Rep. Maloney Attacks Ryan Budget — Part I

MoneyNews, April 28, 2014. All Rights Reserved.

Rep. Carolyn Maloney, D-N.Y., spoke at the 23rd Annual Hyman P. Minsky Conference, held in Washington at the National Press Club recently. The conference was sponsored by the Levy Economics Institute of Bard College, an independent group that “encourages diversity of opinion in the examination of economic policy issues while striving to transform ideological arguments into informed debate.” The theme of the conference was “Stabilizing Financial Systems for Growth and Full Employment,” and it was co-sponsored by the Ford Foundation.

The conferences celebrate the life and work of Minsky, who was an early theorist on the financial crisis and an advocate of government intervention to respond to financial crises that inevitably occur from time to time. This is the first of three articles on speeches delivered at the conference by Maloney and Jason Furman, chairman of the Council of Economic Advisers.

Maloney struggled to deliver the speech due to a cough, and perhaps also due to some form of the flu, she seemed medicated and perhaps to be reading the speech for the first time, although the arguments were very familiar.

Later that day the House was scheduled to vote on what is known as the “Ryan budget,” authored by Rep. Paul Ryan, R-Wis., which she rightly stated represents the embodiment of the Republican platform, and she devoted the speech to two provisions related to financial reform that would be affected by the Ryan budget, namely the so-called “Orderly Liquidation” provisions contained in title II of the Dodd-Frank Act, and so-called “Housing Finance Reform” now being tentatively considered in Congress.

In 2008, I predicted privately that there would be a bank bailout, based on a cynical recollection of the deals that were put together in 1988 during the savings and loan crisis to stretch that mess out past the November election at what was then considerable cost to taxpayers. However, this prediction was not nearly cynical enough. The George W. Bush administration, with Henry Paulson as Treasury Secretary, was so incompetent, or the needs of Paulson’s former firm, Goldman Sachs, were so pressing, that the bailout could not be put off.

The 2008 election offered a choice between a candidate who had virtually no experience and one who had a lifetime of experience but seemed not to have learned much from it.

Candidate John McCain made a big show of “suspending” a campaign that voters may not have noticed even existed. McCain flew back to Washington, ostensibly to intervene in the crisis, but without any actual plan. Meanwhile, candidate Barack Obama stayed coolly on the sidelines and benefited from the contrast with the manic McCain.

After the failure of Lehman Brothers and the bailouts of Bear Stearns and AIG, the official story line was, not surprisingly, that the reason the crisis happened was that the regulators lacked the authority to resolve nonbanks whose failure threatened the health of the financial system. Title II of Dodd-Frank gives the FDIC the authority to borrow up to $150 billion to fund the resolution of failing institutions through “debtor in possession” financing. The Ryan budget wants to repeal this authority, and Maloney is extremely exercised about this prospect.

Given that this move has engendered such a reaction from bailout apologists like Maloney, legislators seeking to prevent yet another round of bailouts might consider attaching the repeal of title II to any legislation coming out of the Senate that looks promising.

(Archived video can be found here.)