Tag: Financial Reform

In The Beginning………

Daily Agitator

In the beginning there was a massive amount of anger leveled at the Wall Street banks that took the US to the brink of collapse……..so much anger that the Congress set about to stop the gambling on the taxpayer’s dime…..regulation and oversight was the call of the day…..it showed promise….it showed that the Congress got the idea and started acting on behalf of the people……that was in the beginning….now it is something way less than the original intent…..

When the Senate bank reform legislation passed in May, Senate Majority Leader Harry Reid (D-Nevada) said it sent the message to Wall Street that they can no longer “recklessly gamble away other people’s money.” The bill told Main Street, “you no longer have to fear that your savings, your retirement or your home are at the mercy of greedy gamblers in big banks. And it says to them, ‘never again will you be asked to bail out those big banks when they lose their risky bets,’ “

The bill the Senate passed did protect the taxpayers from reckless gambling by the big banks, largely due to the last-minute inclusion of strong derivatives reforms authored by Senator Blanche Lincoln (D-Arkansas). So why is it that Senate and House leadership are now busy behind these scenes trying to kill the best provisions in their own banking reform legislation?

Behind the scenes, Senate Banking Chair Chris Dodd (D-Connecticut) and House Financial Services Chair Barney Frank (D-Massachusetts) have made it clear they are not fans of Lincoln’s proposal. Neither is the U.S. Treasury Department. Treasury official Michael Barr has been running around telling anyone who will listen that these derivatives rules were not part of the administration’s four “core objectives” for financial reform.

But opponents of strong derivatives reform have a big problem. They can’t just yank it out of the bill with an outcry from consumer advocates and reform groups like Americans for Financial Reform, who have been working hard on the issue. So they have cooked up a new scheme. They will replace the Lincoln language with the strengthened version of the Volcker Rule offered (but never voted on) by Senators Merkley (D- Oregon) and Levin (D-Michigan). They want to convince everyone that a strengthened Volcker Rule takes care of all the issues raised by Lincoln.

In case you are not sure what the Volcker rule is…let me help….The Volcker Rule deals importantly, but narrowly, with derivatives trading for a bank’s own account. This is called “propriety trading,” and banks would be barred from trading any financial instrument (mortgage-backed securities and stocks, as well as derivatives) for their own as opposed to a customer’s account. Merkley-Levin would make this reform a statutory ban rather than leaving it to the discretion of regulators and would further crack down on Goldman-style conflict of interest trading. But big banks would still be allowed to deal and trade on behalf of their clients and their derivatives business would still be backed by the taxpayer guarantee.

Watch the slight of hand by the Congress…the bill that is the final version will be far from the regulation needed to prevent the economy from collapsing again….with the Congress being paid by the banks to water any reform down….we can look ahead ten years or so and see all this economic woes occurring again…….Politicians need to think about that when they are so concerned about our children’s future…….

Mr. Dodd Has A Plan

With the heated back and forth of the health reform, very little has been reported on the new financial reform bill….Sen. Dodd and some Repub from Tennessee are quietly negotiating for the passage of a financial reform bill….now that it is pretty close Dodd has hit the airways to try and block any  “tea bag”-esque attacks that the health reform bill has received.

I was going to write a piece trying to explain Dodd’s lame attempt to regulate the thieves but the Washington Post beat me to it and theirs is a lot simple and more understandable than mine would have been:

1 A Consumer Financial Protection Bureau, housed inside the Federal Reserve, would write and enforce rules protecting borrowers from abuse by lenders.

WHAT IT MEANS: The location of the agency is a nod to Republicans and conservative Democrats who oppose the creation of a free-standing consumer agency, but everything else about this proposal is designed to please liberals, giving the consumer agency sweeping powers and imposing few checks on that authority.

2 A Financial Stability Oversight Council, chaired by the Treasury secretary, would coordinate federal efforts to identify and manage risks to the financial system and the broader economy.

What it means: Dodd wanted to give the council broad responsibility for policing systemic risks. After massive administration pressure, he agreed instead to give much of that power to the Fed. The oversight council will instead function essentially as the Fed’s board of directors on regulatory issues, signing off on its decisions.

3 A new process would allow for the liquidation of large, failing financial firms.

WHAT IT ME ANS: Companies could be liquidated by joint agreement of the Treasury Department, the Fed and the Federal Deposit Insurance Corp., which already administers bank failures and would play a similar role in the new process. Costs would be paid from a $50 billion pool of money gathered from large financial companies.

4 Credit-rating agencies would be regulated and liable for errors.

WHAT IT MEANS: Breaking with the administration and the House version of financial reform, Dodd’s bill would hold Moody’s, Standard & Poor’s and other rating agencies potentially liable for their judgments about the safety of bonds and other investments. The industry also would be regulated by the Securities and Exchange Commission.

5 Banks would face new limits on trading and investment activities.

WHAT IT MEANS: The bill would restrict banks from running their own investment portfolios or hedge funds, an administration proposal known as the “Volcker Rule” that Dodd initially had rejected. The bill also would regulate the massive trade in derivatives, increasing the proportion of such trades that are publicly reported.

6 Some renovations would be made to the structure of federal banking regulation.

WHAT IT MEANS: Dodd abandoned his earlier proposal to create a single banking regulator after critics argued that the upside was not worth the effort. The bill still would eliminate the Office of Thrift Supervision. The Fed’s authority over smaller banks would be split between the FDIC and the Office of the Comptroller of the Currency.

Is something better than nothing?  I hear a lot of the henceforths and heretowiths …..in other words legal-ese and the “too big to fail” group will still have its relief valve….US, we will still be on the hook whenever they screw up….I guess it is a start….but like health reform…..it is NOT reform….it is a tweak of an already broken system.