Showing posts with label Dodd-Frank. Show all posts
Showing posts with label Dodd-Frank. Show all posts

Wednesday, April 12, 2017

DODD-FRANK | House Bill Takes Aim, by Dana Chasin

Dodd-Frank applied CPR to the 1933 Glass-
Steagall Act, which gave banks deposit insurance
in return for bank and securities regulation.
Hensarling wants a GOP-branded Act...
The following is slightly abbreviated from a summary by Dana Chasin of the new Hensarling bill:

Jeb Hensarling (R, TX-5), Chair of the House Financial Services Committee, has announced a beefed-up Financial Choice Act to eliminate some key Dodd-Frank provisions.

It would reduce Sarbanes-Oxley and JOBS Act regulations.

The bill, Hensarling 2.0 (H2O), proposes major structural changes to the Consumer Financial Protection Board (CFPB) and the SEC. Hensarling has said he would get H2O through his Committee to the House floor by the end of April.

The Major Changes

Major Dodd-Frank-related provisions in Hensarling's H2O bill include:
• weakening of provisions protecting against systemic risk, increasing the threat of “too big to fail” financial institutions, holding up taxpayers for another bailout
• rolling back safeguards protecting ordinary investors and consumers on financial transactions involving everything from derivatives trading to retail banking
• repealing restrictions on the kind of subprime mortgages that caused the 2008 financial crisis.
Jeb Hensaring (R, TX-5).
Chair, Financial Services
Committee.
[Hensarling says on his website that H2O will do what Dodd-Frank failed to accomplish after the 2008 financial crisis. “It would end bank bailouts,” he says. “It would give regulatory relief for community financial institutions, and we would also have the strongest penalties for Wall Street wrongdoers that have ever been on the books.” Though Republicans want to roll back Dodd-Frank, Hensarling says they don't want a repeat of the 2008 financial crisis and so his bill would require banks to hold on to more loss-absorbing capital than is currently required. “We’re not trying to save any individual institution,” says Hensarling. “We’re trying to save the entire financial apparatus and our whole financial system.”]

Hensarling Needs Votes

Hensarling believes that his Financial Choice approach should replace Dodd-Frank entirely. But if Dodd-Frank reforms were passed in present form, they would undermine the 2010 financial regulation law. The skeleton will still exist, and the new bill would act as a disable-and-disregard "remedy" to Dodd-Frank.

With that in mind, the bill will most probably not make it to the floor until the summertime, per Rep. Patrick McHenry, vice chair of House Financial Services. Although passing the Senate would require a Herculean legislative effort to create a bipartisan measure, some Republicans are still looking for ways to roll back Dodd-Frank while avoiding working with Democrats. GOP Senator Pat Toomey suggested last week that the reconciliation process to repeal regulations on a simple majority vote basis is still available.

The Role of Capital Requirements

What is interesting is the Republican interest in capital regimes, which monetize regulations. Another way of looking at these is effectively as a corporate tax. So instead of ducking a regulation by imposing a corporate tax, the GOP could weigh that out during their tax reform efforts as a means to compromise with Democrats.

Hensarling’s new plan also includes reducing the frequency of bank stress tests performed by the Federal Reserve (once every two years as opposed to annually). The plan would also give the president the authority to fire the directors of the CFPB and restrict its oversight, as well as changing the code of conduct between the SEC and private companies.

Republican Strategy vs. Street Sense

Seeking to learn from the health-care-reform failure, the Congressional leadership may be of the view that H2O provides a strongly conservative approach to repealing and replacing Dodd-Frank, bridging the gap in the GOP between the Freedom Caucus and House leadership. It’s hard to see it get through the House without compromise, though. All the while, Dodd-Frank has quietly been picking up support in the last couple of months from the banks and their main news source: the Wall Street Journal, featuring masthead editorials opposing repeal of Dodd-Frank. [Treasury Secretary Steven Mnuchin has expressed interest in restoring aspects of the Banking (Glass-Steagall) Act of 1933.]

With some banks backing key portions of the 2010 law, such as the need to preserve the Financial Stability Oversight Council and the Orderly Liquidation Authority from Titles I and II, the bill's road to the President's desk will not be an easy one. If it passes the House, the Senate will almost certainly reject it.

Related Posts: Economic Hotspots . Banking (Glass-Steagall) Act of 1933 . Dodd-Frank Act .

Friday, April 7, 2017

ECONOMIC HOTSPOTS | by Dana Chasin

The U.S. Economy at Risk as Washington Debates.
My friend Dana Chasin sent me a summary of economic issues before the Congress at the end of the first quarter of 2017. 

With his permission, I have re-posted it below.

The issues add up to some strong challenges that will not be easy for the GOP to address. 

Having struck out on replacing Obamacare, Trump is facing the likelihood that the First 100 Days may go by without a single significant piece of legislation.

Here is Dana's guest post. I have added only a number to identify each of his five sections:

1. Dodd-Frank Action

One of the subtlest but surprising developments of the year to date is the sense that Wall Street itself (the financial industry) is not as warm to the idea of repealing the law as Trump is.  Several major firms and the Wall Street Journal -- yes, even its masthead editorial page -- have signaled caution when it comes to the president’s actions on Dodd Frank. More and more investors believe that the administration is unlikely to deliver any significant jolt to the economy. 

As Trump vowed again this week to “do a number” on Dodd-Frank, it’s expected that the SEC, under Jay Clayton who will likely be confirmed, will soften enforcement and rules that the 2010 law put in place.  That is not to say that rolling back Obama-era regulations will be easy for the SEC.  Per the Journal:  “The SEC doesn’t have the authority to revoke Dodd-Frank, which is an act of Congress.” 

Given that the vast majority of rules and regulations from the Dodd-Frank Act have already been implemented, the best that the SEC can do is amend them or grant exemptions on a case by case basis.  If legal objections were motioned as a result of the SEC’s actions, it would slow down the already drawn-out process.

2. Tax Reform

It seems that the already difficult tax overhaul process just got a lot more complicated for Trump.  The GOP in Congress are having trouble agreeing on a bill that Democrats won’t filibuster.  This all started when two senior economic officials who served in the Obama administration, David Kamin and Brad Tester, published an article that found that the much talked about Border Adjustment Tax will not produce the kind of revenue the President has suggested. If their report is confirmed by, say, the CBO, then it would throw the whole tax agenda off because they would not be able to produce a bill that wouldn’t add to the debt.

The Trump administration is working hard to ensure a legislative success before the year is up.  There are a lot of opportunities and a lot of road blocks (think Blue Dog Democrats and the Freedom Caucus). Recently, the President’s legislative director met with moderate House Democrats to propose working with them on the tax reform plan. One of the Democratic lawmakers who attended the meeting said that the legislative director declared the border adjustment tax dead on arrival.  If that is the case, then Donald Trump’s protectionist campaign promises will be broken, a prospective trillion dollars in revenue will be lost, and tax reform, lacking a pay-for, will limp forward, or not.  

There have been rumors this week that the White House is considering a carbon tax and a value added tax to make up for the loss of revenue that will be induced by the massive tax cuts Republicans are aiming for, both on the income and corporate side.  If the carbon tax is in the bill, the Freedom Caucus had have reason to vote against it.  

The White House has flip-flopped on the VAT and carbon tax, saying that it was considering them at first and soon after disavowed them completely.  Given the collective lack of experience this administration has, their negotiation efforts are very transparent and their tactics are easy to dodge so far.

This flip-flop shows that the Freedom Caucus should have reason to be cautious of their trust in the House leadership to put forth a plan with their inputs taken into account. This is precisely why the plan is showing signs of ripping apart at the seams.  This and the BAT may get debated extensively over the next few months.  Don't be deceived: they are dead letters in Congress. 

3. Infrastructure

For some reason, the administration decided to pick tax reform as its next big ticket item after the health care debacle, opting for the more difficult and partisan route.  The president may once have had a shot at working with Democrats who have been asking for infrastructure investment for a long time, but it seems that Trump is ditching that train for now.

The president’s infrastructure plan might, accordingly, also be too ambitions.  With a goal of a trillion dollars, Trump aims to pass large tax subsidies to investors willing to pour money into infrastructure investment.  There are many reasons this plan is risky, one of which is that large firms will be getting nothing short of massive government handouts for investments they are probably going to make anyway. 

Last year, Congressman Delaney came up with a plan that could give the president a pass around Democratic obstruction.  His proposed infrastructure bill combines infrastructure investments, which Democrats have been eying for quite some time, and international tax reform, an issue that Republicans have been keen to tackle.  And here’s the catch: it has strong bipartisan support with 40 Democrat and 40 Republican cosponsors. 

By going with tax reform first and seeking more money than Obama's stimulus package, this administration’s legislative agenda and self imposed August deadline suggests remarkable legislative incompetence.  

4. Budget

Despite being able to check off submitting a statutorily required budget to Congress from his to-do list, Trump can hardly consider this any sort of accomplishment at this point.  As it was not even dead on arrival -- Congress will not consider or even hold hearings on it -- and grossly increased the deficit, there is nothing to see here as an accomplishment. 

5. What the GOP Might Do

The biggest obstacle to a sweeping tax reform is the Democrats in the Senate, who could easily filibuster a bill if it adds to the national debt. The reason for that is that tax legislation that adds to the debt cannot be passed by a simple majority vote as per the reconciliation process that passed the budget resolution earlier this year.  That said, there are still ways around the filibuster with a model similar to the Bush Tax Cuts which passed in 2001. 

Per the Washington Post:  “Republicans could avoid Democrats in the Senate altogether by putting forward a plan that would expire after 10 years, the approach they adopted when they reduced taxes under President George W.  Bush. They could also rely on a different set of estimates than those produced by the JCT if that agency's analysis is unfavorable to their plan.” 

The budget resolution passed earlier this year through a reconciliation process could give the GOP some leverage in the legislature. While it may miss on major reforms, the administration could push through several smaller tax reforms that could pave the way for the president’s infrastructure plan.  If Trump were serious about infrastructure, Republicans could look to Congressman Delaney’s plan and set a less ambitious goal than $1 trillion.

In regard to repealing Dodd-Frank, Republicans are having a much harder time than they had anticipated.  As noted, the intricate law has recently picked up an unlikely supporter base: Wall Street itself. The industries main newspaper has cautioned against repealing the law, and several key players have joined the Dodd-Frank chorus.  That won’t stop Republicans, however, from at least seeking to chip away at some parts of the law.  

This is just the beginning of what is going to be a drawn out process, with several wins and many losses.  The question is can the president pull a rabbit out of a hat and pass tax reform or will this administration be legislatively stillborn come August recess?  Money can buy many things and every administration  has a learning curve but it is already beginning run out of the one thing it keeps trying to buy: time.

Related Posts: Banking (Glass-Steagall) Act of 1933 . Dodd-Frank Act .
Hensarling's H2O Bill

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Tuesday, November 15, 2016

BLOG VIEWS | 290K–Most Viewed

This blog has passed 290,000 page views.

Thank you for reading.

The most-viewed posts in the last month are as follows:

TRUMP | Why Did He Run as a Republican?
Jul 25, 2016, 1 comment
DODD-FRANK | Maloney Asks Five Agencies for Data
Aug 30, 2016, 1 comment
ED BIZ | Manager-Sharing, Long Island, N.Y.
Jul 31, 2016, 1 comment
GUTENBERG | Aug. 24–Bible First Published
Aug 24, 2016
FOOD BIZ | Rhinebeck, Gigi Trattoria (Update June ...
Jun 16, 2016, 1 comment
SENIORS | Most Livable Cities
Aug 8, 2016, 1 comment
BLOG VIEWS | 260K – Top Posts
Jun 10, 2016, 1 comment
FOOD BIZ | Rhinebeck, The Local Restaurant (Update...
Jun 15, 2016,1 comment
SCAMS | Th IRS Is NOT Calling You!
Aug 25, 2016, 1 comment
TRUMP | Mr. T Goes to Washington (Updated Nov. 11,...
Nov 10, 2016,
1 comment

Monday, October 17, 2016

BLOG VIEWS | 280K – Top Posts for CityEconomist

The CityEconomist blogsite just passed 280,000 page views.

Thank you for reading.

Please comment!

Here are the most viewed posts during the last month and since the inception of this blog ten years ago, in 2006.

MOST VIEWED POSTS in Oct 2016
GOVT REVENUE | License Plate Auctions
Oct 9, 2016
CAMPAIGN$ | Dem Home Stretch for Senate–Heidi's Tips
Oct 13, 2016
DONALD TRUMP | Why Did He Run as a Republican?
Jul 25, 2016
2 comments
ED BIZ | Manager-Sharing, Long Island, N.Y.
Jul 31, 2016
GUTENBERG | Aug. 24–Bible First Published
Aug 24, 2016
BLOG VIEWS | 260K – Top Posts
Jun 10, 2016
FOOD BIZ | Rhinebeck, Gigi Trattoria (Update June ...
Jun 16, 2016
FOOD BIZ | Rhinebeck, The Local Restaurant (Update...
Jun 15, 2016
DODD-FRANK | Maloney Asks Five Agencies for Data
Aug 30, 2016
SENIORS | Most Livable Cities
Aug 8, 2016

Wednesday, October 14, 2015

BUBBLES | Which Candidate Best Understands Them?

Bernie Sanders wants to bring back Glass-Steagall; Hillary Clinton does not.
Pam and Russ Martens argue that Sen. Bernie Sanders showed in the debate on Tuesday the best appreciation of the causes of the 2008 financial meltdown, the risks remaining today. and what to do to regulate the financial markets.

The Martenses say that Hillary Clinton does not understand that Dodd-Frank gives power to the regulatory agencies to break up large banks.

They are impressed that Sanders opposed the 1999 teardown of the Glass portion of the 1933 Glass-Steagall Act, back when it happened. (The wall between commercial and investment banks was torn down, but the insurance of commercial-bank deposits proposed by Rep. Henry Steagall is still in place.)

Sanders wants to bring back the wall created by Senator Carter Glass (D-Va.). Hillary Clinton does not.

Although Sanders calls himself a Democratic Socialist and calls for revolution, what he is saying fits what the London Economist Magazine said in 1999. I pointed out the Economist position in Huffington Post in 2008.

Sunday, July 22, 2012

GUILD HALL | Hamptons Institute on U.S. Economy

Hamptons Institute at Guild Hall. L to R: Joe Nocera, Ken Miller, Cyrus
Amir-Mokri, Joseph Perella (iPhone photo by JT Marlin).
At Guild Hall in East Hampton this afternoon the Hamptons Institute presented an appraisal of the future of the U.S. economy. The Hamptons Institute is partnered with the Roosevelt Institute. The event, sponsored by the Tarr Family and the Chubb Group and its agent Dayton Ritz & Osborne, was billed as a bipartisan conversation. But the most far-reaching proposal I have heard for regulatory reform came not from the Democrats on the panel but from the sole Republican.

Joe Nocera, Op-Ed columnist for the New York Times served as moderator. He asked for views about Dodd-Frank. What else can be done to rein in Wall Street? Is the anger at Wall Street justified? Are U.S. banks are better off than European ones?

Ken Miller, President and CEO of Ken Miller Capital and a Democrat, was the most outspoken and progressive. He thinks Dodd-Frank is a step forward, and the Treasury has a good team in place, but Dodd-Frank won't solve the basic problem of over-leveraging. Wall Street firms raise risks as they seek higher returns through leverage. He thinks the culture of Wall Street must change - there is too much "short-termism". The problem for regulation is that it must be ubiquitous. Dodd-Frank addresses the symptoms, not the causes. On the issue of anger at Wall Street, he thinks that it is justified although many other players are to blame for the meltdown. He thinks the Board of Directors of Lehman should have been more vigilant. In his final comments, he said that China is facing some short-term problems but has a strong economic outlook. The U.S. problem he sees as one of timidity in solving problems because a small number of voters in swing states will decide the 2012 presidential election.

Cyrus Amir-Mokri,  Assistant Secretary for Financial Institutions at the U.S. Treasury, shocked everyone in the room (just kidding) by saying that he supported President Obama's policies and believed that Dodd-Frank was being implemented in valuable ways to institute stronger regulatory reform and bringing "shadow banking" into the "light of day". He said that even Republicans agreed that rules of the road are necessary for the financial sector and that the task of the Treasury and other regulators is to control the negative externalities that come from the risk-taking activities of Wall Street firms. Dodd-Frank does, he says, address the "Too Big to Fail" issue. Dodd-Frank will create clearer consequences for shareholders and for management - capital rules, liquidity rules, risk management principles, counterparty disclosure. What Washington is attempting to do is restore confidence in a system that had lost public confidence. The economy has not been performing as well as everyone has hoped, but job growth has been positive every month since the initial losses following on the Bush Administration.

Joseph Perella,  Chairman and CEO at Perella Weinberg Partners, was the designated Republican on the panel. He thinks we can't go back to Glass-Steagall because the economy has become more complex and Wall Street has moved from partnership to public ownership. He wonders whether regulation can work. He summarized the prevailing Too Big to Fail system succinctly:
It's like a Las Vegas Casino where the croupiers keep their winnings but the House takes the losses.
It's hard, he said, to regulate ambition. There must be a high price for failure, as there used to be. Shareholder activists are seeking to limit compensation when returns are low. He thinks President Obama has moved too far to the left (another surprise). In his summary he said that the economy was wiped out and it will take a long time to recuperate.

Comment on the Q&A. At the Question and Answer period, I pointed out that a one-time president of Guild Hall, William H. Woodin, was FDR's first Treasury Secretary, and I asked the panel why FDR got so much more done in his first 100 days than President Obama did. Joe Nocera responded that not all FDR's innovations were such a good idea, using as an example the Bank Holiday. But (as I did not respond, since there were others waiting to ask questions) most states already had taken bank holidays because the banks didn't have enough currency to pay all the customers. During the national Bank Holiday that was declared when FDR was inaugurated, Woodin had the Treasury's Bureau of Engraving and Printing run the presses overtime and he had $2 billion in bills delivered by trucks over the weekend, with movie cameras filming the printing and deliveries for the benefit of U.S. movie audiences. The Treasury also sent out examiners to determine the solvency of each bank, beginning with the money-center banks, the 1933 equivalent of recent stress tests. The Glass-Steagall Act of 1933 lasted nearly 70 years as the centerpiece of the financial system and the Steagall part (setting up deposit insurance and the FDIC) is still in place. Secretary Woodin (along of course with FDR) was a crucial cheerleader during the months in 1933 that Senator Carter Glass instituted his wall around the banking hen-house as a condition of the deposit insurance that was promoted by Rep. Henry B. Steagall. It took nearly 70 years for the foxes to find their way back into the banking hen-house, and less than five years more for this to bring down the global financial system.

As Joe Perella was leaving, I asked him if he had any idea how the Canadian regulators manage to control their big banks. He said:
It's very simple. The Canadian bank regulators are represented at the Board meetings of the banks.
Mr. Perella's approach to Too Big to Fail makes sense to me. Transparency and accountability in one stroke. This was my big takeaway from the seminar.

Further Comment: I don't recollect any reference either to Neil Barofsky or Gretchen Morgenson at the Hamptons Institute panel meeting. But this morning Morgenson wrote a devastating summary of Neil Barofsky's new book, Bailout (Free Press). Barofsky was the special inspector general for the Troubled Asset Relief Program (TARP). Here's one snippet on his experience:
Government officials, he says, eagerly served Wall Street interests at the public's expense, and regulators were captured by the very industry they were supposed to be regulating.
This story is not unfamiliar. But it is, as Morgenson says, "deeply depressing." Joe Nocera pointed out that it took the Pecora Committee time to stir up the Congress into the determination to reform the financial system as it did in 1933 - and I could add that it took six years for the Bankers' Panic of 1907 to translate into the creation of the Federal Reserve System in 1913. But our communication systems are much better than they were 80 and 100 years ago - we should not be taking so long. Dodd-Frank was not enough and is not being implemented fast enough.

I checked out the report that regulators are or have a right to send representatives to board meetings of  banks in Canada. From my followup research, the key is that they "have the right". It's an option. The Office of the Suprintendent of Financial Institutions routinely gets a copy of all board documents - the agenda, minutes and exhibits. Also, regulators send a representative to the board of the Canada Mortgage and Housing Corporation.

Friday, September 16, 2011

UBS MESS | 4 Reasons Glass-Steagall Rocks

Sept. 16, 2011—I'm reading about the arrest in London of Kweku Adoboli of the Swiss investment bank UBS at the Randolph Hotel in Oxford, overlooking Balliol College. Alice and I are here for the Oxford University Reunion Weekend—it's 49 years since I  matriculated.

Mr. Adoboli, the young UBS trader, made a $2 billion mistake, it seems. Using his Delta One trading system, he bought Swiss francs as a hedge when he meant to sell them. Before he realized his mistake, if we can believe this, the market ran away with his bet. Swiss francs fell in value. UBS took the hit for a couple billion. This exceeds Nick Leeson's $1.3 billion loss, which brought down Barings in 1995. It ranks third after Jerome Kerviel's $6 billion loss at Société Générale in 2008 and Yasuo Hamanaka's $2.6 billion loss at Sumitomo in 1996. All this from today's Independent, delivered to my door this morning.

For UBS, the timing is bad. It had just started to show a profit in 2010. So long as no one bails out UBS, the victims are (and should be, based on the published information so far) UBS employees and shareholders.

But for the just-issued Vickers Report, from Britain's Independent Commission on Banking chaired by Sir John Vickers, the timing couldn't have been better. It shows how risky the "casino" banks are, and how frail is their ability to control it.

The Vickers Report recommends reversing some of Britain's "Big Bang" deregulation of 1986 by "ringfencing" retail (commercial) banks with a separate board of directors and shareholder equity that is at least 10 percent of risk-weighted assets. The plan is for new controls to be in place by 2019.

A key element of the Vickers recommendations is that commercial banking and investment banking be separated. This was a central component of the Glass-Steagall Act of 1933, separating commercial banking from investment ("casino") banking.

An opponent of the Vickers recommendations, Martin Jacomb, protested against them in the September 14  Financial Times (p. 15), the day after the Vickers report was publicized:
Commentators speak loosely about going back to Glass-Steagall. But the Glass-Steagall Act was introduced to deal with a problem that no longer exists: the distribution of fraudulent securities to uninformed customers. It was abolished because customers wanted the services universal banks can provide.
Sorry, but that loose statement is just wrong. Let me count the ways:

1. Glass-Steagall was not abolished. The Steagall part, having to do with deposit insurance and insured-bank regulation, is still very much in force. What was eaten away over time was the fence around the banks and the FDIC's ability to contain the problem.


2. Distribution of fraudulent securities to uninformed customers is still a problem. Does anyone believe that the underfunded securities regulators will prevent any future Bernie Madoff from emerging, or any future misdescribed and toxic derivative?


3. Glass-Steagall was designed to prevent runs on banks. The three-part program of the Banking (Glass-Steagall) Act of 1933 was to keep the foxes of speculative banking (the "casino" bankers) out of the chicken-coop of commercial banking, to empower the Federal Depsoit Insurance Corporation to insure deposits, and to regulate insured banks on behalf of depositors and the federal insurance fund. It also keep insurance companies out and also created the Federal Open Market Committee, which still sets U.S. monetary policy. It has worked well, and for 75 years the FDIC took care of ailing commercial banks without massive external funding.


4. "Customers" did not demand the erosion of Glass-Steagall.  The legislative record of U.S. bank deregulation and subsequent actions of investment banks shows the ending of many Glass-Steagall protections  was driven by financial speculators seeking  access to the deep pockets of commercial banks and (via credit default swaps) insurance companies. There was no customer-driven yearning for "universal banking".

As the Economist said in 1999, the erosion of Glass-Steagall protections should have been accompanied by new regulations for investment banks. The United States Government unwittingly became a guarantor of  "casino" bankers - and insurance companies - without the limitations that came in 1933 with deposit insurance. The  failure of Lehman Brothers three years ago showed how perilously far into the commercial banking business investment banks had penetrated. The latest UBS fiasco shows the urgency of preventing a repeat of that situation, starting with implementation of Dodd-Frank.

Wednesday, September 14, 2011

Creating U.S. Jobs - Six Avenues

What are the real choices before Washington this fall?

The number one issue before the nation is economic recovery. Unemployment rates have been too high for too long. Here are a few ideas about what we can expect and hope for during the next few months:

1. Don't Depend on an Out-of-Ammo Fed. Federal Reserve Chairman Bernanke wants to appear to be doing everything he can. However, there is little more the Fed/FOMC can do to help the economy since December 16, 2008 when the Federal Funds rate was lowered to the Zero Bound. Quantitative Easing hasn't made much difference. How much can the Fed spend buying long-term Treasury bonds to lower long-term interest rates, even if it sells short-term Treasurys at the same time? How much difference does it make for the Fed to buy up long-term bonds if the Treasury is selling new ones at the next window?

2.  Implement Dodd-Frank to Help Address the Liquidity Trap. The economy would turn around if the Fed's easy-money policies led to more bank lending. But bankers are still worried about their balance sheets. Lax oversight by bank regulators has been replaced by close questioning. Bad loans are still not all recognized and new categories of potentially bad loans have opened up, e.g., the sovereign debt of the PIIGS countries, whose debts are freezing bank liquidity despite  of banks EU rescue programs. Speeding up implementation of Dodd-Frank financial reforms would improve confidence in and among U.S. banks.

3. Pass the President's Second Jobs Program. Another $450 billion for job creation may not be sufficient. However, it is necessary and a CNN poll and others show, by wide margin, that the U.S. public wants this program implemented.

4. Encourage Entrepreneurship. Creating jobs is not just about getting existing firms to hire more workers. It's about encouraging people to start up new businesses. Incubators help. Entrepreneurship can be taught - it's like a language. Governments at all levels can do big and small things to make it easier for people to create businesses.

5. Modify Fuel Prices to Encourage Green Jobs. Federal subsidies of alternative energy and energy efficiency didn't work as well as hoped because prices for fossil fuels don't reflect their full costs (and also because many states and localities did not have staff ready in 2009 to respond to stimulus programs offering money for green jobs). Subsidies for fossil fuels need to be ended and a tax on gasoline or carbon should be imposed. Tom Friedman had a good op-ed on this topic today ("Is It Weird Enough Yet?"). The last Congress rejected cap-and-trade and a carbon tax, but the pressure to find money to pay for Medicare and Social Security, as well as more evidence on global warming, might bring these proposals back to debate and action.

6. Most of All, Reform the Tax Code to Encourage Job Creation. If U.S. payroll tax rates are lowered significantly, as President Obama has suggested, this will have a dual benefit, encouraging employers to hire and putting money in the hands of middle-class consumers, who will spend it. This could be paid for by raising the top tax for those earning, say, $500,000 or more, and gradually raising the cap on the payroll tax (as Sen. Bernie Sanders, I-VT, has proposed). This would return the income tax to a semblance of progressivity and would tax those best able to bear the burden and least likely to spend new money.

George Magnus in the Financial Times describes the world's predicament as a "once-in-a-generation crisis of capitalism", bequeathed by the excesses of the 1980s-2008 period. The stakes couldn't be higher.