If corporate fronts designed to look like grassroots efforts are known as astroturf, what should Wall Street propaganda dressed up in fake ivory-tower endorsements be called -- fake ivy? As regulators write rules to put financial reform law into practice -- and conservative legislators work to weaken or even de-fund that effort -- it's a good question.
Economics professors are rushing to criticize or distance themselves from a document issued by (previously) respected firm Keybridge Research just before a key House Financial Services Committee hearing last week. Although cited by Republican legislators in support of weakening implementation of reform, the Keybridge report is "pure lobbying disguised as research," as MIT economics professor Simon Johnson wrote on the New York Times website. "This is not any kind of research. This is people who want to overleverage and risk the system -- because, once again, they will get the upside and taxpayers/all citizens get the downside," Johnson elaborated on his own blog.
Several respected economics professors who were listed on Keybridge's website as company advisers removed their names from the site the same day a Times reporter called them to ask about the study.
The subject of all this is so-called "over-the-counter derivatives": secretive, complex dealings that earned Wall Street high profits for making bets it couldn't cover. These shadowy "instruments" were central to the 2008 financial crash, when many firms turned out to be unable to make good on their casino-economy bets. Last year, financial reform finally imposed some common-sense rules to help head off a repeat of the global crash; to put that law into action, the CFTC has proposed making most OTC buyers put down 3 percent collateral.
A mere 3 percent down payment may seem quite reasonable to you or me, but the Keybridge report claimed it would -- prepare yourself for a novel accusation -- kill jobs. This report's analysis was, as MIT economics professor John Parsons blogged, a bogeyman based on premises that are "clearly not true."
Also not true is the report's claim that it represented solely a group of "end users," i.e., corporations that buy or sell the grain, oil, or other physical commodities on which some derivatives are based. Such corporations obviously have more credibility than the Wall Street firms which drove the economy off of a cliff -- but the so-called "Coalition for Derivatives End-Users," which commissioned the plastic-ivy report, was actually organized by investment banks back before reform was passed, to lobby against it. As a New Republic expose revealed at the time, one bank lobbyist describe the group's founding principle as, "Hey, let's get the dopey end users to go out and be the face of reform. We don't have the credibility." As Johnson put it, those end-user company CEOs who are involved are committing "serious management failure," as they "are being ripped off -- and then providing political support to the banks responsible for it."
Confronted with Nobel-winning economist Joseph Stiglitz's opinion that the report's argument was "particularly foolish" and "an embarrassment," Keybridge's president responded that the report was what "the client had asked us" for -- "a hypothetical study."
Elizabeth Palmberg is an associate editor of Sojourners.