forget that Mr. Schumer helped enact the 2002 Sarbanes-Oxley financial accounting law when he spent much of the rest of the decade complaining about the stifling burden of financial regulations.

Looking forward, we can expect Mr. Schumer to express at myriad fundraising events his sympathy for those living with the consequences of Dodd-Frank. It’s a good bet that he’ll also claim that, if not for his valiant efforts on Capitol Hill, the financial reform would have been so much worse. And expect New York’s financial elite to keep writing checks.

There’s a word for people who keep falling for this: suckers.


Your are browsing
the Archives of Never Yet Melted in the 'Dodd-Frank' Category.








Feeds
Entries (RSS)
Comments (RSS)
Feed Shark