Simon Johnson is a smart critic of the administration, and no one questions his powers of economic analysis. But a disturbing trend in his recent writing has been making assumptions where he doesn't have the facts. He'll often accuse the administration of not presenting their understanding of how the financial crisis happened, for instance, when that's not true -- they just present a version he disagrees with. He's said that bankers wrote the financial regulation plan, when the evidence is that they didn't. Today, he writes this:
We know that Treasury consulted extensively with the financial sector on all its regulatory reform ideas, and indications are that the chief executives of major banks prevailed in most of their requests. Yet the administration was already in a position to submit a major consumer protection plan to Congress this week. Where did this come from? It must have emerged largely unscathed from interagency debate primarily because of the agenda-setting power of the National Economic Council.
Emphasis mine. But "it must" is not how we do analysis in the real world -- assuming always makes a something out of someone. In fact, though Secretary Geithner had been lukewarm about the proposal, Treasury officials like Assistant Secretary Michael Barr and Deputy Assistant Secretary Eric Stein (late of the Center for Responsible Lending), along with Deputy Treasury Secretary Neal Wolin, have been involved in this process and support the provision. Treasury sources I've spoken to have made clear that the Consumer Financial Protection Agency -- the best and most progressive part of the administration's mixed-bag proposal -- is a key priority. When I pressed one official on the failure of bankruptcy loan modification due to financial sector lobbyists, he told me that Treasury "has not yet begun to fight." That's both true -- about the not fighting -- and promising in that these officials realize they will have to fight for the CFPA. There's a reason, for instance, that the administration released legislative language for the CFPA before any other part of the plan.
While Johnson is pretty accurate in identifying Larry Summers' move to the left, his analysis that there is a "split" in the administration that could benefit progressives during legislative battles isn't spot on: once the proposal comes out, the administration will present a very unified front, with the possible exception of the independent -- by statute and personality -- FDIC Chair, Sheila Bair. The administration's solidarity is good for the CFPA, but it's also bad for things like derivatives regulation, further regulatory consolidation and corporate governance issues where the party line leaves a lot to be desired.
It's one thing to criticize Treasury for actual bad policy decisions -- like underselling TARP warrants. It's a whole different thing to criticize Treasury for what they haven't done even as they are promoting something progressives should favor. It's a shame because Johnson's critiques are really important and have proven to be quite prescient. But when he starts making bad assumptions, it kills his credibility.
-- Tim Fernholz