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**MARCH 8, 2024**

On the Prospect website

The Strategic Shouting of Biden's State of the Union

Loud and proud, Biden dispelled the 'lack of energy' issue while
promoting an economics to which the GOP has no real rejoinder. BY
HAROLD MEYERSON

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Intel's $3.5 Billion Boondoggle

The microchip giant's 'secure enclave' project will take
nearly 10 percent of a CHIPS Act manufacturing fund that is already
stretched thin. BY AUSTIN AHLMAN

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Biden's Trustbusters Face Hurdles From Within

Despite successes in fighting corporate power, the message is
muddled. BY ANDREA BEATY

Kuttner on TAP

****

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**** A Capital Crime

Fed Chair Jerome Powell is sabotaging a rule requiring stronger capital
standards for banks-that he pretended to support.

Who is President Biden's worst appointee? It isn't even close. That
would be Jerome "Jay" Powell, appointed as Fed chair by Trump in 2018.
Biden reappointed Powell in February 2022.

Why reappoint a former private equity operator and Trump favorite to one
of the most powerful posts in government? Biden liked the idea of
appearing bipartisan. Powell also persuaded Biden that he favored low
interest rates.

We all know how that worked out. Misjudging the inflation caused by
supply shocks, Powell led the Fed to raise rates eight times and still
hasn't cut them.

But even worse than Powell's reversal on monetary policy have been his
ongoing efforts at the Fed to undermine bank regulation, leading to the
failure of Silicon Valley Bank and other banks. Details are in this
report by Better Markets
.

This week, Powell went public with his behind-the-scenes efforts to
sabotage a critically important rule
,
issued in draft form by the Fed and other banking agencies last July, to
require large banks with $100 billion or more in assets to hold more
capital as reserves against losses. The rule is the final step in the
international effort known as the Basel III process that began after the
financial collapse of 2008, to both strengthen and better align the bank
regulations of different nations.

When the proposed rule was issued, Powell joined the Fed's Democratic
governors in support; the two Republican governors were in opposition.
Powell issued a statement

ostensibly in support of the rule, but his words read more like a
statement of misgivings. His comments virtually coached industry critics
on which holes to poke in the draft rule.

In his semiannual testimony before the House Financial Services
Committee Wednesday and the Senate Banking Committee Thursday, Powell
came out of the closet, walked back his previous nominal support for the
rule, and vowed to make "broad and material changes" to water down the
rule. Dissembling about the fact that he has only one vote, Powell took
for granted that he would bring others at the Fed with him, and isolate
Fed Vice Chair for Supervision Michael Barr, the architect of the strong
draft rule.

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This represents a victory for the biggest banks, which have been waging
a massive PR and lobbying campaign claiming the higher bank capital
standards will reduce lending and be bad for small businesses. In fact,
the standards would reduce bank speculative activities and modestly cut
into exorbitant bank profits and executive bonuses.

Powell's strategy is to slow-walk issuance of the final rule, which he
told the Senate Banking Committee could be completed by the end of 2024.
The premise is that more research or deliberation is necessary, but that
is a smoke screen for gutting the measure or letting it die entirely.
The final rule should be issued now.

It fell to Sen. Elizabeth Warren to call out Powell on his hypocrisy. A
year ago, she reminded Powell, "You talked a lot about getting tougher
on the banks, but now the giant banks are unhappy about that, and
you've gone weak-kneed on this."

As it happens, Powell's timing is terrible. New York Community Bank,
which grew rapidly by recklessly acquiring other banks
,
is now on the verge of going broke. In 2022, NYCB more than doubled its
size, acquiring Flagstar Bancorp and parts of failed Signature Bank,
raising its total assets above the $100 billion threshold. Had a
stronger capital rule been in effect, NYCB would have had to proceed
more prudently.

For the moment, NYCB has been kept afloat by an infusion of a billion
dollars in cash-in other words, capital-by a group led by Trump's
former Treasury secretary, Steve Mnuchin. More capital was needed

**before** the bank's speculative tailspin, not after.

The symmetry of players and their plays is all too perfect. Goldman
Sachs veteran Mnuchin and former private equity operator Powell are part
of the same Wall Street gang that has been letting banks run wild, in
order to pump up the income of their cronies.

In this case, Mnuchin's private bailout may or may not save the bank.
If Powell succeeds in eviscerating the capital rule, there will be more
public bank bailouts.

~ ROBERT KUTTNER

Follow Robert Kuttner on Twitter

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