Anat vs Eric: Take Your Pick

By Shlomo  Maital

  Cantor      Admati

Eric Cantor                                             Anat Admati

  Yesterday’s (August 10) New York Times has an editorial, along with a business section article, that offer stark contrast between two people, two world views, and what is wrong and right about America today.

   Eric Cantor is the former Republican House Majority Leader.  He lost a primary election in his district last June, in a stunning and almost unbelievable upset, despite his high visibility and infinite money.   Why did he lose?  Because from Day One, says the Times, he “courted the favor and donations of Wall Street”, becoming the “top congressional recipient of its generosity”. In other words, the top money raiser in Congress lost a PRIMARY (not even an election).  His close ties to big money led to his defeat, apparently, as his opponent focused on that issue.

    Now, Cantor is about to cash in.  He resigned his seat as of August 18, even though he has several more months to serve until the new Congress convenes in January.  Why?  He’s going to work for the same Wall St. firms that he helped so much, as House Leader. He’s going to make money.  He has little real financial genius. But connections?  Infinite.  And Wall St. will pay big money for that. Eric Cantor will be a multi-millionaire faster than you can say,  Public Service?????

   Admati is a Stanford University finance professor, and an Israeli.  She did complex financial modeling until 2008, and published in academic journals.  When the financial system collapsed (or WAS collapsed by the banks, and Wall St.),  she became a powerful advocate of tighter government regulation, battling weak regulators and the incompetent Obama administration.  Admati, says the Times, even took a course on how to write opinion articles that people understand.  She has lunched with Obama and has a powerful simple explanation of what is broken on Wall St. and how to fix it.  And Wall St. despises her.  Guess why.

      Here is what she claims.  1.  We the people lend money to the banks by depositing it.  We don’t worry about how the banks use our money, because the Federal Deposit Insurance Corp. insures each deposit account for up to $250,000.  FDIC is of course the government, which is us.  And FDIC uses OUR money; when it runs out, in bad times, the government refills the coffers.  2.  The banks take large undue risks with our money when they lend and invest it, as they did during 2001-2008,  investing in sub-prime mortgages for instance, because they are “too big to fail” and because if they get in trouble, as they did in 2008-10, they know the government will bail them out.  They get the profit from their risk taking, if it works out; and they dump the losses on us if it doesn’t.  Good deal.  And nothing really has changed in this crackpot system since 2008.   3. The solution?  Regulate not how banks lend and invest their money, but how much they borrow (from us).   

Wall St. absolutely hates that idea, because the money machine that borrows from us at 1 per cent and lends at 5 per cent is a sweetheart of a deal, especially when government bears the risk of that 5 percent. So they deeply dislike Admati as well.

      Admati vs. Cantor.  From public service to millionaire overnight; and from academic professor to public advocate, serving the public, also overnight.

       Take your pick.  Which do YOU prefer?