Speaker of the House John Boehner and his fellow House Republicans met with President Obama on Wednesday to discuss the issue of raising the debt ceiling. Prior to the meeting Boehner’s office released an updated letter that lists 150 economists that have signed on to Boehner’s plan which states that any increase in the debt limit must include significant spending cuts without raising taxes. The original letter came out on February 13, 2011 and included the following statement:
For the sake of millions of Americans who remain out of work – and future generations of Americans, who will carry the debt burden we are accumulating today – we respectfully urge that the leaders of both parties take action immediately to eliminate unnecessary federal spending, prevent tax hikes, stop regulatory threats to job creation, and enact reforms to put our nation back on a true path to prosperity.
While a number of news outlets covered this story (i.e. Reuters, WaPo, Politico, NYTimes), most did not mention two things: 1) Boehner’s plan prevents any tax increases [although, to be fair, that’s the basic Republican stance]; and 2) nearly all of these economists are staunchly conservative. This is by no means an unbiased polling of economists nationwide.
Most outlets simply highlighted what Boehner highlighted in his press release which was that two of the economists, Robert Mundell and Vernon Smith, won Nobel Prizes. However, this can’t be of any real significance as we have since decided that the Nobel Prize sucks since they just give it to any old black president.
But a quick look at the list and it’s easy to see that these economists are of the conservative persuasion. That’s fine. Their opinion matters.
But one name in particular popped out. Or should I say, his previous job description (listed on the original list) popped out:
J. Gregg Whittaker – William Jewell College, Former Managing Director and Global Head of Credit Derivatives – JPMorgan Chase (Although it was just Chase at the time he was there)
According to Whittaker’s website for The Whittaker Group LLC:
In 1994, Gregg joined Chase with responsibility for the strategic planning, implementation and management of Chase’s start-up Credit Derivatives Group, including new product design, development, and marketing. During his tenure, he pioneered innovations in “synthetic asset securitization”, “structured notes” and “off-balance sheet funding”. His team was rated by clients and peers as the top Credit Derivatives Group in the world for two years running in 1997 and 1998, his final two years on Wall Street.
You might be wondering what “synthetic asset securitization,” “structured notes” and “off-balance sheet funding” are. They are known as Level 3 accounting rules and they are a major reason why the banking system in the US collapsed.
As Bloomberg points out, “Under FASB [Financial Accounting Standards Board] terminology, Level 1 means mark-to-market, where an asset’s worth is based on a real price. Level 2 is mark-to-model, an estimate based on observable inputs which is used when no quoted prices are available. Level 3 values are based on ‘unobservable’ inputs reflecting companies’ ‘own assumptions’ about the way assets would be priced.”
So how much of their equity did each bank have invested in the type of Level 3 assets that Boehner’s economist Whittaker hawked for five years?
- Merrill Lynch & Co. = 38%
- Citigroup Inc. = 105%
- Bear Stearns = 154%
- Lehman Brothers = 159%
- Goldman Sachs Group Inc. = 185%
- Morgan Stanley = 251%
Source: Bloomberg
And if I remember correctly the government spent a lot of money on these multi-billion dollar companies. Where are they now? And about those “regulatory threats to job creation” you mentioned in the original February 13th letter, are you sure about that too? You probably are.
I realize it’s one out of 150 but honestly I didn’t have time nor a team to research all the names. I just read through the original list to see what stood out and thought this one was, well, interesting.
So, Mr. Boehner, I’ll take your two Nobel Prize winners and raise you one Pioneer of the Economic Meltdown. Are you in?
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- House GOP to Meet with President Obama Today, Push for Deep Spending Cuts – ABC News (blog) (news.google.com)
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- Will Republicans Get Sane On The Debt Ceiling? (outsidethebeltway.com)
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