Sumner, Tight Money, Unemployment and Bad Analogies

     This post of his is a gem in that he just makes bad analogy after bad analogy-it's some kind of savant talent to come up with analogies this bad. He starts off with complaining that if you kill one man you go to jail but kill many and they build you a statue. 

     Fair enough, but wait to you see what he's likening this too:

     "There’s an old saying that if you kill one man they put you in prison, if you kill 100,000 men they build a statue in your honor. A new article in The Economistsuggests a corollary; if an individual extorts money he’s put into prison, if a government extorts money it’s praised for getting tough on banks:

To a public angry at banks for their role in the financial crisis, this may all seem like reasonable retribution. Yet in many cases the rush to punish is overturning basic principles of justice. Take the settlement agreed to by JPMorgan. The accompanying statements from both the bank and the regulator involved, the Federal Housing Finance Agency, provided no indication of what the firm did wrong and no admission of guilt. JPMorgan is the fourth institution to settle over its dealings with Fannie and Freddie without going to trial, following settlements by General Electric, Citigroup and UBS.

Bank executives contend that they have little choice but to accept punitive settlements because the alternative, facing a criminal indictment and going to court, could destroy their businesses, even if they are subsequently found not guilty. This is because they risk losing their banking licences or being shunned by clients while charges are pending. In some cases regulators make these threats explicitly. Last year New York’s financial regulator threatened to revoke the state banking licence of Standard Chartered, which would in effect have excluded the British bank from America. “If you’re a financial institution and you’re threatened with criminal prosecution, you have no ability to negotiate,” Warren Buffett, an investor, said recently. “Basically, you’ve got to be like a wolf that bares its throat…You cannot win.”

     "Most people react to this type of story that an emotional level; either the banks deserve what they’re getting (liberals) or they’re being treated unfairly (conservatives.) Let’s try to rise above emotions and look at this from a public policy perspective. I see two other issues here:

1. This allows President Obama to raise taxes on banks without congressional approval:

JPMorgan Chase agreed to the biggest of these settlements, of $5.1 billion (with perhaps billions more to come) related to mortgages that it, and banks it later acquired, had sold to two government-backed firms, Fannie Mae and Freddie Mac. In Europe Rabobank, a Dutch co-operative, agreed to pay almost $1.1 billion after admitting that some of its employees had joined in the manipulation of LIBOR, a benchmark interest rate. Piet Moerland, its boss, resigned. In Germany Deutsche Bank set aside €1.2 billion ($1.7 billion) in provisions for litigation. Swiss regulators told UBS to set aside 586m francs ($652m) against possible legal costs and fines.

A billion here and a billion there soon add up. SNL Financial, a data firm, reckons that over the past three-and-a-half years America’s six biggest banks have agreed to pay more than $65 billion in settlements related to the financial crisis and mortgages. Further claims and expected settlements will soon push this figure to $85 billion, it says.

Add in settlements agreed to or being negotiated by European banks and the bill easily tops $100 billion. These include the $1.9 billion fine imposed on HSBC over weak money-laundering controls, the $1.5 billion settlement agreed to by UBS for manipulating LIBOR and the £16 billion ($26 billion) British banks have set aside to compensate customers who bought useless loan-insurance policies. It is not just banks in the firing line. SAC Capital, a hedge fund, was expected to reach a $1.2 billion settlement of criminal charges relating to securities fraud as The Economist was going to press. This follows an earlier $616m settlement of civil claims against the fund.

    "Whenever the Obama administration needs more tax revenue they can simply “ask” banks for more money. Just like someone in the Mafia might “ask” a small shopkeeper for some money. In the old days the GOP-controlled House of Representatives would’ve been able to stop the Obama people from raising more revenue. That is no longer true."

     http://www.themoneyillusion.com/?p=24694

      Well if it's no longer true it's just as well as the GOP only controls the House thanks to gerrymandering. We need more revenue anyway and since the GOP won't do it's job in compromising with Democrats over revenues and they weren't elected in the first place, it's just as well. 

    The bad analogies just come fast and furious. We're to see the Obama Administration as the Mafia and the Wall Street banks and hedge funds as poor victimized 'shopkeepers.'

     As usual he imagines himself as being 'above emotion' when it's obivous but such bad analogies that nothing's further from the truth. I love the name of this post too: 'The consequences of tight money go far beyond unemployment.' So Sumner wrote this post for those who aren't too worried about unemployment but are really concerned if they hear that JP Morgan hasn't been treated nicely. With all the money they received from us-via the same govt that Sumner is now slandering as a 'Mafioso' we're supposed to be concerned that they actually had to pay back a small amount in fines?

      Whatever Sumner's talents are-he has a number of them, starting with a shocking intellectual sophistry-having any sense of proportion sure isn't one of them-which is surprising as he's so beyond emotion.