The Treasury invited a small group of bloggers for a “discussion” with senior officials on Monday. Initially, the meeting was to be background, which is a sort of journalistic “FYI but you can’t use it” but we were told at the meeting that we could discuss the meeting as long as remarks were not attributed to particular individuals.
None of us knew in advance how many attendees there would be; there were eight of us at a two-hour session, Interfluidity, Marginal Revolution, Kid Dynamite's World, Across the Curve, Financial Armageddon, Accrued Interest, and Aleph (and of course, others may have been invited who had scheduling conflicts). There was a place card for Megan McArdle as well.
I was surprised that the powers that be would bother with financial bloggers, and I wondered at the decision rule behind the selection (besides wanting a mix, particularly from a political standpoint). This was also not an anonymous briefing of the sort that has come under criticism (but the anonymity request is still peculiar; is this a Team Obama fixation?) Given that the efforts have Administration has been made efforts to bring critics from the left into the fold, I was wary of attending (I’m not keen about the idea of being propagandized) and expected a higher control format (10-15 people, which would have limited the opportunity to interact).
It wasn’t obvious what the objective of the meeting was (aside the obvious idea that if they were nice to us we might reciprocate. Unfortunately, some of us are not housebroken). I will give them credit for having the session be almost entirely a Q&A, not much in the way of presentation. One official made some remarks about the state of financial institutions; later another said a few things about regulatory reform. The funniest moment was when, right after the spiel on regulatory reform, Steve Waldman said, “I’ve read your bill and I think it’s terrible.” They did offer to go over it with him. It will be interesting to see if that happens.
Four of us had a drink afterward and none of us felt that we learned anything (not that we expected to per se; if the ground rules are “not for attribution” in an official setting, we are certainly not going to be told anything new or juicy). But my feeling, and it seemed to be shared, was that we bloggers and the government officials kept talking past each other, in that one of us would ask a question, the reply would leave the questioner or someone in the audience unsatisfied, there might be a follow up question (either same person or someone interested), get another responsive-sounding but not really answer, and then another person would get the floor. The fact that the social convention of no individual hogging air time meant that no one could follow a particular line of inquiry very far.
My bottom line is that the people we met are very cognitively captured, assuming one can take their remarks at face value. Although they kept stressing all the things that had changed or they were planning to change, the polite pushback from pretty all the attendees was that what Treasury thought of as major progress was insufficient. It was instructive to observe that Tyler Cowen, who is on the other side of the ideological page from yours truly, had pretty much the same concerns as your humble blogger does.
It was also striking to see that the Treasury officials lacked a vision for a banking system for the 21st century that was materially different that the one we have now. The flip side is if they did, articulating that publicly might get them accused of doing Communist central planning, but I didn’t hear second level arguments that said they had considered the issue in a serious way, save not winding the clock back to much more on balance sheet intermediation, aka traditional banking, as opposed to “market based credit”. Nevertheless, at a McKinsey alumni meeting months ago, a partner who has been advising the Treasury and Fed told the group that the Administration wants to make being systemically important very costly to force firms to do what is necessary to get out of that category. That of course is structural reform, but we got no acknowledgment of that as an aim. And aside from raising capital requirements more for big firms than smaller ones, it is not clear how far Treasury could go down that path on its own (and strictly regulatory measures can be rolled back by a new Adminisitration).
Several of us raised questions about whether what their vision for the industry’s structure was and that the objective seemed to be to restore the financial system that got us in trouble in the first place. The answers instead focused on more stringent regulations, higher capital levels, and of course the derivatives regulation bill. I tried twice to engage them on how the bill has so many loopholes that it is not going to make any difference as far as the real problem is concerned (the out for customized derivatives, in the Administration proposal, gave the industry an easy and obvious way to evade the rules; the House pretty much gutted what was left) but I was not specific enough in saying what “loophole” constituted and was basically deflected (and was also told the derivatives on balance sheet would be subject to tougher capital requirements, and the industry was complaining that the bill would make things more costly for them. Ahem, it has become standard practice of all the powerful lobbies to make a great deal of noise about any change on principle, so the level of complaining is not a valid indicator of the efficacy of reform).
I also asked about the size of the financial services industry (as in one of the distortions that resulted from deregulation and rates being too low was that the financial sector had grown too large, which by implication means it needed to shrink. I was told it had shrunk and that the Fed was winding down its programs. Yes, but the expectation is that as the Fed winds down, the private markets will step into be breach, which means more credit private credit extension. There was no acknowledgment of the issue raised by Joseph Stiglitz, that if credit intermediaries are making too much money, the banking system tail is wagging the economic dog.
They also defended the stress tests as being serious, and again did not seem to win converts.
One area that we didn’t get into was the special resolution regime, which is receiving considerable pushback from Congress. Treasury has asked for open-ended authority to resolve large financial institutions, which is pretty much a blank check. That’s a breathtaking power grab by the Executive and should not be acceptable in a democracy. It wasn’t surprising that post the TARP that Congress would be completely unwilling to go there. Any decision to wind up a large bank is going to require Congressional authorization; the amounts at stake are too large for this not to be a political decision. The Resolution Trust Corporation working capital needs ($50 billion, if I recall correctly) were authorized by Congress, and Congress also became impatient and called for it to be wrapped up sooner than Treasury wanted (some studies have argued that the faster sales that resulted gave the taxpayer a lower return than the RTC would have gotten otherwise). And even if you could solve the political impasse (remember, Bear failed in ten days; think Congress could agree to a big backstop in that short a period of time?) I am not certain this change will be salutary in the absence of trading counterparties knowing exactly what would happen to them while an organization was being wound down. One of the things that makes securities firms decay quickly is that no one wants to have their accounts frozen, as happens now in a bankruptcy. You need considerable detail on mechanics, and it does not appear to have been disclosed yet (my buddies at the Roosevelt Institute conference on Monday said Rodgin Cohen, who was presenting and advocating the Administration plans, was also scarce on details).
But the other fact is that these guys are very smooth, very smart, and seemed quite sincere, which made it difficult to discern how much they really did believe and how much of what they said they had to say because they need to defend official policy and maintain confidence. Let’s face it, they get prodded and roughed up by big dogs with some frequency. There was nothing we asked that would be new. They’ve covered this ground with other people of more consequence and therefore have answers ready. We are a pretty unimportant audience (yes, they did bother making time for us, but let us not kid ourselves on how far down the food chain bloggers are) and we cannot argue from a position of advantaged information, so it was inevitable that we would not get beyond standard responses.
Their real problem is not critical bloggers, but the sour after taste from bailing out the frauds who crashed our economy.
The Obama Administration was undermined by their failure to stand up to the financial industry. It makes them look like they don’t care about the American people, during the worst downturn since the Depression.
I am very happy health care is being reformed.
But they lost trust, and deservedly so, with the only audience that matters. Not bloggers. Voters.
What about the Japan policy? The central pillar of New Era macro policy is the Treasury/Fed commitment to no bond haircuts to protect the insurance and pension dominoes. Thus no bankruptcy and no nationalization is possible within the capital markets as either would cause mark to reality which cannot be allowed. Hence stasis is inevitable at the market structure level of policy. CIT and a few other exceptions noted.
Did anyone talk about bond haircuts or the lack thereof?
Maybe they were probing YOU to see how much the ‘blogistat’ understands at this stage…maybe it’s good y’all didn’t get too penetrating on some topics. Naah, couldn’t be.
I’m highly confident they had no interest in assessing our understanding, they made it clear that most of the attendees did not read our blogs (they were nice about it, and I would not expect them to,. I would assume that to the extent they keep on top of media, it’s MSM and pubs oriented to DC politics).
Thanks for sharing your thoughts on this meeting… it all sounds very surreal and has me wondering how much in touch with reality the folks in charge are, as opposed to being caught up in fantasies of their power to create realities they desire. All these government shenanigans have encouraged me to reread Orwell and Huxley.
As to anyone who thinks health care is being reformed… I’m surprised anyone who reads this blog would seriously say that given the focus on corruption and propaganda. I recommend reading David Swanson’s latest article over at Counterpunch… The Health Care Con – The Two Percent Robustness http://www.counterpunch.org/swanson11022009.html
This so-called health care reform is so bad it needs to fail and start over.
Yes, the word I used afterwards for the meeting was “peculiar” but the flip side is none of us are DC types, so this form of Kabuki is probably perfectly normal there.
Thank you for the info on your visit. I don’t know how high up in the chain of command you got. Suffice to say, if these were career (namely, Civil Service) people, you can never get much from them. It is generally very painful to sit through a presentation from a federal employee, even a senior one, because they are sooooooo constrained in what they can say. While things are said, there often seems to be very little meaning in what is conveyed. Perhaps you had a somewhat different experience than I have had in the past, but I get the sense you unfortunately did not.
We did see some senior people, those making policy.
Yves, as someone who lives and works in this world, what you have observed is fairly standard. Washington is very insulated from the rest of the country, and as such there is a strong tendency for Washington insiders–who as you noted are very bright–to define reality in their own terms.
Coupled with that is the tendency to to silently differentiate between items that are on the table and items that are off the table; “everything is on the table” is something of a joke, it never means that. Case in point: one of the SEC directors made the assertion that “everything was on the table” when it came to overhauling the Commission, until asked a pointed question about dismissing incompetent staff, when it was conceded that, due to union contract restrictions, dismissing staff, at least, was not on the table. You will not know what problems, solutions, etc. are actually under consideration until you ask a pointed question, and even then you may not get a straight answer.
All that is due to the power structures that underly Washington politics. Certain issues and solutions are not considered because of the ramifications for the entrenched interests; hence the alternate reality. The only real solution is to bring in knowledgable and uncompromised outsiders who can be honest about the real issues and who would be willing to consider the full range of solutions. This administration has not done that, and in a misguided effort to keep the peace with the establishment has brought in largely establishment players, and the result is what you observed.
Please consider the following image:
http://www.laobserved.com/images/chinatraffic.jpg
This is called “gridlock”.
Gridlock is a condition where in a system of interlocked components, the normal motion of any one of the components suddenly causes all other components to halt. Since motion is also the only solution to the halting, the system locks up on itself. Hard.
Washinton DC policy makers are in a state of gridlock.
This is not strictly a political problem. It is certainly a mental one and is very nearly a physical one. They cannot move, they cannot function, they cannot unwind their system, they cannot move the system forward as a whole or in any part.
They are stuck fast.
I do not believe they even recognize this. When one is stuck in traffic gridlock all you perceive is that the guy in front of you is not moving, the guy beside you is not moving, and you know the guy behind you isn’t going to move because you are not moving. You suspect something really bad has happened but you lack the vantage point to know how bad it is, nor do you care, because you aren’t going to fix it anyway. It will have to fix itself.
Traffic gridlock solves itself. It is a self-limiting problem: once the traffic system fails, people go home.
Our economic problem will prove self-limiting as well, and will fix itself. The policy wonks will have done nothing. What will be the “screw this I’m going home” moment for our economic outlook? Who is going to bail out, and what will they take with them when they go?
cougar
The Treasury officials are employees of the US government and are paid and supported with OUR money. I don’t care if they said in fine DC-speak, “You know, this is off record, blah-blah-blah.” Are you a journalist? Why are you professionally subject to this standard? Who are they to demand it?
You explain to me why you are beholden – why you are self-censoring – not to name names of who among OUR employees were there talking to you?
If you all play by their ground rules – if you bask in your moment of egoistic self-importance – you and the others become little more than errand boys. There is nothing more desperately needed than greater transparency at Treasury & the Fed.
Bring it.
While I don’t agree with the tone of this–coming at someone with a pitchfork is guaranteed to have them evade you–you do raise a good point concerning the question of “access” and its nefarious effects on reporting. If I remember correctly, Yves, you wrote a post concerning this problem in the MSM recently. How are the circumstances of your meeting different?
Nice catch. In her defense, she does say she was not open to being propagandized. And she does not blandly repeat the propaganda here. I find the account interesting and am glad she went and appreciate her honest appraisal.
It’s a trip down the rabbit hole to view the court of playing cards. It’s hard to refuse the invitation, but you try to retain your mental and moral integrity on the way through. On the other side it’s hard to say how much was real, if anything. It is peculiar that governance proceeds this way. This is perhaps how things roll at the end of the game.
cougar
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