In the past three decades the income inequality gap has exploded across the United States. We typically view rising inequality through the lens of class; focusing on the growing disparity between the top 5% or 1% of the population and the bottom 10% or quartile. But looking at income inequality from this vantage point misses a critical dimension: there are serious gaps between economic sectors and in particular, the financial sector of the economy has grown disproportionately wealthy compared to other sectors. This gap not only has profound consequences for the distribution of income but also has negative effects on the overall growth and development of the U.S. economy.
Beginning in 1980, financial sector deregulation began in earnest, encouraging investment in financial sector expansion and attracting a greater percentage of college and high-school graduates. This shift to the financial services sector has contributed both to the growing inequality of wages between workers in the “real” economy – which produces goods and non-financial services and drives most of the employment growth — and the “financial” economy – which has higher wages and is siphoning off talent from the real economy. (read more…)
While its creation was lamented by some and championed by others, industry experts say the performance thus far of the Consumer Financial Protection Bureau has been a mixed-bag. The Financial Services Roundtable assembled thought leaders as part of its “How is the CFPB Doing? The Advocates’ Perspective” panel discussion in Washington, D.C. A few of the key highlights included:
- Georgetown University Law Professor Adam Levitin was the most outspoken member of the panel, saying the CFPB may yet be finding its sea legs as experienced staff complete their “regulatory tourist stints” and depart the Bureau, leaving behind an undetermined culture. Levitin said the CFPB has enjoyed the benefits of a “we had to do this” kind of approach while it has tackled rule-makings many viewed as “mandatory.” However, going forward the Bureau will be dealing with discretionary issues that may find it “swimming in deeper waters.” One unique outcome Levitin noted is the money is the “disgorgement” of funds for misdeeds, also known as money going back to consumers.
Former Treasury Secretary Timothy Geithner’s book Stress Test: Reflections on Financial Crises hits bookstores on Monday. Ahead of the release, Geithner sat down for some yummy food and friendly conversation with Andrew Ross Sorkin of The New York Times. Here is a dissection of the puff piece that ensued.
- “When the housing bubble burst in 2008, Geithner was the president of the Federal Reserve Bank of New York. Along with Ben Bernanke, the chairman of the Federal Reserve, and Henry M. Paulson, the Treasury secretary at the time, Geithner was charged with essentially saving the economy from sliding into the abyss.” — Let’s just skip the part about how if those same three guys had kinda, maybe, sorta been doing their jobs all along, they probably wouldn’t have found themselves staring into such a daunting “abyss.”
- “The perception that he was overmatched for the position was strengthened when he responded to a congressman’s question at a second hearing by saying: “I just want to correct one thing.
A collection of sage investment executives gathered at the Milken Institute Global Conference this week to discuss the state of financial markets. Here is some of the insight shared by panelists during the Reading the Tea Leaves: Where are Markets Headed? session.
Michael Cembalest, Chairman of Market and Investment Strategy, J.P. Morgan Asset Management
Cembalest says he is watching four issues closely: two market issues and two policy issues. Citing the remarkable correlation between manufacturing surveys and corporate profits that follow three to six months later, Cembalest said, “The next couple quarters of business surveys and corporate-profits growth are probably more important than they have been in a while.”
On the policy side, Cembalest shared insight on brewing energy and housing matters. “It would be a huge mistake to accelerate the pace of [liquefied natural gas] exports. … There is a huge multiplier-effect benefit from the U.S. having electricity prices for homes and businesses that are 50% to 60% of what the rest of the world pays. (read more…)
A roundup of financial news from Day Two of the Milken Institute Global Conference in Beverly Hills, Calif.
Trouble brewing in the credit markets?: “All the danger signs are there of a future crisis.” That is how Apollo Global Management co-founder Marc Rowan summed up his view of the credit markets during the Credit Markets: What’s Next? panel. “We’re back to doing exactly the same things that were done in the credit markets during the crisis. Our job is to step wisely and try to avoid that.” However, David Warren, chief investment officer at Brevan Howard Credit Funds, sees things quite differently. Because of reforms like Dodd-Frank and Basel III are pushing the big banks out of some sectors, Warren says the next 10 years will be a “golden era” for credit investing.