The Appropriations and Budget Process for Multilateral

Cambridge University Press 978-1-107-02804-3 - Money and Banks in the American Political System Kathryn C. Lavelle Index More information

Index

ABA.SeeAmerican Bankers and regulation of derivatives, 127 Association American Enterprise Institute, 23 adjustable-rate mortgages, 54, 180 American International Group (AIG), 193, 255 Administrative Procedure Act, 124, 150 and bailout, 196–197, 199 advocacy coalition, 10 failure of, 195–196 agencies of the federal government, 3, 25, 109. American political culture, 1–2, 31, 249 See also executive branch agencies; by aversion to concentration of economic individual agency power and political authority, 6, 13, and financial crisis of 2008, 188, 217 28–29, 40, 151–152 and policy process, 19–20, 110 defined, 4–5 agency capture, 8, 31, 159, 249.Seealso and institutional arrangement, 187 revolving door; lobbying; lobbyists and opposition to banks, 54–55 defined, 14–15, 130–133 American revolution, 40, 48 and relief for individuals, 206 American Securitization Forum, 22 agency debt, 140–141, 243, 255 Americans for Financial Reform, 260 AIG.SeeAmerican International Group America’s Community Bankers, 133 Aldrich, Nelson, 44, 45 appropriations bills, 90 Aldrich Plan, 45 appropriations committees, 92 Aldrich-Vreeland Act, 44, 45 ARMs.Seeadjustable-rate mortgages Allison’s models of the bureaucratic process, asset-backed commercial paper, 78 4–5, 6, 15.Seealsobureaucratic auto industry, 201 politics paradigm bailouts, 188, 202 and action channels, 83–85 success in lobbying Congress, 216 and actions across time frames, 109 and bargaining among agencies, 15, 34 Bachus, Spencer, 263 and financial crisis of 2008, 188, 253 bailouts, 96, 188.SeealsoBear Stearns; Alt-A mortgages, 72–73 American International Group (AIG); American Bankers Association, 22, 25 CIT bailout; GMAC; Citigroup; Bank and Congress, 157 of America; Troubled Asset Relief and creation of the Federal Reserve, 44 Program; auto industry and merger with thrift trade association, after-effects of, 254, 265 133 international, 225, 226, 227–228 political action committee, 24 political accountability for, 196–197, 199

293

© in this web service Cambridge University Press www.cambridge.org Cambridge University Press 978-1-107-02804-3 - Money and Banks in the American Political System Kathryn C. Lavelle Index More information

294 Index

bailouts (cont.) Boeing, 21 and problems with individual borrowers, Born, Brooksley, 126–130 206 Brady, Kevin, 160 size of, 204–205, 209, 254, 255 Brady, Nicholas, 117–118 Bair, Sheila, 120, 215, 217, 256 branch banking, 26, 37, 69–70, 245 and reforms, 262 Bretton Woods Institutions, 220, 224, 241.See Baker, James, 116–117 also International Monetary Fund; Bank for International Settlements, 233–234, World Bank 240 Brown Brothers and Company, 38 Banking Act of 1933, 52, 99 Bryan, William Jennings, 43 Banking Act of 1935, 48 budget process.SeeCongress, budgeting banking industry, 26.Seealsoderegulation of system in; appropriations bills banking industry; shadow banking budget resolution, 90 industry bureaucratic politics paradigm, 29–30, 50.See changes after 2008, 68, 82–254 also Allison’s models of the changes in 1970s, 50 bureaucratic process in France, 27 and competing mandates of Fed, 136, 160 in Germany, 27–28 and components of the US government, 83, in Japan, 27–28 109 niches in, 56, 57, 67, 74, 104–105 and competition among agencies, 251 blurring among niches, 69 Treasury-State relationship, 244 and regulatory process, 110, 132–133 Dodd-Frank passage, 251–254 structure of, 9, 26–27, 254, 259 and financial crisis of 2008, 188, 190–191, banking operations, 1, 8–9 194, 213 as an intermediary, 58 and international standards, 234, 236–238 and creation of money, 138 and rulemaking, 125 Bank of America, 24, 131, 183, 193, 199 Bush, George H. W., 64, 117–118 and bailout, 200 Bush, (George H. W.) administration, 102, banks, 68, 69, 73 117–118 balance sheet of, 58–59, 82 Bush, George W., 66, 118–119, 178, 241 and closure, 120 and financial crisis, 197, 210 bank supervision, 142–145 Bush (George W.) administration, 112, charges for examination, 145–146, 157 118–119 and conflict of interest, 154 and financial crisis, 189, 194, 199, 209, 217 and regulatory consolidation, 148 business associations, 21–22 Barclays, 193, 199 in Germany and Japan, 27 Basel Committee, 2, 78, 220, 232–240 business cycle, 163, 172–173, 187.Seealso Basel I Agreement, 220, 233–235, 237 political business cycle Basel II Agreement, 220, 235–240 defined, 166 Basel III Agreement, 25, 220, 238–240 and financial politics, 267 Bear Stearns, 192, 199, 238 of future, 252 Bennett, Robert, 199 overview, 165–166 Bentsen, Lloyd, 117–118 and presidential action, 177 Bernanke, Ben, 95, 118–119, 150, 172, 213 business lobbies.Seelobbying; lobbyists and actions in financial crisis, 190–191, 196–197, 204, 217 CAMELS rating system, 143–144 as Fed Chair, 160, 202 campaign contributions, 5, 8–9, 20, 24–25 and reforms, 262, 266 and banking committees, 94 and swaps, 215 and end of Glass-Steagall, 102 BIS.SeeBank for International Settlements and policy process, 99, 249, 251, 267–268 Black Tuesday, 47 capital adequacy standards, 234, 235–236 Bland-Allison Act, 42 Carter, Jimmy, 53, 116 Blankfein, Lloyd, 190–191 CDOs.Seecollateralized debt obligations Blunt, Roy, 198 CDSs.Seecredit default swaps

Index 295

CEA.SeeCouncil of Economic Advisers and Glass-Steagall, 99–100, 259 CEBS.SeeCommittee of European Banking and Volcker Rule, 212 Supervisors commercial paper, 78, 81 central bank.SeealsoFederal Reserve System; and structured finance, 77–78 European Central Bank Commercial Paper Funding Facility, 81, 82 American lack of, 14, 55 commercial paper markets, 101 Federal Reserve as, 48, 136, 137–138, 141, and Federal Reserve support of, 140, 199. 151 See also Commercial Paper Funding shift away from fiscal policy, 168, 186 Facility and finance ministry, 113 freeze in financial crisis, 192, 193–194 and role in crisis, 170–171 Committee of European Banking Supervisors, and role in monetarist thought, 167 232 certificates of deposit, 50 Commodity Exchange Act, 123, 125 CFPB.SeeConsumer Financial Protection Commodity Futures Modernization Act, Bureau 129–130 CFTC.SeeCommodity Futures Trading Commodity Futures Trading Commission, 17, Commission 123 checking accounts, 44, 53, 73 and changing role after Dodd-Frank, 253, history of, 41, 52 254, 259 checks and balances, 25 and congressional oversight, 98 Cheney, Dick, 197 and regulation of derivatives, 125–130, China, 242, 243–244.SeealsoStrategic 214–215 Economic Dialogue and regulation of swaps, 214 CIT bailout, 202–203 and relations among executive branch Citibank, 23, 24, 78, 225 agencies, 110, 122–123 Citigroup, 131, 190–191, 199, 237, 242 and role in policy process, 84 and bailout, 200 Community Reinvestment Act, 51, 54, 71, merger with Travelers, 103–104 104 and SEC lawsuit, 18–19 criticism of, 71, 125 Civil War, 34, 40, 43, 141 passage of, 51–52 aftermath of, 44 Comptroller of the Currency.SeeOffice of the and panic of 1861, 44 Comptroller of the Currency in retrospect, 187 conduits, 76, 81 Clearing House, 22, 45 Congress, 12.Seealsolegislation Clinton administration, 102, 117–118, 126, as branch of government that makes laws, 185–186 87, 150, 151 Clinton, Bill, 95, 102, 103, 117, 118, 173 budgeting system in, 87, 89–93, 116 and Commodity Futures Modernization and business cycle, 165 Act, 123 and Dodd-Frank, 215–216 and rulemaking process, 125 and end of Glass-Steagall, 103–104 Clinton, Hillary, 244 and geographic representation, 106 CMOs.Seecollateralized mortgage obligations and GSEs, 255 Cold War, 34, 224, 242 and international commitments, 242 collateralized debt obligations, 78, 180, 182, and role in policy process, 17, 19, 20, 28, 195–196 83, 105 collateralized mortgage obligations, 76, 77 and elections, 250 created, 70 and Federal Reserve, 135, 158–159, 168, commercial banks, 56 173–174, 186 changing charters, 146, 148 and regulators, 85–87, 133 competition with shadow banking system, and US Constitution, 13–14 74, 101 Congressional Budget and Impoundment and credit cards, 60 Control Act, 92 European, 229 Congressional Budget Office, 90, 200 and Federal Reserve System, 135, 152 congressional calendar, 188, 206

296 Index

congressional committees, 8, 89.Seealsoby Department of Housing and Urban individual committees Development, 65, 93 budget and taxation, 89–90, 92–93 affordable housing goals in, 72 jurisdiction, 89, 105–106, 253 deposit insurance, 24, 74, 139, 148–149, 215. overview, 86–87 See also Federal Deposit Insurance and regulation of derivatives, 127–128 Corporation and relations with presidential benefits of, 260 administrations, 108, 112 drawbacks of, 101, 119 and relations with the Federal Reserve, 96, depository banking, 61 98, 106–107 Depository Institutions Deregulation and congressional districts, 27 Monetary Control Act (DIDMCA), 51, Consumer Bankers Association, 22, 216 53–54, 69, 166 Consumer Financial Protection Bureau, 18, passed, 53 253, 254 depression, 166.SeealsoGreat Depression and auto dealerships, 216 deregulation of banking industry, 57, 181, created, 150 184.SeealsoDepository Institutions future of, 262–265 Deregulation and Monetary Control proposed, 205, 212 Act; Garn-St. Germain Depository continuing resolution, 92 Institutions Act; Financial Services Cordray, Richard, 263 Modernization Act core banks, 236, 238 (Gramm-Leach-Bliley) Corrigan, E. Gerald, 79 and consumers, 73 Council of Economic Advisers, 88, 111 and international economy, 220, 245 counterparty, 80, 121, 127, 129, 195–196 derivatives, 74, 75.Seealsoswaps; credit and possible regulation associated with, 257 default swaps Countrywide Financial, 115, 133, 198, 238 case study of regulatory process, 125–130 Cox, Christopher, 197 future of, 257–259 CP.Seecommercial paper and lobbying, 21 CRA.SeeCommunity Reinvestment Act origins of, 74, 75 credit cards, 60, 73, 212 regulation of, 79–81, 123, 129–130, credit default swaps, 75, 76, 79, 180, 214–215 195–196.Seealsoderivatives; swaps and Dodd-Frank, 129–130, 215 future of, 257–259 Deutsche Bank, 242 as unregulated insurance, 79, 82 Diamond, Bob, 193 and Volcker Rule proposal, 212 DIDMCA.SeeDepository Institutions credit rating agencies, 181–182.Seealso Deregulation and Monetary Control Moody’s; Standard and Poors Act and Basel Agreements, 235, 238–239 Dimon, Jamie, 153–154, 190–191, credit rationing, 53 262 credit unions, 53, 56, 61, 68 discount window, 139–140, 204, 213 crisis, 2, 4, 8, 10–11, 15, 29–30.Seealso disintermediation of credit, 69 sovereign debt crises; international “doctrine of choice,” 141–142, 145, financial crises; financial crisis of 2008 148 of 1970s, 233–234 Dodd, Christopher, 190–191, 199, and agencies of government, 13 213–214 and banks, 21, 26 Dodd-Frank Act.SeeWall Street Reform and defined, 163 Consumer Protection Act role in policy process, 100, 170–268 Dorgan, Byron, 258 Currency Act, 40 dot com bubble, 177 dual banking system, 53.Seealso“doctrine of d’Amato, Al, 103 choice” deficits, 172–173, 185 creation of, 43–44 deflation, 170 and Federal Reserve’s role in, 141, 149, 160 Department of Agriculture, 123 protection of, 157

Index 297

dual mandate of Federal Reserve, 137–138, and examination of banks, 143, 144 147, 154, 160.SeealsoFull and governing authority, 165, 253 Employment and Balanced Growth Act and international economy, 237–238 and lack of coordination with Congress, and protection of insurance fund, 160, 217, 173 234–235 Dudley, William, 153, 154 and regulatory consolidation, 148–149 and relations with executive branch, 110, EFSF.SeeEuropean Financial Stability Facility 119–121 Eisenhower administration, 50 seats on board, 264 Emergency Economic Stabilization Act, 189, and shadow banking system, 74 194 federal funds rate, 139–140, 170 Emerging Markets Traders Association, 22 Federal Home Loan Bank Board, 62, 93, 114, Employment Act of 1946, 88–89, 93, 111 133 EOP.SeeExecutive Office of the President Federal Home Loan Banks, 62 euro, 227, 228, 230 Federal Home Loan Bank system, 12, 62, 97 Eurodollar deposits, 50 Federal Home Loan Mortgage Association European Banking Authority, 232 (Freddie Mac).Seealso European Central Bank, 227, 228, 230–232 government-sponsored enterprises European Commission, 230 and collateralized mortgage obligations, 70 European Financial Stability Facility, 230 created, 63 European Monetary Union, 220, 226–232 and mortgage-backed securities, 64 European Union, 227, 228, 230–231, 232–233 Federal Housing Administration, 50, 193, 255 and Basel II, 238 and Ginnie Mae, 63 eurozone, 219, 220, 226–232, 254 Federal Housing Finance Agency, 193, 253 examination of banks.Seebank supervision Federal National Mortgage Association exchange rate policy, 113–114, 223, 244 (Fannie Mae), 62.Seealso and China, 244 government-sponsored enterprises Exchange Stabilization Fund, 113 created, 62 executive branch agencies, 83.Seealso and HAMP, 209 agencies of the US government and mortgage-backed securities, 64 and centralization over policy development, Federal Open Market Committee, 48 109–110 calls for reform of, 154–155, 160 Executive Office of the President, 110, 111, and confrontation with Congress, 95–96 112–113 and Fed Chair, 160 executive orders, 108 and implementation of policy, 169, 170 Export-Import Bank, 93 and interest groups, 158 within structure of Fed, 135–136, 138–139, Fair Housing Act, 71 152 Fannie Mae.SeeFederal National Mortgage Federal Reserve Act, 141, 192 Association Federal Reserve Bank of New York, 46, 48, FDIC.SeeFederal Deposit Insurance 79.SeealsoFederal Reserve regional Corporation Reserve Banks “Fed-bashing,” 147, 160 actions during financial crisis, 81, 159, Federal Advisory Council, 159 195–196, 213–214 federal budget process.SeeCongress, and derivatives regulation, 79–81, 129 budgeting system in; appropriations governance of, 153–214 bills; appropriations committees history of, 151 Federal Deposit Insurance Corporation, 8, 48, and open market operations, 139 68, 93 within structure of Fed, 135–136, 138–139 and actions in 2008 financial crisis, Federal Reserve Board of Governors, 14 190–191, 200 chair, 90, 115–119 and Banking Act of 1933, 47, 99, 100 early history of, 46–47 and deposit insurance, 139, 198 and interest groups, 159 and Dodd-Frank reforms, 260–261 and proposals to change, 213–214

298 Index

Federal Reserve Board of Governors (cont.) and conduct of regulatory policy, and regional Reserve Banks, 151–153, 141–149, 151 155 and rulemaking, 149–151 and relations with Congress, 98, 173–174 structure of, 135–136, 151–152 and role in policy process, 17, 156–157 and Consumer Financial Protection as independent of politics, 155–156 Bureau, 262–265 Volcker as Chair, 53 and US Constitution, 13–14 within structure of Fed, 135–136 Federal Savings and Loan Insurance Federal Reserve regional Reserve Banks, 14. Corporation, 93 See also Federal Reserve Bank of New FHLB.SeeFederal Home Loan Bank system York FICO score, 72 and Congress, 94–96, 156–157 finance, 3 early history of, 46–47 Financial Accounting Standards Board, 122 and financial crisis, 213 financial crisis of 2008, 57, 118–119, within structure of Fed, 135–136, 138–139, 184 151–155, 159 and actions of Federal Reserve, 140, Federal Reserve System, 6, 8, 12 193–196 accord with Treasury, 49–50 and attempts to reform the Federal Reserve, and actions in financial crisis, 189, 190–191, 95–96 192–193, 197, 199–201 and Basel Agreements, 238–240 GMAC, 202–203 and confidence in system, 205–211 preempts legislation, 213 and European banks, 27–28 size of loans, 204–205 and international context, 226 and agency capture, 132 and International Monetary Fund, 226 banks leave, 53 overview, 163, 164, 187, 189 as central bank, 46, 135 and policy process, 1 changing role in macroeconomic role in policy process, 5, 17, 250–251 management, 163, 164, 168, 186, 253 run-up to, 186, 187, 191–193 and Consumer Financial Protection Bureau, and subsequent regulation, 144, 150, 212 250–251 creation of, 35, 44, 45–46, 55 future of, 252–253 and Dodd-Frank reforms, 254, 260–262 and thifts, 115 early history of, 47, 48 financial engineering, 74, 76–77, 82 and end of Glass-Steagall, 101–102, financial innovation, 163, 179, 182–183.See 103–104 also collateralized mortgage and independence from politics, 49, 50, obligations; special purpose vehicles; 136–137, 155–159 conduits; shadow banking industry and international economy, 224, 243 checking accounts, 41, 44, 69, 73 and Basel Committee at BIS, 233–234, swaps, 75 236, 237–238, 239–240 financial intermediaries, 56, 69, 221.Seealso comparison with European Central Bank, banks; depository banking; shadow 228 banking industry national political base of, 53 deposit-taking, 57, 81–82 and oversight by congressional committees, Financial Sector Assessment Program, 239 93–96, 98, 106–107 Financial Services Forum, 22 and relations within the executive branch, financial services industry.Seebanking 110, 112, 113, 115–116 industry; shadow banking industry reorganized in Great Depression, 48–49 Financial Services Modernization Act and role in policy process, 14, 17–18, 30, (Gramm-Leach-Bliley), 17–18, 54, 99, 83 166 and conduct of monetary policy, effects of, 259 137–141.SeealsoFederal Open passage of, 102–105 Market Committee; discount window; and repeal of Glass-Steagall, 87, 145 interest rates; federal funds rate; Financial Stability Oversight Council, 18, 253, monetary policy 263

Index 299

First Bank of the United States, 33, 34, 35–36, actions during financial crisis, 199, 55, 184 213–214, 217, 238 fiscal policy, 9 becomes a public firm, 100 European, 227 and payment on AIG contracts, 196 and grassroots mobilization, 267 gold reserves, 46, 223 international context of, 219 gold standard, 42, 171, 222 overview, 87–88, 93–94 Gonzalez, Henry, 80, 95–96 and presidential administrations, 112 Government National Mortgage Association and shift away from using to Fed, 168, 186 (Ginnie Mae), 64 Fisher, Richard, 262 created, 63 floating rate mortages, 54 government-sponsored enterprises, 12, 32, FOMC.SeeFederal Open Market Committee 63 Ford administration, 117, 118, 122 activities change, 63–65 401(K) plans, 100–101, 132, 195, 208 and affordable housing mandates, 65–66 France, 27, 227, 229–230 Chinese purchase debt of, 243 Frank, Barney, 118–119, 190–191, 196, 213, concentration of risk in, 72–73 251 and congressional committees, 93 and Fed reforms, 155, 160 and conservatorship, 73, 82, 118–119, 193, Franklin National of New York, 149 238 Freddie Mac.SeeFederal Home Loan during financial crisis, 194 Mortgage Association as “too big to fail,” 261–262 Friedman, Milton, 167–172, 226 evaluations of, 67 Friends of Traditional Banking, 25 future of, 252, 254–257 FSAP.SeeFinancial Sector Assessment operations of, 63–64 Program regulation of, 65, 66–67 FSOC.SeeFinancial Stability Oversight scandals in, 65 Council and subprime mortgage market, 66, 180 Fuld, Richard, 153, 193 Gramm-Leach-Bliley Act.SeeFinancial Full Employment and Balanced Growth Act Services Modernization Act (Humphrey-Hawkins), 93–94 Gramm, Phil, 102, 107, 184 Grassley, Charles, 214 GAAP.SeeGenerally Accepted Accounting grassroots movements, 250, 265–267 Principles Great Depression, 47 Garn-St. Germain Depository Institutions Act, erosion of reforms after, 50, 52 54, 166 and Federal Reserve System, 48, 171–172 passage, 53–54 and individuals, 62 Geithner, Timothy, 190–191, 213, 215, 244 and international economy, 220 and financial crisis of 2008, 193, 195–196, prior to, 61 202, 217 reforms associated with, 48–49, 62, 99–100, at New York Fed, 213 121 and reforms, 259 and FDIC, 139, 148 Generally Accepted Accounting Principles, 122 and SEC, 121–122 Gensler, Gary, 258 stock market collapse, 47 Germany, 27–29, 227, 230–232 “great moderation,” 177–178 Ginnie Mae.SeeGovernment National Greece, 229–232 Mortgage Association greenbacks, 40, 41, 42, 114 Glass, Carter, 45, 98 Greenspan, Alan, 95–96 Glass-Steagall, 17, 87 and derivatives regulation, 126–130 passed, 47 as Fed Chair, 150–151, 153, 160, 173, repeal of, 54, 99–105 183–185 and spirit in Volcker Rule, 212, 259 and Glass-Steagall, 101–102, 103, 104 GMAC, 183, 201–203 and relations with Treasury, 113–114, gold, 40–221, 224.Seealsospecie 117–118, 185 Goldman Sachs, 118–119, 131, 132, 153, and revolving door, 130 190–191 Group of 8 (G8), 220, 240–242

300 Index

Group of 7 (G7), 240–242 Humphrey-Hawkins.SeeFull Employment Group of 30 (G30), 80–81 and Balanced Growth Act Group of 20 (G20), 213, 220, 240, 242, 244 GSEs.Seegovernment-sponsored enterprises IASB.SeeInternational Accounting Standards Board Hamilton, Alexander, 35 IBRD.SeeInternational Bank for HAMP.SeeHome Affordable Modification Reconstruction and Development Program IMF.SeeInternational Monetary Fund Harkin, Tom, 214–215 Immelt, Jeffrey, 153 hedge funds, 128, 159, 192, 206, 208, 253 Independent Community Bankers of America, and credit default swaps, 258 24, 158 and Volcker Rule, 259–261 Independent Treasury, 38 Heimann, John, 130–131 Individual Retirement Account, 132 Helping Families Save Their Homes Act, 209 industrialization, 34 Heritage Foundation, 23 IndyMac, 133, 193, 238 HOEPA.SeeHome Ownership and Equity inflation Protection Act causes of, 169, 170 Home Affordable Modification Program, 206, and international economy, 224–225, 209 227 Home Loan Bank Act, 62 management of, 50, 138–141, 158 home ownership political effects of, 41–42, 49–50, 52–54, and connection to American Dream, 59–60, 155–156 61–62, 65 of the 1970s, 50, 53, 100–101, 178 Home Ownership and Equity Protection Act, and Volcker at Fed, 116 150 innovation in financial products.Seefinancial Home Owners’ Loan Corporation, 50 innovation Hoover, Herbert, 61–62 institutions House Banking Committee, 80 arrangement of, 8, 9, 249 and Federal Reserve advice, 157 European, 229 House Committee on Agriculture, 98, 106 importance of, 11–12 House Committee on Financial Services, 93, international, 219–220, 227–228, 244–245, 94–96, 98, 118–119 250 and Basel hearings, 239 interest groups, 20–21 and Dodd-Frank, 213 and Federal Reserve, 157–159 and Republican majority, 263 operation of, 19–24, 29, 130–133, 249–250 House Committee on Labor and Education, 98 and unmatched resources, 250–251 House Committee on Ways and Means, 92 participation of, 25, 267–268 House of Representatives, 25, 27, 45, 86, interest rates 87 controls on, 52–53, 101 and Republican majority, 263 following recession of 2001, 71 housing and international economy, 223, 224–225 as a problem for banks, 59 and political business cycle, 174–175 and financial crisis, 191–192, 193, 201 and role in money supply, 139, 140–141 future of, 254, 256 and Volcker, 116, 173 importance in politics, 106 internal ratings-based approach, 235, prices, 179 238 Housing and Economic Recovery Act, 193 Internal Revenue Service, 135 Housing and Urban Development.See International Accounting Standards Board, Department of Housing and Urban 122 Development International Bank for Reconstruction and housing bubble, 182–183, 184, 195, 255 Development, 222 Hoyer, Steny, 198 international financial crises, 226, 245.See HUD.SeeDepartment of Housing and Urban also crisis; financial crisis of 2008; Development sovereign debt crises

Index 301

International Monetary Fund, 2, 220, 222–232 Lewis, Kenneth, 193 and BIS, 232–233, 239 Lincoln, Blanche, 214–215 and Greek crisis, 229–230, 232 lobbying, 5, 9, 20, 21 international monetary system, 219, 220–221, and Federal Reserve, 156–158 222–224 and GSEs, 65 International Swaps and Derivatives and policy process, 99 Association, 81 restrictions on, 131 interstate banking, 69 lobbyists, 23 investment banking, 61 activities of, 19, 20, 131–132, 267–268 and Glass-Steagall, 99–100 and financial crisis of 2008, 190–191 Investment Company Act, 124 Long Term Capital Management, 128–130, IRA.SeeIndividual Retirement Account 159 IRB.Seeinternal ratings-based approach LTCM.SeeLong Term Capital Management iron triangles, 10, 11, 191 “mark to market,” 78 defined, 10 ISDA.SeeInternational Swaps and Derivatives MBS.Seemortgage-backed securities Association McCulloch, Hugh, 42 McDonough, William, 129 Japan, 27–29, 243 Merrill Lynch, 242 Jefferson, Thomas, 36 monetarism, 6, 167, 169 Johnson administration, 224 and bureaucatic movement to Fed, 183–186 Joint Economic Committee, 88 and movement to Fed, 166, 168, 186 J.P. Morgan Monetary Control Act.SeeDepository and derivatives regulation, 79–80 Institutions Deregulation and Monetary and proposals to end Glass-Steagall Control Act (DIDMCA) distinction, 101 monetary policy, 9, 172 J.P. Morgan and Company, 38, 100, 221 and conduct of by Federal Reserve System, JPMorgan Chase, 24, 131, 153–154, 237, 242 137–141, 154–155, 156, 169–178.See and Dodd-Frank reforms, 262 also Federal Open Market Committee; and financial crisis, 190–191, 192, 198 Federal Reserve System judicial branch of government and confrontations with Congress, 94–96, and role in policy process, 18–19, 20, 264 98 European, 227 Kemp, Jack, 184 and executive branch agencies, 109 Keynesian theory, 89, 166, 167, 172–173 and interest groups, 158–160, 267 Keynes, John Maynard, 47 international context of, 219, 224 Korean War, 49 oversight by Congress, 106–107 and shift to Fed, 186 Latin American defaults, 102 overview, 87, 93–94, 173 Lazard Freres, 38 monetary union, 227–228 Leach, Jim, 102, 103 money, 2–3 legislation, 27, 99.Seealsoby act of Congress money multiplier, 58, 138 and anti-predatory lending, 150 in reverse, 140 and change, 250, 253 money trust, 39, 40, 45 Dodd-Frank passage, 214, 251, 252 Moody’s, 74, 181–182.Seealsocredit rating for TARP program, 197–199, 206.Seealso agencies Troubled Asset Relief Program moral hazard, 226, 257 gatekeepers or veto players in, 105 Morgan, Jack, 47 and regulatory consolidation, 148 Morgan Stanley, 100, 131, 199, 217, 242 Lehman Brothers, 153, 193, 199, 238, 252 and actions during financial crisis, 238 failure of, 194–196 mortgage-backed securities, 77, 78 lender of last resort, 170–171, 224 created, 64 Levin, Carl, 260 and quantitative easing, 140–141 Levitt, Arthur, 126, 127–128 and Volcker Rule proposed, 212

302 Index

Mortgage Bankers Association, 22 non-core banks, 236–237, 238 mortgage market, 253–254 NOW accounts.SeeNegotiated Order of expansion of, 70, 82 Withdrawal (NOW) accounts intervention of federal government into, NSC.SeeNational Security Council 50–51, 256–257 mortgages, 57.Seealso“underwater” Obama administration, 96, 112, 123, 189, mortgages; Alt-A mortgages; 190–191 adjustable-rate mortgages; floating rate and financial reforms, 205, 209, 210, 258, mortages 262 as a problem for banks, 61 Obama, Barack, 110, 241, 242 defaults, 140 elected, 199, 201, 216 financing of, 57 and financial reforms, 263–264, 266 fixed-rate, 60 and help for families, 209 higher-risk groups of people, 57 stimulus package, 265 and international standards, 234, 235 OCC.SeeOffice of the Comptroller of the securitization of, 180 Currency Munger, Charles, 258 Occupy movement, 265–267 Occupy Wall Street.SeeOccupy movement National Association for Business Economics, off-balance sheet vehicles, 78, 82 23 Office of Federal Housing Enterprise National Association of Securities Dealers, 121 Oversight, 65, 179 National Bank Act, 40, 43, 102 Office of Management and Budget, 89, 90, passage of, 38 110, 112–113 national banking system, 14.Seealsodual Office of the Comptroller of the Currency, 6, banking system 93 creation of, 40, 41 attempts to reform, 103 national banks, 41, 42 and bank closure, 120 and dual banking system, 142–143, 148 creation of, 40, 114 and Office of the Comptroller of the history of, 46 Currency, 109, 114 and role in policy process, 83–84 National Credit Union Administration, 120, after passage of Dodd-Frank, 253 253 and role in regulatory policy, 17–144, 160 National Credit Union Share Insurance Fund, and consolidation of regulators, 148–149 120 and credit rating agencies, 182 National Economic Council, 111, 112–113, and international coordination, 234–235, 115–116, 185 237–238 National Monetary Commission, 44, 45 Office of Thrift Supervision National Security Council, 112–113 closed, 18, 132–133, 148, 165, 218 NCUA.SeeNational Credit Union after Dodd-Frank, 253 Administration and seats on board changed, 264 NEC.SeeNational Economic Council created, 114–115 Negotiated Order of Withdrawal (NOW) seizes Washington Mutual, 198 accounts, 69 and thrift closures, 120 New Deal, 50, 111 OFHEO.SeeOffice of Federal Housing consequences of, 57 Enterprise Oversight and international economy, 221–222 oil industry, 224–225 unravelling of, 69 OMB.SeeOffice of Management and Budget New York, 38, 40 O’Neill, Paul, 117–118 as financial capital, 35, 46, 220 “originate to distribute” business model, 72 New York Fed.SeeFederal Reserve Bank of OTS.SeeOffice of Thrift Supervision New York Owen, Robert, 45 New York Stock Exchange, 100 NINJA loans, 182 PACs.Seepolitical action committees Nixon administration, 224 Pandit, Vikram, 190–191

Index 303

“parable of the thermostat,” 170 and federal bureaucracy, 111–113 parliamentary system of government, 28 and policymaking process, 109, 240–244 Parsons, Richard, 190–191 presidential appointments, 108, 118, 119, 121 Paulson, Henry, 118–119, 190, 191, 193 presidential system of government, 28 and actions during financial crisis, 195–196, Proctor and Gamble lawsuit, 126 197 proprietary trading, 212, 253, 259–260 and revolving door, 132 prudential regulation, 143 and Strategic Economic Dialogue, 243, 244 Pujo Commitee, 40 payment system, 58, 135–136 Pecora Commission, 47 quantitative easing, 140–141, 168, 186 Penn Central, 140 pluralist system of group representation, rating agencies.Seecredit rating agencies 19–20, 250.Seealsointerest groups Rattner, Steven, 190, 191 PNC, 145 Reagan administration, 116–117, 173 policy, 9.Seealsofiscal policy; monetary Reagan, Ronald, 88, 110, 111, 116, policy; regulatory policy; exchange rate 117–118 policy recession, 166–167, 173, 184 policy monopolies, 10 of 2001, 177–179, 180.Seealso“great policy process moderation” as a victim of its own success, 249–250 redlining, 51 and financial crisis of 2008, 188, 189, Reed, John, 103 191–192, 252–253 Regan, Donald, 116–117 role of elites in, 10–11 regional Reserve Banks.SeeFederal Reserve and summit meetings, 240, 244 regional Reserve Banks policy subsystem, 11 Regulation Q, 52, 53, 68, 69 and financial crisis, 191–192 Regulation T, 129 policy whirlpools, 10 regulator shopping, 7, 115 political action committees, 24–25.Seealso regulatory arbitrage, 30.Seealsoregulatory superPAC fragmentation and GSEs, 65 defined, 7 political business cycle, 173–177 and opportunities in international political parties, 86, 95, 105, 106 environment, 164, 245 appear, 33, 55 regulatory fragmentation, 7–8, 104–105, 144, and FDIC appointments, 119 267 and Federal Reserve, 147, 160 and rulemaking, 125 and GSEs’ popularity with, 66–67 regulatory framework, 6 and policy process, 115, 118, 267 regulatory policy, 9, 17–250.Seealso and political business cycle, 175–176 prudential regulation andTARPvote,197–198, 206 and competing mandates of Fed, 137–138 presidency, 12 and Congress, 98, 99 and Allison’s models, 83 and executive branch agencies, 109, and US Constitution, 13–14 113–114 President, 17, 110 and interest groups, 130–133, 158–159, and business cycle, 165 267 and Federal Deposit Insurance Corporation, international context of, 219 119 problems of consolidating regulators, overview, 108, 110–111 148–149, 205 and role in the policy process, 17, 19–20, Reigle-Neal Interstate Banking and Branching 28, 135 Efficiency Act, 69 and Federal Reserve, 135 repo agreements, 180–181 and rulemaking process, 124–125 reserve currency, 223 presidential administration, 8, 108, 109.See Reserve Fund money market, 193 also White House; by individual resolution authority, 253, 254, 261–262 administration revolving door, 25, 104, 130–133, 159

304 Index

Rice, Condoleeza, 244 of car loans, 101 riders, 92 and disintermediation of credit, 69 Roosevelt, Franklin D., 111 of mortgages, 64, 72, 180, 194, 201 election of, 47, 62 future of, 255 Rubin, Robert Seidman, William, 85, 133 and derivatives regulation, 126–130 seignorage, 30 and end of Glass-Steagall, 103–104 Senate, 17, 25, 45, 62, 86 and revolving door, 132 legislation, 210 as Treasury Secretary, 117–118, 185–186 and presidential appointments, 108, 111, rulemaking process, 108, 123–125 112, 119, 263 case study of, 125–130 Senate Banking Committee, 130–131 and Dodd-Frank, 215–216, 252–261 and Basel hearings, 239 and Federal Reserve, 149–151, 158–159 and Consumer Financial Protection Bureau, and influence over, 131–132, 252, 268 264 and international standards, 234 and Franklin National failure, 149 and policy advice from Fed, 157 S&L crisis, 54, 114 Senate Committee on Agriculture, Nutrition and OTS, 132 and Forestry, 98, 106, 214 S&Ls.Seesavings and loans Senate Committee on Banking, Housing, and SAP.SeeStatement of Administration Policy Urban Affairs, 47, 93, 94–95, 98 Sarbanes-Oxley Act, 122, 124 Senate Committee on Health, Education, satisficing, 12 Labor and Pensions, 98 savings and loans, 53, 62, 69.Seealsothrifts; Senate Finance Committee, 92 S&L crisis separation of powers, 14, 19, 249 consolidation of, 133 September 11 attacks, 179 federal, 114 SGP.SeeStability and Growth Pact origins of, 59–60, 61 shadow banking industry, 57, 74 SEC.SeeSecurities and Exchange Commission and connection to regulated industry, 77, Second Bank of the United States, 33, 34, 36, 104, 181 40, 43, 55 and Dodd-Frank, 210, 260 Securities Act of 1933, 47, 121, 124 layers of, 79 Securities and Exchange Commission, 17, Shareholder Vote on Executive Compensation 18–19, 48, 93 Act, 210 and actions in 2008 financial crisis, Sherman Silver Purchase Act, 42 190–191 Shultz, George, 226 and congressional oversight, 98 silver, 40, 42, 221.Seealsospecie created, 48 free coinage of, 43, 44 lawsuits, 66 SIVs.Seestructured investment vehicles and relations within executive branch Small Business Administration, 93, 97 agencies, 110, 121–122, 189, 253 Snow, John, 132 and role in policy process, 84 Soros, George, 258 and role in regulatory process, 17–124, 143, sovereign debt crises, 220, 225.Seealso 145, 254 international financial crises and credit rating agencies, 181 European, 226, 229–232 and Dodd-Frank, 259 special purpose vehicles, 76–77, 78–79, 81 and VaR models, 81 specie, 38, 42, 44 securities dealers, 56 spending policy.Seefiscal policy Securities Enforcement Remedies and Penny SPVs.Seespecial purpose vehicles Stock Reform Act, 122 Stability and Growth Pact, 227 Securities Exchange Act of 1934, 48, 121, 124 Standard and Poors, 74.Seealsocredit rating Securities Industry and Financial Markets agencies Association, 22, 24, 261 state banks, 41, 103.Seealsodual banking securitization, 7, 22, 26, 253 system and Basel II, 239 and dual banking system, 142–143, 157

Index 305

state banks (cont.) size of loans, 204–205 and regulation by agencies, 109, 141 established, 48 state capacity, 32, 249 and international arrangements, 220, 222, defined, 31, 33 240, 242 development of, 34, 250 and relations among departments, 110 State Department, 244 responsibilities of, 113–119, 135, 253 Statement of Administration Policy, 112–113 and role in policy process, 14, 17–104 Strategic Economic Dialogue, 220, 242–244 and World War II, 48–49 stress tests, 202, 203 Treasury-Federal Reserve Accord, 50 structured investment vehicles, 76, 78–79, 81, Troubled Asset Relief Program, 118–119, 189 180 and Bush administration, 217 international treatment of, 235 and financial institutions, 201–205 subprime borrowers, 180 and immediate phase of crisis, 188 defined, 71–72 originated, 194 subprime mortgage market, 181, 255, 256 passed in Congress, 196–201, 206 and AIG, 195 and political interest in repayment, 218 subsystem politics, 10 Truman, Harry, 49, 88 Summers, Lawrence, 103–104, 117–118, 185, 190, 191, 241 “underwater” mortgages, 208, 209 and derivatives regulation, 126–130 superPAC, 24–25 value at risk tools, 80–81, 237 supervision of banks.Seebank supervision Vietnam, 224 and international standards, 234 Volcker, Paul, 225, 256 supplementary budgetary allocations, 92 Federal Reserve Chair, 53, 101, 173 swaps, 75, 80.Seealsocredit default swaps; as president of FRBNY, 153 derivatives and relations with Treasury, 116–117 problems with defining, 215 and swaps, 215 regulation of, 123, 214–216 and Volcker Rule, 212, 259 Volcker Rule, 212, 214 TARP.SeeTroubled Asset Relief Program implementation of, 259–261, 267 tax cuts, 168, 178–179, 186 Vreeland, Edward, 44 taxing policy.Seefiscal policy Taylor, John, 113–114 Wachovia, 237 Tea Party movement, 88, 265 Wall Street Reform and Consumer Protection “this-time-is-different” fallacy, 7 Act (Dodd-Frank), 18, 82, 251 thrifts, 56, 59–60, 68, 69, 73.Seealsosavings and end of Office of Thrift Supervision, 132 and loans evaluations of, 216–217 closure of, 132–133 exemptions from, 216 and financial crisis, 262 and Federal Reserve, 152, 157 regulation of, 73, 82, 115 implementation of, 251, 265 “too big to fail,” 26, 57 international implications, 238–239 and European banks, 212–213 passage of, 106, 188, 210, 216 future of, 261–262 and proposals to break up banks, 261–262 GSEs as, 67 proposed, 206 trade associations, 22 and regulation of derivatives, 129–130 Treasury Department, 6, 8, 12 Wall Street-Treasury complex, 131 accord with Federal Reserve, 49–50 WaMu.SeeWashington Mutual acting as central bank, 35, 38.Seealso War of 1812, 33, 36, 40, 55 Independent Treasury Warren, Elizabeth, 210, 263 and actions in financial crisis, 190–191, 193, Washington administration, 55 197, 198–201 Washington Consensus, 185 Bear Stearns, 192–193 Washington, DC, 35, 46 GMAC, 202–203 Washington, George, 35, 110 HAMP, 209 Washington Mutual, 133, 198, 237, 238

306 Index

Weill, Sanford, 103 and creation of the Federal Reserve, 45 Weingast-Grief principal-agent relationship working group on financial markets, 111, 126, model, 96 129–130 Wells Fargo, 131 World Bank, 2, 220, 225 White House, 117–118, 131–132 World War I, 44 and financial crisis of 2008, 193 World War II, 30, 48–49, 50, 164, 177 and policy process, 109–110, 111–112, and congressional committee assignments, 115–116, 125 94 White House Office, 112–113 and international economy, 220, Wilson, Woodrow, 45, 55 221–222