On the Gravitational Pull of Clearinghouses in Congress after the Financial Crisis

Lest it be assumed that the Dodd-Frank financial-reform Act, which became law in 2010, two years after the financial crisis, would render it less probable that taxpayers would again be faced with having to bail-out financial institutions even without strings attached in order to keep the financial system intact and the American economy from collapsing, Gretchen Morgenson of The New York Times wrote two years after the Act's passage that “failing to confront the too-big-to-fail question is a serious oversight.”[1] For one thing, disproportionately increasing the amount of money that the biggest banks must hold against a rainy day once again neglects the possibility that every bank is having such a day on the same day and so none of the banks will loan to other banks (i.e., the commercial paper market). When a financial system itself is sick to the extent that it cannot stand, all the heavy dominoes may topple, one after another, even though each has more support. Secondly, widening the too-big-to-fail category enables more financial institutions to engage in risky bets because the expanded net could limit any eventual downside. Sure enough, Morgenson points out that the legislation “actually widened the federal safety net for big institutions. Under the law, eight more giants were granted the right to tap the Federal Reserve for funding when the next crisis hits.”[2] Those institutions, including the Chicago Mercantile Exchange, the Intercontinental Exchange, and the Options Clearing Corporation were even able to avoid the penalties for failure specified in the Act. The clearinghouses had successfully argued that even though only banks had been allowed to borrow from the Fed’s discount window, the clearinghouses are not financial institutions; rather, they are financial utilities. So, should they fail, they should not have to be “wound down” by regulators. This is essentially having it both ways and getting away with it. To explain this comfortable arrangement, we would need to look under the hood, so to speak, where I suspect we would find an exclusive world wherein vast private wealth is itself political power even apart from any attendant lobbying activity.

 The full essay is at "Clearinghouses in Congress."

1. Gretchen Morgenson, “One Safety Net That Needs to Shrink,” The New York Times, November 3, 2012.

U.S. Attorney General Barr's Decision on the Mueller Investigation of President Trump: On the Invisible Personal and Institutional Conflicts of Interest

On March 24, 2019, U.S. Attorney General William Barr sent to Congress his summary of Robert Mueller's report on whether President Donald Trump's 2016 campaign had colluded with the Russian government and whether the president had obstructed justice. According to Barr, Mueller had found no evidence of collusion. As for obstruction, Barr wrote that Mueller "did not draw a conclusion one way or the other as to whether the examined conduct constituted obstruction."[1] On this point, Mueller himself had written that 'while this report does not conclude that the president committed a crime, [the report] also does not exonerate him."[2] Mueller had laid out evidence and arguments on both sides of the question of obstruction, and Barr determined that the "evidence fell short of proving [that the president] illegally obstructed the Russia inquiry."[3] The New York Times went on to call this "an extra-ordinary outcome."[4] Barr did not detail his reasoning in deciding the matter of obstruction. According to the New York Times, he "appeared to be focusing on the question of whether investigators could prove that [President Trump] had 'corrupt intent' in instances where the available evidence about his motivations was ambiguous."[5] But in focusing on a lack of evidence that the Trump campaign reached any agreement with the Russian government on sabotaging the election, legal experts said," Barr "left out other reasons the president may have had for wanting to stymie a wide ranging investigation: It could uncover other crimes and embarrassing facts."[6] In other words, Barr's parameters may have been too narrow. The way Barr framed the contours for his decision might not have been an accident, given his personal conflict of interest. More important than this, I submit, is the continuing institutional conflict of interest facing the Justice Department in investigating its boss, the chief executive.

The full essay is at "Investigating Personal and Institutional Conflicts of Interest."

1. Eli Watkins, "Barr Authored Memo Last Year Ruling Out Obstruction of Justice," CNN.com, March 24, 22019.

2.Mark Mazzetti and Carol Benner, "Mueller Finds No Trump-Russia Conspiracy but Stops Short of Exonerating President on Obstruction," The New York Times, March 24, 2019.

3. Charlie Savage, Mark Mazzetti, and Katie Benner, "Barr's Move Ignites a Debate: Is He Impartial?" The New York Times, March 26, 2019.

4. Ibid.

5. Ibid.

6. Ibid.

McDonald’s Over-Reach: Blending a Restaurant and a Coffee Shop

In spite of essentially flat sales in the U.S. in February 2013 from the same month in 2012, McDonald’s CEO, Don Thompson, said he was confident that the people at the company had sufficient experience to “grow the business for the long term.” Even assuming that a business can be grown as if it were a geranium plant, the claim can be critiqued both in regard to the underlying assumption regarding “growth” and that of long-term viability. Fusing a restaurant with a coffee shop can be said to be an over-reach that had blended the company too much, at least at the store level.

The full essay is at "McDonald's in a Changing Environment."

Monetary and Fiscal Policy and Structural Reform: Each Had a Role to Play after the Financial Crisis

With fiscal policy hamstrung by public debt in both the E.U. and U.S., monetary policy was a major beneficiary of the financial crisis of 2008 and the ensuing state-debt crisis that stammered on at least until 2013 in Europe. Lest it be concluded that central bank policy had reached an unassailable peak of salvation, the expanded role actually made its limitations transparent, at least in financial circles.

The full essay is at "Post Financial Crisis Coordinated Action."