August Jobs Day Fact Sheet Pre-Release
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Read Tony Fratto’s client note “Jobs Preview: Clinton vs. Obama” here.…
A New Workable Solution
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View the cheat sheet here.
By Patrick Sims, (202) 822-1205, psims@hamiltonps.com
Though it beat consensus with 163,000 jobs added in the nonfarm payroll survey, the number of employed persons according to the household survey fell by 195,000, causing the unemployment rate to rise to 8.3 percent. Overall, the economy added too few jobs for the unemployment rate to fall closer to 8 percent by Election Day. Additionally, the labor force participation rate ticked down one point to 63.7 percent. By our estimates, the economy will now have to add 279,000 per month to get below 8 percent by Election Day. What you see is what you get, and as we stated last month Time Has Run Out.
This is the last Jobs Day prior to both the Democrat and Republican national conventions, thus the narrative from this report will carry through to those events. The challenger Romney will stay on the attack and place blame on how the President’s policies have failed to make us better off. However, it will …
July Jobs Day Fact Sheet
Here is the July Jobs Day Fact Sheet.
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View Patrick Sims’ Client Note here.…
Hoenig’s Big Bank Plan Misses the Mark
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By Tony Fratto, (202) 822-1205, tfratto@hamiltonps.com
On CNBC’s Squawk Box this morning, Thomas Hoenig, former Kansas City Federal Reserve Bank president and current FDIC board member, made the case for his proposal to end the so-called “too big to fail” problem with large banks. Similar, but not identical to Sandy Weill’s comments, Hoenig is pushing for a modified restoration of the Depression era Glass-Steagall Act.
I disagree with Hoenig’s proposal in total, but here are three specific instances where I believe his responses to key questions miss their mark.
This is a fundamentally different global economy than the era Hoenig yearns for
Hoenig argues that U.S. banks will not be at a competitive disadvantage if we reduce the size of our banks because in the past, we had a dynamic economy even with smaller banks. I have made this point before, but it bears repeating: the global economy has grown exponentially over the past 25 years – and it’s only going to get bigger, and much faster.
While …
What Weill Missed Over the Past 3 Years
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By Tony Fratto, (202) 822-1205, tfratto@hamiltonps.com
Yesterday, I addressed the political nature of Sandy Weill’s argument and why his conclusions are wrong. In addition to his political argument, Weill also tried to make a systemic safety and soundness argument. Lost in Weill’s political and public relations justification for a return to Glass-Steagall is the fact that the system is far safer than the one he seems to be concerned about. I’m no fan of the Dodd-Frank act – I would have preferred a far less confusing and prescriptive reform of our financial system. The law makes it more difficult for U.S. firms to serve customers and compete globally. However, there’s no question that Dodd-Frank, however flawed, is contributing to a more safe and sound banking system.
Weill cited the need for more capital and less leverage. Generally, everyone agrees, and in fact, since the end of the crisis the entire financial sector has increased capital and liquidity levels. As highlighted in the Hamilton Financial Index, the Tier …
What Sandy Weill Said, and Why He’s Wrong
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By Tony Fratto, 202-822-1205, tfratto@hamiltonps.com
Headlines are overflowing with the news that former Citi Chairman Sandy Weill – architect of a large global bank – now believes we should break up big banks and reinstate Glass Steagall. While the news that Weill now believes we should break up banks is surprising, it’s important to look past the headlines at the very real issues Weill raises – it’s not the Occupy Wall Street doctrine some would like to believe.
What Sandy Weill Said
Weill believes that commercial and investment banks should be broken up, arguing that the current political environment is too toxic for big banks to be successful. The hatred for big banks makes recruiting top talent more difficult. Any mistake a bank makes today results in a costly political backlash, even when it costs the taxpayer nothing – and potential for further regulatory handcuffs at worst, uncertainty at best. Ultimately, this environment makes it difficult for big banks to serve their clients and help the economy. Weill believes …
Investors Don’t Need Government to Right-Size Banks
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By Tony Fratto, (202) 822-1205, tfratto@hamiltonps.com
After a year of occupiers bemoaning big bank profits, now the calls are to break up banks to “unlock value” for investors – the 1%! That’s some transformation!
The theory goes that large banks are somehow holding back smaller, but more valuable businesses and that government caps on bank size will help to unleash profits in these firms. Investors should therefore join with regulators in calling for breaking up the big banks.
The otherwise brilliant Sebastian Mallaby argued this case in his recent Financial Times column [“Breaking Up Banks Will Win Investory Approval”], arguing that the combination of big banks’ funding advantages in the debt market and funding disadvantages in the equity market suggest that the “capital adequacy police” should capitulate to (presumed) investors’ sentiment and just break up the banks.
Now, let’s set aside the reality that advocating a policy with the express rationale of elevating profits for bank investors would, on its own, drop jaws. Anything’s game if wrapped in …
The Hamilton Financial Index: The State of Our Financial Services Industry
Key Findings of the Hamilton Financial Index:
- The Hamilton Financial Index (HFI) rose seven points since the previous quarter and stands at 1.22 as of the end of the first quarter. Banks’ increase in Tier 1 capital is driving the rise in the HFI. For the HFI to dip below historical norms, systemic risk would have to increase five times the second quarter high. Conversely, if banks had not increased their Tier 1 Common Capital Ratio from the level of three years ago, the second quarter high of systemic risk would have pushed the HFI below normal levels.
- While the European debt crisis presents risks to the global economy, from the end of the first quarter of 2011 through the first quarter of 2012, U.S. banks reduced exposure to the European periphery by over 16 percent and Europe as a whole by eight percent.
- Lastly, our policy spotlight found that the upcoming fiscal cliff could be the largest fiscal contraction in four decades, potentially causing a significant drop in consumer
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Small U.S. Banks in a Big World?
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By Tony Fratto, (202) 822-1205, tfratto@hamiltonps.com
The financial needs of individuals and companies around the world have grown exponentially in recent decades – explosive growth, far exceeding the rate of global economic growth. And we’re not talking about derivative products, but debt and equity instruments expanding throughout the globe.
Not only is this global market astonishingly large today, it’s only going to get much larger in coming decades.
As we see economic growth in large emerging markets like China, India, Brazil and Nigeria, and hundreds of other smaller markets – in addition to continued growth in large developed markets – we’re going to continue to see a need for financial intermediation. As the volume of trade expands across the globe, including exports by U.S. firms, the need for global banking will grow. It’s about the only sure thing as you can bet on today.
A question for policymakers is “Who is going to do all that banking?”
The “small bank” advocates – otherwise smart and well-intentioned people – …
GRAPHIC: Small U.S. Banks in a Big World?
Read the accompanying article “Small U.S. Banks in a Big World?” by Tony Fratto here.
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