Justin Lutz

 

Recent Posts by Justin Lutz

  • The Heirs of the Great Recession: Why Students Want Financial Reform

    May 18, 2010Justin Lutz

    need-job-150For America's students, graduation seems to be approaching much faster than financial reform.

    need-job-150For America's students, graduation seems to be approaching much faster than financial reform.

    As commencement approaches next week, the weather is calling for thunderstorms, and the imagery couldn't be more apt. What is usually supposed to be a moment of celebration and achievement has turned into a ritual laden with Schadenfreude, as the rest of the world looks on, grimacing, with talk of the recession and its heirs -- my class.

    Jokes of walking off stage and into unemployment permeate any conversation about graduation. "What are you doing after college," they ask, grateful that they aren't in this place; they aren't the ones who must now pull themselves away from the institutional umbilical cord that we call (in my case) a private liberal arts college.

    Sarah Lawrence College, where I attend school, is the most expensive college in this nation. Tuition and fees run around $54,000 per year. That is twice what my family of five makes in a year.

    But because Sarah Lawrence is private, there is no restriction on financial aid that I can receive from the college's private endowment. This means I get about $49,000 in grants from my school each year. This takes care of the brunt of the expense, but still leaves a sizeable amount left, which is remedied by federal assistance, including Pell Grants and subsidized student loans.

    There is no doubt that vying for a college education has become somewhat of a punishment. Tuition keeps increasing, aid keeps decreasing, and the job market is virtually non-existent for young people.

    These problems, however, are thankfully not being completely ignored. A new report released by three youth advocacy organizations -- the United States Student Association, U. S. Public Interest Research Group, and Demos -- reveals startling facts about the financial crisis and its impact on the nation's youth, and students in particular. The study, entitled Risking Our Future Middle Class: Young Americans Need Financial Reform, points out three fundamental challenges to young Americans seeking financial reform:

    - Young people (16-24 year-olds) have higher unemployment rates than any other population group.

    - Programs have been cut, or tuitions increased, or both, at most of the country's public colleges and universities.

    - Young Americans have high levels of indebtedness due to private student loans, credit card balances, mortgages and car loans.

    America's future middle class is at risk, and with it the country's ability to compete on a world stage. We need the proposed legislation in the Senate, particularly the America's Restoring Financial Stability Act, S. 3217,  which would establish an independent Consumer Financial Protection Bureau that would protect students from unfair loan practices and the credit card manipulations that saddle us with debt.

    In the bigger picture, young people need a stable economy -- at least a fair economy. We are not asking for hand outs, we are asking for a fair shot. At a time in life where we are charged with the responsibility of making ourselves into autonomous, financially-independent adults responsible for the future of this country, we deserve everything the generations before us were afforded. We need a banking system that isn't vulnerable to catastrophic collapse. We need a financial sector that doesn't suck the life out of the real economy. And we need jobs.

    Every generation wants to do better than the last, but my generation has precious little chance to make this happen with out major reforms. We are being made to suffer from the mistakes of others. The boogeyman federal deficit is not what we're worried about. We are worried about the corruption and government capture that are standing in the way of reform.

    As I walk across the stage, I'll keep my fingers crossed. But I won't hold my breath.

    Justin Lutz is a Junior Fellow as the Roosevelt Institute.

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  • Strange Bedfellows: Breaking Up Big Banks Goes Beyond Left v. Right

    Apr 22, 2010Justin Lutz

    strange-bedfellows-150What do Senators David Vitter and Ted Kaufman have in common? Hint: It has nothing to do with extracurricular activities...

    strange-bedfellows-150What do Senators David Vitter and Ted Kaufman have in common? Hint: It has nothing to do with extracurricular activities...

    The struggle over financial reform comes to a head this week as the Senate debates on a final bill. Catalyzed by the SEC's recent bombshell investigation of Goldman Sachs, the political pressure to enact reform (stateside and abroad) has never been greater. But the struggle over financial reform has been an ugly one. And just like with the health care debate, meaningful suggestions get drowned out by partisan bickering and political posturing.

    Partisan lines were drawn last week as all 41 Republican Senators voted against the Democratic financial reform bill as it currently stands. But the battle over financial reform has not been as comprehensively polarized as the health care debate, which many Republican legislators are seeking to repeal; in fact, there is a sense of consensus among most legislators in congress that something must be done to prevent another financial crisis, although exactly what needs to be done is a source of deep contention among both the Democratic and Republican parties.

    The issue of Too Big to Fail (TBTF) -- perhaps the most infamous culprit of the financial crisis in the mind of the public -- has united a few unlikely Senators around an idea: banks that are too big to fail represent a systemic and perpetual risk to our national and global economy.

    The "Dodd Bill" has drawn criticism from both sides of the aisle for not doing enough to end the doctrine of TBTF. Among the Democratic voices in the Senate, Senator Ted Kaufman (D-DE) has been front and center asking for more dramatic action to prevent a repeat of 2008:

    "Does this bill take the necessary steps to reduce the size, complexity and concentrated power of the behemoths that currently dominate our financial industry and our economy? The answer is there is little in the current legislation that would change the behavior or reduce the size of the nation's six mega-banks."

    Kaufman concedes that when it comes to a financial system as complex as the one we have in place, resolution authority seems like a pipe dream:

    "No matter how well Congress crafts a resolution mechanism, there can never be an orderly wind-down of a $2-trillion financial institution that has hundreds of billions of dollars of off-balance-sheet assets, relies heavily on wholesale funding, and has more than a toehold in over 100 countries....Resolution authority is therefore a slender reed upon which to lean when it comes to institutions as large, complex and interconnected as these."

    What we must do, he insists, is ""break up these banks and separate again those commercial banking activities that are guaranteed by the government from those investment banking activities that are speculative."

    Senator Richard Shelby (R-AL), who is a ranking member of the Committee on Banking, Housing, and Urban Affairs, echoes Kaufman's sentiment in an open letter to Treasury Secretary Geithner, maintaining that

    "[The Dodd Bill] does not end the problem of "too big to fail" and will not end the associated moral hazard. Also, it does not ensure that taxpayers are protected from the costs of bailing out failing financial institutions."

    Senator David Vitter (R-LA) has also advocated for the end of TBTF; In an op-ed for The Hill, Senator Vitter goes after the Dodd bill, writing:

    "It's clear that while [the Dodd] bill purports to address issues of systemic risk, it would have far-reaching negative consequences for our financial system. In addition to tacitly approving the "too big to fail" mindset and dramatically broadening the FDIC's power to grant favored status to specific firms, the bill would establish a permanent mechanism for government bailouts of irresponsible firms.

    In short, the proposal would shift exposure from the most systemically risky firms directly to the shoulders of the American taxpayer by granting government backing to firms that federal regulators consider "too big to fail." That's a risk the American people don't want - and one that Congress can't afford to take."

    Senator Merkley (D-OR) has also been crusading for the end of what Simon Johnson famously calls the "Doom Cycle" and its perpetuation of TBTF:

    "In my lifetime the taxpayers have bailed out powerful financial institutions twice: First with the S&L scandal of the 1980's and again with the Big Bank Bust of 2008-2009. The goal of this financial reform should be to make sure this doesn't happen again in our lifetimes. The pattern works like this. 10 Congress and regulators deregulate. 2) Financial institutions take enormous leveraged risk. 3) The bets go bad. 4) The taxpayer is asked to clean up the mess because if we don't repair the damage, our entire economic ship will go down."

    And standing alongside the Democratic Senator's call for action is Senator Jim DeMint (R-SC); writing for Politico Senator DeMint took a more populous tone, focusing anger with unemployment straight on the Fed:

    "Though millions of Americans lost their jobs because of these mistakes, Obama has allowed Bernanke to keep his - holding him over from the Bush administration. Bernanke, it's been said, is an arsonist who stoked the financial crisis, who is now expected to be a firefighter who can douse the flames. It's not working so far."

    Though the Republican discourse may have at its core political motivations that might seek synonymize the Obama Administration with anger and capitalize on populous outrage, their calls to end TBTF present opportunities for bipartisan action to achieve meaningful financial reform; and if the Democrats can remain honest to their constituents instead of the Washington lobby, broad bipartisan support might not be such a fantasy.

    The economy impacts everyone, there is no escaping. Political affiliations are irrelevant in the face of the market--red and blue do not matter--only concrete policy. We can only hope that the next week will see some rigorous and intellectually honest debate on this issue. Americans are waiting, and they deserve an advocate.

    Justin Lutz is a Senior at Sarah Lawrence College and Roosevelt Institute Junior Fellow.

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  • Re-Conceptualizing "Too Big to Fail" with the Levy Institute

    Apr 15, 2010Justin Lutz

    Debating "Too Big to Fail" at the 19th Annual Hyman P. Minksy Conference, presented by the Levy Institute of Bard College. Justin Lutz, college senior and Junior Fellow at the Roosevelt Institute, reports.

    Debating "Too Big to Fail" at the 19th Annual Hyman P. Minksy Conference, presented by the Levy Institute of Bard College. Justin Lutz, college senior and Junior Fellow at the Roosevelt Institute, reports.

    Yesterday I got the privilege of attending the Hyman Minsky Conference in Manhattan to hear what some of the world's most influential economic thinkers have to say about contemporary notions of "too big to fail," and what they mean for the future of global finance and economic stability. A lively panel was moderated by John Cassidy of The New Yorker featured Philipp Hartmann of the European Central Bank, Bert Ely of Ely & Company, Inc., and Bernard Shull of Hunter College.

    Fresh off the INET Conference in Cambridge, Cassidy opened the debate by questioning the diluted efficacy of a Glass-Steagall mentality --"If you break up Citibank into lots of little Citibanks and they all keep doing the same thing as before," he laughed, "what have you really done?"

    Hartmann was the first to speak, going straight to the heart of the crisis by addressing systemic risk, noting that the systemic risks of TBTF include the fact that excessive risks lead potentially to more profound catastrophes. But the standard solutions to this problem -- including the Volcker rule, no matter how virtuous they might seem in this debate more broadly -- will not fundamentally end the dangers of TBTF, he aruged. Hartmann proposed a number of solutions that don't garner many headlines or publicity in the blogosphere, including capital/liquidity buffers, private capital insurance, living wills, and access to pool funds.

    The real sacrifice, he concluded, is fluid crisis resolution at the expense of business efficiency.

    Bert Ely was up next, taking to the podium with a thunderous presence and unforgiving intellectual honesty:

    "Too big to fail is not going away," he declared. From the beginning Ely was a voice in the financial world that did not bother with the minutia of optimistic policy proposals. He noted that the concept of TBTF itself is entirely contextual -- what qualifies as TBTF is dependent on the specific circumstances of particular markets. And this pluralism and multiplicity of specific world markets is what makes the notion of a unified, global regulatory power nothing more than a "pipe dream," according to Ely.

    The most effective solution for the TBTF paradox is not going to come just from the public sector, Ely maintained, but must be fostered by private incentives. The most effective model of private incentive is something Ely calls a "Cross-Guarantee System" in which the risk in financial markets will be distributed to a number of actors (including private capital insurance companies) to keep risk as low as possible and prevent one institution from taking down the whole system.

    Following Ely was Bernard Shull, who posed the burning (and fatalistic) question--"Is TBTF an intractable problem?"

    Shull began by explaining what he called the "two faces" of a crisis -- the crisis face, and the prosperity face. When crisis erupts, we experience anxiety of balancing costs and explore the benefits of government intervention. But the prosperity side encourages apathy as the consequence of success and stability.

    Shull demonstrated the extent of what he called "merger madness," citing the fact that between 1980 and 2009 there have been rough 10,500 bank mergers in the US; Bank of America alone has been involved in 18 large mergers since 1991. What is more troubling is the paltry regulatory gears in place to monitor mergers of this nature, controlled by none other than the Federal Reserve. The Fed, however, in the past couple decades has leaned heavily towards deregulation, seldom denying the merger of any major financial players.

    The problem with the regulations already in place by the Fed is that they do not account for the problem of TBTF, and this is a fundamental shortcoming of federal regulation.

    The debate underscored the fact that the crisis of 2008-9 has thus far been a missed opportunity to properly address TBTF. A question raised by an audience member shows just how far we may still be from meaningful reform.

    "If we implement all of these radical changes, including these government regulations--are we still a capitalist economy?"

    To which Jan Kregel of the Levy Institute responded:

    "Shouldn't you already be asking that?"

    Justin Lutz is a Junior Fellow at the Roosevelt Institute and a senior at Sarah Lawrence College.

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  • Investigative Reporting in the 21st Century's Great Recession

    Apr 6, 2010Justin Lutz

    rsz_2newspaperCould the increasing obsolescence of print lay the foundation for a new era of digital investigative reporting? Justin Lutz, a senior at Sarah Lawrence College, takes a look.

    rsz_2newspaperCould the increasing obsolescence of print lay the foundation for a new era of digital investigative reporting? Justin Lutz, a senior at Sarah Lawrence College, takes a look.

    **This topic will be discussed today as part of Facing the Fracture: Media and Economic Understanding, a conference sponsored by the Roosevelt Institute at Columbia University.  Participants will explore the pressures of the Great Recession on quality reporting. The role of blogging and online reporting will be the topic of a panel moderated by Roosevelt Fellow and ND20 editor Lynn Parramore.

    The rise of digital technology and the Internet has opened up channels of journalistic discourse around the world; the Internet, particularly, has been a definitive tool of free speech in the twenty-first century as networking technologies become more accessible. Not all consequences of the digital revolution are positive, however.

    Take the current state of newspapers. The Pew Project for Excellence in Journalism puts together an annual report on the state of the news media, and although their findings paint a less-than-rosy picture for the future of newspapers, they do not succumb to the fatalism that hangs like a cloud over the print industry. Instead, Pew assures us that, "newspapers, contrary to what is frequently alleged, are not dying in droves."

    But new technology has had a profound impact on the way that Americans get their news. The Pew Project echoes this, maintaining that "the state of online news heading into 2010 may best be described as a moving target. Digital delivery is now well established as a part of most Americans daily news consumption. Six in ten Americans get some news online in a typical day--and most of these also get news from other media platforms as well."

    Newspapers, for the most part, have accommodated the shift from analogue to digital, establishing themselves as credible online publications. But the conventional profit model employed by newspapers is as archaic as the form itself, and cannot simply be transmuted to the online sphere. This has lead many to speculate about new profit models for online publications, including a non-profit model.

    Economic survival is the reality for media organizations, and often the drive to meet the bottom line surpasses the drive to provide quality reporting. Deadlines and insubstantial funding often render quality journalism impossible.

    The role of the media in a participatory democracy is paramount, and relies on thorough, investigative reporting to maintain an informed electorate. The Center for Investigative Reporting warns that "the only 'business' protected by the Constitution, the business of informing the public, has been eviscerated in recent years. The role that journalism plays in a functioning democracy -- informing the public and holding the powerful accountable -- is at serious risk."  The economic constraints of the media industry have left little room for investigative journalism, but what does the emergence of digital technology and the Internet mean for this crucial genre? Could thorough investigative reporting find a new home on the Internet?

    That is the plan for a number of online publications, including the Huffington Post, which has launched an investigative reporting initiative, with impressive work done on a number of economic issues including predatory lending and the mortgage crisis, among others. On the pages of New Deal 2.0, you have seen Eliot Spitzer and William Black have call for a congressional investigation of Lehman's recently-revealed accounting deception, only to be left asking Where's the Follow Up? Sadly, there has been little follow up in the mainstream print publications, and it has been left to bloggers like Naked Capitalism's Yves Smith to pour over the contents of reports and sound the alarm.

    With shrinking budgets at top media organizations and a far-from-cohesive blogsophere, meaningful investigative journalism might be elusive, but it is not impossible.  The Internet is opening up investigative initiatives to a wider audience, using its massive reach to ensure its survival. We must utilize emerging technologies as a powerful tool for investigative journalism--if we fail to do so, we might lose our best hope for a more informed twenty-first century.

    Justin Lutz is a senior at Sarah Lawrence and a Roosevelt Institute junior fellow.

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  • "I Guess You Could Call it Greed": Graduating in the Doom Cycle

    Mar 11, 2010Justin Lutz

    mortar-board-and-money-150Junior Fellow Justin Lutz on graduating college in the midst of an economic "Doom Cycle."

    mortar-board-and-money-150Junior Fellow Justin Lutz on graduating college in the midst of an economic "Doom Cycle."

    "Debt is a flower that blooms in the Spring and fades to mulch in the Fall."



    -Hiroshi Kobayashi

    "The Art of High Finance" promised to be "an interactive discussion about the cause of the financial meltdown of 2008, the implications of the government ‘bailout' and other programs created in response to the meltdown, and what it all means for a Sarah Lawrence student facing an uncertain future.

    The discussion -- complete with free lunch -- was put together by the school to calm the nerves of seniors like myself who are preparing to graduate and enter the unemployment force (the "workforce" seems all too elusive these days).  Augustus K. Oliver gave the talk -- a Yale graduate and investment manager with years of experience and an impressive CV (not someone you really want talking to you about the hardships of coming of age in a depleted economy).

    But Augustus' knowledge of the market got me past the intimidating qualities of his big-shot title. Through his explanation of the financial crisis, I have been able to better understand the connections between the small business of Main Street and its reliance on the mammoth financiers of Wall Street.

    What Augustus began to describe was the very same thing that Simon Johnson has been discussing recently -- the "Doom Cycle", which is the vicious boom-and-bust economic model epitomized by the financial crisis and the federal government's response with TARP (see Johnson's chapter in the Roosevelt Institute's freshly-released Make Markets Be Markets report).

    Augustus outlined this cycle in four phases:

    1)The set-up



    2)The spiral upward



    3)The inevitable consequence



    4)The 'cure'

    The cycle begins with banks and lenders taking dangerous risks that lead to temporarily cosmic profits. But these profits are followed by the inevitable crash and consequence of the risks taken. These consequences lead to a financial catastrophe exactly like the one we find ourselves with today. Finally comes the "cure", in this case, the bailout.

    The problem with this cycle is that it replaces any space for meaningful financial reform with panic and misinformation from the big banks so that they might position themselves in the same place again to take the same risks, reap the same profits, and look to the same government coffers for a rescue plan.

    When asked what would lead bankers or any financial actor to take such mammoth risks and endanger so many, Augustus simply answered "I guess you could call it greed."

    Augustus actually did not have much to say in terms of advice for us graduating seniors. Most of the talk was devoted to explaining market jargon, dissecting balance sheets, and wading through legislative rumors regarding financial regulation. I came to realize that all the time that was supposed to be devoted to cultivating a financial identity after college was spent explaining the mess that we are in right now, how we got here, and what we can do about it.

    Any hope of becoming giddy from discussing our entrance into the working world was replaced by a lesson on equity, risk management, and regulation. What I have come to realize is that even students fresh out of college have to know how to recognize a bank balance sheet and be able to calculate equity. We have to know the legislative tools in congress that impede or foster financial regulation. We have to know the history America's largest financiers, just to be able to get by.

    Why? Because in this economy, we are tools of the "free" market and its capitalistic exploitation of the American consumer. Knowing how to play the game of the big banks has replaced knowing how to manage money wisely and all other common sense, because no one else is playing by the rules. We have to equip ourselves with an understanding of how these institutions work if we want to be financially sound.

    Class warfare has replaced common sense, and unless there is a paradigmatic shift in the way the government and the financial sector interact in this country, we will continue to play a game of financial retribution The only reward will be the contrived populist outrage that has already muddled the message of raw financial responsibility.

    Justin Lutz is a Junior Fellow at the Roosevelt Institute.

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