The Age of Austerity

The Age of Austerity

The Global Financial Crisis and the Return to Economic Growth

Thomas J. Schoenbaum

The book begins with a detailed breakdown of the financial crisis and the government response in the United States, with particular focus on the Dodd-Frank Wall Street Reform and Consumer Protection Act. The author then puts forth a basic three-part plan calling for (1) fundamental tax and entitlement reform; (2) massive economic stimulus in the form of public and private investment to modernize the country’s aging infrastructures; and (3) mortgage relief to revitalize the nation’s housing markets. The book concludes with specific policy proposals designed to achieve these goals and return the US economy to a state of full employment and robust economic growth.

Chapter 6: The regulatory answer

Thomas J. Schoenbaum

Subjects: economics and finance, economic psychology, financial economics and regulation, law - academic, regulation and governance, politics and public policy, public policy

Extract

Jamie Dimon, the CEO of JPMorgan Chase, a diversified, global financial company and America’s most profitable bank, made headlines on page one of the Financial Times on 12 September 2011, when he labeled the Basel III international financial regulations agreed by 27 countries, including the United States, as “blatantly anti-American.” He went on to say that the USA “should consider pulling out of the Basel group of global regulators. Our regulators should go there and say, if it’s not in the interest of the United States, we’re not doing it.” Dimon was upset over the capital and liquidity requirements of Basel III. Under the new rules, JPMorgan Chase and about 30 additional global banks will have to keep capital on hand that may reach as much as 9.5 percent. He pointed out that it will be “three to ten years” before the banks emerge from lawsuits brought by investors asking for compensation for the losses incurred on structured financial products backed by bad mortgages. Dimon also confronted Federal Reserve chief Ben Bernanke at the annual meeting of the American Bankers Association in June 2011: “We know there are 300 [Dodd-Frank Wall Street Reform Act] rules coming—has anyone bothered to study the cumulative effect of these things?” Dimon has said that new rules and regulations on the financial industry are not needed. “CDOs [collateral debt obligations] are gone; swaps are almost gone” so why new regulations?

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