Policy Shop

Policy as if people mattered

Are Academics for Hire Influencing the High Frequency Trading Debate?

Last week, Professor Charles M. Jones, a noted economist at Columbia, published an opinion piece in POLITICO claiming to enlighten readers on the realities of high-frequency trading (or “HFT”), computer driven trading at millisecond speeds driven by complex algorithms based on complex trading strategies. This has surfaced as the subject of politically charged debate in the context of of a proposed financial transaction tax that would, among other things, curb the most excessive forms of HFT. The POLITICO piece and a longer, academic-style article were published simultaneously. These articles catalogue existing claims of the benefits of HFT and dismiss concerns of the potential harm of such activity. Perhaps the most important bit of information does not appear in the articles. It can be found at the very end of the press release by Columbia Business School announcing the article: “ The research was supported by a grant from Citadel LLC.” The interest of Citadel in the subject is clear...

Low-Wage Workers Say It's Not Getting Better

Flickr/ Walmart Corporate
It’s not getting better. That’s the key finding of a new survey of low-wage workers out yesterday from the Associated Press and NORC Center for Public Affairs Research at the University of Chicago. Eighty-one percent of low-wage employees surveyed said their family’s financial situation was the same or worse than it had been four years ago, while 64 percent reported that their wages have been stagnant or declined over the past five years. The survey queried 1,606 workers earning $35,000 or less annually. According to the survey: Less than half of lower-wage workers agree that their employer offers good benefits (48%) or that they are paid well for their job (32%). Only 30 percent of lower-wage workers report receiving any promotion to a higher position that pays more while working for their current employer. Although the proportion of workers who have received a promotion increases with the length of time the worker has been with their employer, only 41 percent of lower-wage workers...

The Right Way to Create Jobs

CPC
With over twenty million Americans still unable to find full-time work, Washington shouldn't take its eye off job creation for a minute. That's certainly the feeling of voters, who overwhelmingly told exit pollsters on Election Day last November that fixing the economy should be Congress's number one priority—far more than said reducing the deficit. Frankly, though, official Washington seems better at destroying jobs these days than creating them: Exhibit A are the sequestration cuts, which are eliminating jobs as I write this. Exhibit B is the rollback of the payroll tax holiday on January 1, which ensured that nearly every working American has been living with a pay cut for the past ten weeks. But there's an even deeper problem with how most politicians approach job creation, which is that many of their ideas depend on secondary stimulus effects—i.e., creating jobs by giving consumers more money to spend which presumably leads to more demand for goods and services and more jobs...

Jamie Dimon's Whale Fail

Flickr/ jurveston
Last night, the Senate Permanent Subcommittee on Investigations released a searing 300-page report on JP Morgan Chase’s London Whale episode. The bank lost at least $6.2 billion through trading credit derivatives in a business unit tasked with reducing firm-wide risk, the Chief Investment Office. (The trading activity is called the “Synthetic Credit Portfolio” or “SCP.”) There is much to digest in the report. Hearings are to commence today. But, even at this early date, the veil has been lifted on the complex and cavalier approach that banks take when they put the American public at risk every day in the quest for profits and personal gain. The bank’s CEO, Jamie Dimon, famously claimed that JP Morgan Chase featured the very best risk control systems in the industry. But the report makes it abundantly clear that these systems were manipulated to reduce the calculated risk of the CIO’s massive credit default swap positions. The SCP had grown from $4 billion to $51 billion in 2011, and...

All Wall Street Regulators Should be Self-Funded

Systemic RIsk Council.org
When a crew that calls themselves the "Systemic Risk Council" speaks, it's a good idea to pay attention. After all, the last time people pooh-poohed deep-seated problems within the financial system, trillions of dollars vanished into thin air and millions of people were thrown out of work. Since its creation last year by the Pew Charitable Trusts and CFA Institute, the Systemic Risk Council —which is chaired by former FDIC head Sheila Bair and advised by Paul Volcker—has sought to keep up the pressure for financial reform. That's important because a) many of the rules mandated by Dodd-Frank haven't actually been written yet; b) Wall Street is working every day to weaken that law; and c) additional reforms, beyond Dodd-Frank, are still needed. Yet unfortunately, as Thomas Hedges wrote recently here in Policyshop, sequestration cuts are going to set back the entire process of financial regulation. The SEC and CFTC were already struggling to find the staff capacity to write mandated...

Gone In 22 Seconds: How Frequent is High Frequency Trading?

Flickr/Ars Electronica
This is a story of journalists and economists, and the confusion that can ensue when they communicate. For me, the story starts with a book, Dark Pools , written by Wall Street Journal Reporter Scott Patterson. The book, published in the summer of 2012, is an account of the rise of high-frequency trading or “HFT.” That is automated trading of securities and derivatives using powerful computers driven by complex algorithms. It is widely accepted that trading activity in most markets is dominated by HFT. Firms that specialize in this practice trade in enormous volumes but start and end the day with few if any holdings. Their purpose is to profit from intra-day market moves, not from fundamental investment. They buy and sell in the blink of an eye, churning the markets constantly. Mr. Patterson’s book contains the following passage: At the end of World War II, the average holding period for a stock was four years. By 2000, it was eight months. By 2008, it was two months. And by 2011, it...

Young People and Debt: The New Normal

Flickr/401(k) 2013
With a weak job market and uncertain prospects, young people have to make careful choices about how to invest in their futures. They’ve put off marriage and having kids. They’re moving back home with mom and dad. But the one expense with which they are not compromising is the high and rising cost of college. According to a new study from the Pew Research Center, covered in the Wall Street Journal, young adults have changed their priorities in response to economic instability, but student debt is more common than ever. Pew looked at Federal Reserve data on the debt and assets of American households and found that while young people are avoiding big purchases that require long-term financial commitments—like buying homes and cars—they are increasingly investing in education, with 53 percent more people under 35 carrying student debt in 2010 than did in 2001. It makes sense. Unemployment rates have remained frustratingly high even as US businesses have recovered from the Great Recession...

Introducing Economic Stimulus Done Right

Flickr/Wisconsin Jobs Now
A new bill introduced today by Senator Tom Harkin and Rep. George Miller would raise the federal minimum wage to $10.10 per hour, and more importantly, peg it to inflation so that it would automatically adjust. The proposed wage hike is higher than the $9 per hour proposed by President Obama and is closer to what the minimum wage would be now if it had kept up with the rate of inflation. The bill also increases the tipped wage, which has not risen in twenty years. Increasing the minimum wage is as no-brainer of a policy as it can get. One, it is extremely popular with the public. A remarkable 73 percent of voters support increasing the minimum wage to $10 an hour and tying it to inflation. Two, it would impact millions of workers—more than 30 million workers would receive a raise if the minimum wage was increased. Three, it would create a significant economic boost. Recovery from the Great Recession has been sluggish because consumer activity makes up 70 percent of U.S. economic...

A Budgetary Case for Same Day Registration

Flickr/Dimmerswitch
A new report from a Wisconsin state agency makes clear that Same Day Registration is not just a low-cost way to make voting more accessible. It can even be a budget-saver. The report from the Wisconsin Government Accountability Board dealt a blow to advocates of repealing the state’s Same Day Registration policy. It pegged the cost of such a change as high as $14.5 million. Some of the costs are one-time expenditures, but many will be ongoing. The report, which tracks with the results of a Demos study conducted last year , is yet another nail in the coffin of arguments against Same Day Registration. After all, the benefits are very clear. The Government Accountability Board found that 10 to 15 percent of Wisconsinites register or update their registration on Election Day. That’s a lot of people who would be turned away or forced to cast their lot with a provisional ballot if not for Same Day Registration. In fact, as the Wisconsin report shows, Same Day Registration can all but...

How a Few Wealthy Individuals Shape the Climate Agenda

Greenpeace
We’ve highlighted how the U.S. media leads the world in the amount of time given to climate deniers, even though nearly 80 percent of Americans believe in climate change . Now The Guardian reports that conservative billionaires funneled nearly $120 million to more than 100 groups to promote climate denial. Between 2002 and 2010, the money built a vast network of think tanks and advocacy groups singularly focused on making climate change a polarizing wedge issue for conservatives. And, based on the level of time devoted to climate denying in the media and the inability to engage in bi-partisan climate discussions, it seems they were successful. The money was routed through two trusts, the Donors Trust and the Donors Capital Fund . While a host of conservative causes were funded by the Donors Trust, climate denial was at the top of the list. Not surprisingly, leading climate deniers like the American Enterprise Institute, the Heartland Institute, and Americans for Prosperity received...

Would Raising the Minimum Wage Kill Jobs?

Flickr/mag3737
President Obama's proposal last night to raise the Federal Minimum Wage to $9 (from $7.25) is sure to rekindle the perennial debate about whether such an increase will stall hiring for low-skilled workers , or whether small businesses will be able to sustain their payrolls with higher wage requirements. The federal rate would increase in stages until 2015. After that, additional raises would be pegged to inflation. Administration officials believe this will increase pay for at least 15 million Americans , and possibly more, as those earning just over minimum wage would also likely see a bump. Many liberal groups like the National Employment Law Project praised the move. Spokeswoman Christine Owens told The New York Times “A higher minimum wage is key to getting the economy back on track for working people and the middle class." The White House further argued that the $1.75 increase in the minimum wage would be enough to offset nearly 10 to 20 percent of the increase in income...

The President's Call for Election Reform

Whitehouse.gov
President Obama’s State of the Union address included an important call to fix the long lines and other problems that plagued voters in 2012. The president was near the end of his speech when he brought up the waiting times that stretched as long as six hours in some places and led an estimated 200,000 Florida voters to give up and go home. He rightly cast the issue as one of protecting Americans’ most fundamental rights: When any Americans – no matter where they live or what their party – are denied that right simply because they can't wait for five, six, seven hours just to cast their ballot, we are betraying our ideals. That's why, tonight, I'm announcing a non-partisan commission to improve the voting experience in America. And I'm asking two long-time experts in the field, who've recently served as the top attorneys for my campaign and for Governor Romney's campaign, to lead it. We can fix this, and we will. The American people demand it. And so does our democracy. Kudos to the...

Disaster Preparedness Is Good for Democracy

Flickr/Anthony Quintano
The blizzard that pounded the Northeast on Friday was no Hurricane Sandy, but it has left thousands of people without power throughout the region. For some households, losing power may be no big deal. But if you're old or disabled, this can be a dangerous situation. The problem is that it's hard in most communities to know which residents may badly need help. After Sandy, hastily organized volunteers knocked on doors in buildings in Rockaway and other places to identify the old and frail. It's also hard, if you want to volunteer to help others in a disaster, to know where to go or what to do. In badly hit Hoboken, large numbers of volunteers were needed to help evacuate people from flooded parts of time. The city recruited these helpers, in part, by Twitter and posters around town. With major storms likely to increase, it's time to get more serious about better disaster planning. One obvious idea is to step up efforts to organize citizens to prepare for emergencies by joining...

Freedom For the Few

Flickr/Tobin B.
We should be done by now with the idea that a corporation is a single thing. Corporations contain a multitude of conflicting interests and are much more like miniature governments with their own governance structures and election systems than is commonly recognized. While these structures are far more hierarchical and undemocratic than we require of our public institutions, Americans should not be resigned that this is the best or the only way the private sector can be structured. The debate over corporate disclosure currently going on at the SEC exposes some important fissures within the modern American corporation. On the one hand, corporate managers and their allies have argued that corporations should be able to engage in political activities without having to disclose how much they spent or who that money went to. But there is a subtle slight-of-hand to this argument. It conflates the overall interests of the corporation with the desires of management and directors. What...

Biting the Hand that Feeds Them

Flickr/Fibonacci Blue
Paul Krugman noted on ABC's This Week yesterday that the GOP's problem is that its "base is old white people." This is largely true. Exit polls show that Mitt Romney won all voters 65 and older by 12 percentage points, and white older voters by 22 points. Barack Obama won all voters under 30 by 23 points, and nonwhite young voters by 36 points. Such numbers are a big problem for the GOP amid fast changing demographics, as we've heard often in recent months. But here's an interesting question raised by the same data: If the GOP leans so heavily on older white voters, then why is it leading the charge to cut entitlements for seniors? Politics is supposed to be about who gets what, but things often don't work that way. In 2011, The New York Times ran a fascinating chart about the percentage of personal income that comes from government benefits in different states. It showed that hardcore Republican states—where a lot of those older white conservative voters live—relied most heavily on...

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