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What factors explain U.S. participation in multilateral forums that govern finance? Current literature misses the key features of the Federal Reserve, Treasury, and Congress that result in their distinct manners of support for various multilateral arrangements. I revisit the archival record and apply a new understanding to American participation in the Bank for International Settlements (BIS) and Basel Committee on Banking Supervision (BCBS) as the financial regime has evolved since the collapse of fixed parity in the IMF after 1971. I thus explain the puzzle of American ambivalence through an exploration of the fragmented U.S. regulatory system, which inhibits the United States from acting as a unitary, lead actor of multilateral negotiations. Hence, American coordination must take place both domestically and internationally for an agreement to emerge.
Introduction: Health advocacy training is an important part of emergency medicine practice and education. There is little agreement, however, about how advocacy should be taught and evaluated in the postgraduate context, and there is no consolidated evidence-base to guide the design and implementation of post-graduate health advocacy curricula. This literature review aims to identify existing models used for teaching and evaluating advocacy training, and to integrate these findings with current best-practices in medical education to develop practical, generalizable recommendations for those involved in the design of postgraduate advocacy training programs. Methods: Ovid MEDLINE and PubMed searches combined both MeSH and non-MeSH variations on advocacy and internship and residency. Forward snowballing that incorporated grey literature searches from accreditation agencies, residency websites and reports were included. Articles were excluded if unrelated to advocacy and postgraduate medical education. Results: 507 articles were identified in the search. A total of 108 peer reviewed articles and 38 grey literature resources were included in the final analysis. Results show that many regulatory bodies and residency programs integrate advocacy training into their mission statements and curricula, but they are not prescriptive about training methods or assessment strategies. Barriers to advocacy training were identified, most notably confusion about the definition of the advocate role and a lower value placed on advocacy by trainees and educators. Common training methods included didactic modules, standardized patient encounters, and clinical exposure to vulnerable populations. Longitudinal exposure was less common but appeared the most promising, often linked to scholarly or policy objectives. Conclusion: This review indicates that postgraduate medical education advocacy curricula are largely designed in an ad-hoc fashion with little consistency across programs even within a given discipline. Longitudinal curriculum design appears to engage residents and allows for achievement of stated outcomes. Residency program directors from emergency medicine and other specialties may benefit from promising models in pediatrics, and a shared portal with access to advocacy curricula and the opportunity to exchange ideas related to curriculum design and implementation.
Although previous chapters have considered them separately, Congress, the president and executive branch organizations, and the Federal Reserve all operate in an environment that responds to what is going on in the macroeconomy. Their response has political and economic stakes. For politicians, the ultimate censure for poor performance in an economic downturn is to lose office. For organizations such as the Office of Thrift Supervision (OTS) or Federal Deposit Insurance Corporation (FDIC), it is to lose governing authority, budget, or personnel, and ultimately to be disbanded. For the Federal Reserve, it is to lose its independence from the political institutions that created it. As the United States has opened up to the broader world economy and financial markets have grown, each of these actors has had to respond to the new challenges posed by a new environment where voters expect them to do more, and where they actually have less under their control.
This chapter considers the politics attached to fluctuations in the business cycle to uncover the day-to-day expectations that political constituencies have for individual politicians and organizations as the economy expands and contracts. It begins with a discussion of what the business cycle is, how economists have measured it, and how different schools of economic thought have attempted to provide solutions to mitigate its effects. The next section considers public policy in a recession and a recovery, as politicians attempt to translate these economic solutions into a practical government program of action. The effects of previous economic interventions often inform thinking and institutional direction going forward. The historical review offered in Chapter 2 ended with the initial moves toward deregulation in the Depository Institutions Deregulation and Monetary Control Act of 1980 and the Garn–St. Germain Depository Institutions Act in 1982. It continued in Chapter 4 with the discussion of the passage of the Financial Services Modernization Act in 1999. The third section in this chapter picks up the deregulation story and considers what the recession of 2001 and its aftermath reveal about how monetary, fiscal, and regulatory policies were reshaped among the legislature, presidential administrations, Federal Reserve, and agencies of the federal government in the wake of such major legislation.
The outrage that ordinary Americans feel over the 2008 financial crisis has not only persisted, it has intensified. Many people are angry because the U.S. government resolved the immediate threat to the financial system by issuing massive handouts to the very segment of the private sector that caused it in the first place. For some both inside and outside the financial services industry, the government should have let companies that made poor business decisions go bankrupt. For others, the government should have assisted individuals and companies caught up in the crisis with different types of intervention than it did. In July 2010, Congress passed a major piece of reform legislation attempting to make sure that such a crisis would never happen again. Yet before the ink on the bill was even dry, some vowed to work to repeal it. The media labels anti-bank sentiment as “populist,” yet people's reactions are far from irrational or exaggerated. In the wake of the crisis, the benefits and burdens of the U.S. financial system do not appear to be evenly spread across the American taxpayer base or across industries. A coherent political reaction did not organize because political parties and interest groups have not been able to channel popular sentiment to promote reform in the same way they do in other policy issue areas.
Economic treatments of the American financial system emphasize the role played by markets and the accumulation of leverage in contributing to periodic crises. This book questions the role that U.S. political institutions play in making the system prone to episodes of instability. It does not just consider past crises, as important as they are, but the players, institutions, and politics that will surround crises to come. While many simplistic explanations for the political power of Wall Street rest with the size of corporate contributions to politicians’ campaigns and the overall amounts paid to lobbyists in Washington, these explanations are too easy. Many industries, such as pharmaceuticals and oil and gas, also donate large sums and employ high-level government relations experts in Washington.
Broad tensions have existed throughout American history over the division of power between the federal government and states, most prominently in the areas of taxation and slavery. In the financial area, tensions have been shaped by an American political culture that distrusts government, banks, and bankers. This chapter reviews these distinctive aspects of American government and political culture by specifically questioning the demands that Americans have made on their government with respect to the provision of finance, as well as how governing institutions have responded to these demands. It shows that American financial practices have evolved within a framework of institutions that developed as a result of unique interests and political ideologies at specific historical junctures, layered over time. Thus the answers to these questions provide insight into the origins of the web of regulatory agencies that have emerged in this area, into the difficulties inherent in changing the system to prevent future crises, and the tendency to create new agencies when new problems and ideologies emerge. The answers also provide insight into the role played by political parties in shaping the institutions of finance. The first parties formed around the debates concerning the First Bank of the United States, took shape after the War of 1812 with the Second Bank of the United States, and aligned over divisions in the silver debates at the close of the nineteenth century.
As American political institutions and economic development occurred, the United States built what political scientists term state capacity in the financial area. Strictly speaking, state capacity refers to the building of a central apparatus for the U.S. federal government between 1877 and 1920, when national administrative institutions were built and wrested control away from party domination, direct court supervision, and local orientations. In Stephen Skowronek's analysis of the process, American state capacity grew out of institutional struggles rooted in the way the old regime was structured and was mediated by shifts in electoral politics. Therefore, to understand government action as resulting from Allison's models of either semi-independent organizations operating according to their own logic, or as the outcome of bargaining among units, it is necessary to revisit the older struggles between state and national government, ideologies about the proper division between public and private authority, and the role of the individual citizen in American democracy to see where the component parts came from in the first place.
Unlike the response to a downturn in the business cycle that unfolds over months or years, the government's response to a financial crisis must be immediate to prevent a collapse of the entire system. No doubt, many people are hurt in an economic downturn. However, should a catastrophic failure in the banking system occur, individuals would lose access to their savings and retirement accounts, businesses would not be able to make payments or be paid by their customers, and the government would not be able to conduct its affairs. The aftereffects of policies implemented in a crisis are also more profound than those taken during the ordinary course of the business cycle. A crisis changes the margins around the legitimate use of government action. As a result, the government's response leads to the creation of new institutions, new powers for existing agencies, and new precedents for the future. Hence, this chapter considers the crisis of 2008 to situate it within patterns of conduct of American government in response to crises since the end of the Civil War. Although economic assessments have demonstrated that the excessive accumulation of debt is a common theme in the buildup to a range of financial crises, a particular institutional arrangement and political culture allow them to occur in the United States.
Therefore, rather than providing the type of exhaustive review of the financial crisis of 2008 and government bailouts that are available from other excellent sources, we will explore the politics of the financial system by placing the events against the backdrop of the congressional calendar and bureaucratic politics more broadly. This chapter divides the events and the government's response to them into their immediate and medium-term phases. Each resulted in the passage of a major piece of legislation: one that forced a degree of democratic accountability on the government for the rescue, and another that altered the governing authority among agencies of the federal government and created a new one.
The U.S. government does not own banking and financial services companies directly; it regulates them extensively and channels funds to them through a variety of mixed public-private organizations created at different junctures in the country's history of industrialization and war. This chapter thus completes the historical review from Chapter 2 by asking how the market interacted with the evolution of state capacity in the area of money and credit. It shows how distinct market niches grew up within regulatory boundaries and within which financial services firms operated and earned profits. Chief among the regulatory niches created were those for commercial banks, thrifts, credit unions, and securities dealers. Over time, market innovation and external forces such as war, trade imbalances, and growing competition from international banks put pressure on the old boundaries to change. Competition opened up among participants where they had previously been separated by law. Regulations and federal agencies with clear governing authority over these new vehicles were now mismatched with the financial reality on the ground. Thus the onward march among institutions, the regulations they create, and the market's innovative response to them have expanded access to credit and at the same time created the political circumstances that lead to crises.
This chapter therefore turns to the market side of the state-market equation. It asks this basic question: What is in the financial services industry for the federal government to regulate? It begins by exploring the role of deposit-taking commercial banks and other financial intermediaries. It then explores how financial markets have responded to regulatory change through product innovation in financial instruments, which in turn create the need for new regulations and access to finance and frequently contribute to crises. Since the greatest need that most Americans will ever have for credit is to purchase a home, most of the innovations explored here originated in industry and surround the availability of mortgage finance. As Mark Eisner has argued, from the New Deal reforms to the 1970s, regulations segmented industries that were defined by the products and services that each offered. As the banking industry deregulated, the specialized markets intermingled in the informal, or “shadow,” industry that grew up around the traditional depository intermediaries.
This section picks up the historical review covered in Section One and integrates it with the bureaucratic politics among the president, agencies, and the legislature covered in Section Two to see how the system operates in motion. The stakes of the actors involved are brought into particularly sharp contrast during the business cycle and in a crisis. The process in motion matters because responses to developments in the financial sector and political institutions compel citizens and bankers to make demands on their government for change, as well as for the government to respond. Politics are not static. The process of regulation, institutional competition, and financial innovation thus results in new configurations of state capacity to regulate the financial sector – with one of the most dramatic episodes having occurred in 2008.
The section divides the analysis into the operations of the government in response to the ups and downs of the business cycle, from how it operates in response to a crisis, and from its international context. In these chapters, a crisis is a sporadic, disruptive event that alters the boundaries defining the legitimate use of coercion. Actions taken to meet these challenges often lead to the establishment of new institutional forms, powers and precedents. Chapter 7 explores the politics associated with the business cycle, when the president, Congress, and the Federal Reserve respond to the competing demands of those citizens disadvantaged in a downturn. Each organization responds according to the range of opportunity allowable under its mandate, and change among them is incremental. Even prior to the crisis of 2008, the tendency was for the Federal Reserve to play a greater role in macroeconomic management, and for Congress to cut taxes without raising revenue from other sources. In Chapter 8, we see how the pace of change escalated during the financial crisis of 2008. The chapter divides the government’s response to the crisis into the short term, where it stretched the boundaries of legitimate use of its resources to save the system, and the intermediate term, where the legislature reorganized the regulatory framework and established a new agency for consumer protection.
The book posed this question: What features of the American political system make the financial system so prone to crises? It has argued that the answer is far more complex than the common themes of large campaign contributions and agency capture by the financial services industry. Although these features of the system play their roles, we have found that a more profound understanding of the three domains of financial politics comes from an examination of the particular historical path the United States took in developing state capacity to regulate finance. Both the political and financial systems reflect an American political culture that distrusts the centralization of power in any one governing institution at either the federal or state level, and that distrusts the concentration of economic power that large banks by their nature hold. Thus the system is prone to crises because an overarching integrated monetary, fiscal, and regulatory solution at the state, national, and international levels would contract core American values concerning the separation of powers, federalism, and free market capitalism. The flip side is that as the system developed, it generated innovations that gave a diverse population and industries growing access to credit.
Policymaking in the financial area is thus destined to be a victim of its own success. If the regulatory system is working properly, market participants and the interest groups that represent them in the political system question why regulation is even necessary. Regulation appears to stunt growth and stifle innovation for no apparent reason. Interest groups are particularly incapable of organizing to protect themselves from dangers that might have arisen since the last set of regulations were written because they have no direct experience with which to understand such threats. Even if they organized to protect themselves, they would have to cover an immensely intricate and diffuse system that preserves competition among agencies. Thus interest groups do not organize to protect the benefits of a stable system. They organize to take advantage of what they see as opportunities to make a profit. The system of pluralist interest group representation, distorted by the size and resources of the industry, guarantees that change is a constant feature of the system.
Students of American government learn that the president controls the executive branch. After all, the president is the titular head of the executive branch of government and the only individual elected by all of the American people. However, those working in government know that the reality is much more complex. The president has three main levers of control over the bureaucracy, but as Chapter 4's discussion on the legislature demonstrated, none is absolute. He can make appointments to the top layer of management at each, but these appointments must be confirmed by the Senate. He can try to reorganize the bureaucracy, but these maneuvers are resisted by congressional committees who would then be subject to shifting jurisdictions. He can issue executive orders – that is, presidential directives to agencies – and leave himself open to criticism that the action is autocratic. In the most extreme cases, Congress can overturn an executive order with legislation or refuse to provide the necessary funding for it.
This chapter explores the connection between presidential administrations and agencies in the monetary, fiscal, and regulatory policy realms. The connection poses a unique problem in the financial area because any administration's ability to control the myriad agencies that regulate and manage the financial system varies dramatically according to how their governance structures were arranged when they were established and the organizational characteristics they have developed since then. Moreover, the agencies themselves operate within the same complex system of conflicting jurisdictions and mandates as the congressional committees. It gives each of them their own interests in preserving their areas of competence and authority, as well as an inherent tension among them. The result is that once Congress passes legislation, the contest over policy moves to the administrative agencies through the rulemaking process; if it is not satisfactory, it moves back to Congress or to the courts. Disputes over policy therefore occur in a variety of locations, with interest groups trying to gain an advantage each step of the way.
As the financial crisis of 2008 wound down, economist Willem Buiter quipped, “self-regulation is to regulation as self-importance is to importance.” We know intuitively that they are not the same thing. Buiter goes on to comment that if a large corporation such as Airbus or Boeing wants to double its operations, it would need four or five years to assemble the money, build the factories, and ramp up its business. However, a bank can double, triple, or even quadruple its operations with incredible speed under the right circumstances of optimism, trust, and confidence. Unlike a large manufacturing operation that needs a plant and inventory of parts, a bank borrows and re-lends money to increase its operations without the same need for physical infrastructure. The problem is that the speed works in reverse. In the absence of the large fixed costs associated with plants and heavy machinery maintenance, pessimism, mistrust, lack of confidence, and fear or panic can force banks to shrink their operations at an even faster rate than they grow. Given the centrality of the banking system to economic activity and this unique feature of its operations, the industry cannot be left to police its own activities.
Policing the activities of banks poses a unique set of problems in the United States. By world standards, American political culture contains a very antigovernment streak. The early patriots resented taxation by the British parliament. Unlike many constitutions that detail a role for government, the Bill of Rights in the American Constitution is a list of things the government cannot do. The political activities of banks and financial institutions are no exception to this rule. Like the rest of American business, they seek the freedom to conduct their affairs with a minimal amount of government intervention to maximize their profits. The problem is that the failure of a large bank has very different societal effects than the failure of other firms. The entire U.S. economy is dependent on the banking system for money, credit, and a way to make payments. Therefore, it has been compared to the trunk of a tree that feeds the branches and leaves of the broader capitalist system. The loss of a branch or leaves might do serious damage, but the loss of the trunk kills the tree.
As the political institution that serves as a central bank in the American system, the Federal Reserve is, in its essence, a bank. The Treasury pays the government's bills. A bureau of the Treasury, the Internal Revenue Service, collects taxes. The president and Congress control who the Treasury pays and taxes – and how much – when they negotiate the annual budget. But the Treasury's general account is at the Federal Reserve. At this time in American history, the notes of that bank are the legal tender for the country and, incidentally, most global financial transactions. Although it is not a branch of the government laid out in the Constitution, the Federal Reserve System plays a major role in financial politics because it determines monetary and some regulatory policy. It has been constructed over time through the political process, so it does not have the same structure as a commercial bank. Moreover, it handles many additional tasks that can seem to contradict each other outright. These contradictions result from the political compromises necessary to bring it into existence only a century ago.
In brief, the Federal Reserve System is structured with a central Board of Governors in Washington, DC, and Reserve Banks in each of twelve districts whose stock is owned by commercial banks that have chosen to join the system (i.e., member banks). Policy results from a mix of the activities between the board and the Reserve Banks. Monetary policy is made in the Federal Open Market Committee (FOMC), a committee comprising the seven board members in Washington appointed by the president, the head of the most significant regional Reserve Bank, the Federal Reserve Bank of New York (FRBNY), and four additional members that rotate among the heads of the remaining eleven Reserve Banks. Regulatory policy is issued through the board. The regulations issued can apply to the entire banking system or just to member banks, depending on their nature. The Reserve Banks operate a nationwide payment system and supervise and regulate member banks and bank holding companies. As a part of these activities, they distribute coin and currency throughout the country.