Unlike healthcare reform where I have spent many hours researching the issue, I know very little about the substance of financial reform. My gut says it would be better to have an independent agency for Consumer Financial Protection but some make an argument that a financial protection agency would be better funded under the Fed. The first question that comes to my mind is why then did the Fed miss the financial crisis? I am not a Fed woo woo by a long shot I just think of it as another institution that needs to be improved but there is nothing inherently evil with it and going back to some kind of precious commodity type of backing is far from realistic. So I’m open to the Fed having jurisdiction over financial protection I just hope it’s done right with proper legislation, oversight and execution.
I can’t give many more details about Senator Dodd’s legislation but it does contain some language Paul Volker has promoted to help and prevent the “too big to fail” from happening in future. The debate is starting and I’m sure the legislation is not enough reform for progressives and too much for conservatives but at this point in our political discourse I personally don’t view those perceptions as reasons to be against this legislation right now. Probably if the HCR push ends soon one way or another I’ll research the issue more intensely. Like every issue I like to cut through the partisan bullshit and decide for myself. I also realize that even my expectations like on healthcare reform are not going to be realized in the first step because of the influence of lobbyists and the corrosive nature of our political discourse.
Click here to read the full article which contains a copy of the proposed legislation.
Sen. Chris Dodd (D-Conn.) on Monday unveiled a sweeping financial regulatory reform bill designed to prevent future Wall Street bailouts and to protect borrowers with a Consumer Financial Protection Bureau housed at the Federal Reserve.
During a press conference at the Capitol, the chairman of the Senate Banking Committee emphasized the need for consumer protection, adding that the financial crisis and resulting recession were caused by predatory lending.
“The root cause of our economic crisis was a lack of consumer protection,” Dodd said, emphasizing that the current regulatory structure is “hopelessly inadequate.”
The consumer protection bureau would have authority to write rules governing all entities — banks and nonbanks — as well as the “authority to examine and enforce regulations for banks and credit unions with assets over $10 billion and all mortgage-related businesses,” according to a summary of the bill.
President Obama praised the proposed bill, calling it “a strong foundation to build a safer financial system” and saying that it provides the government with “essential tools to respond in a financial crisis, so that we can wind down and liquidate a large, interconnected failing financial firm. It allows us to protect the economy and taxpayers so that we can end the belief that any firm is “Too Big to Fail”.
Elizabeth Warren who proposed the CFP agency had this to say about Senator Dodd’s legislation.
Since bringing our economy to the brink of collapse, Wall Street has spent more than a year and hundreds of millions of dollars in an all-out effort to block financial reform. Despite the banks’ ferocious lobbying for business as usual, Chairman Dodd took an important step today by advancing new laws to prevent the next crisis. We’re now heading toward a series of votes in which the choice will be clear: families or banks.
I will not qualify her statements like some progressive pundits have so just present it and you can make your own opinions.
In the Progress Report this morning was a good post with MANY links on the Dodd bill.There are some very good proposals in this bill. The R’s are telling Dodd not to start mark-up on it next week–Slow Down! What so they can marshal all their lobbyists to fight it? R’s: “it needs to be ‘improved’.”
Making Wall Street Play By The Rules
http://pr.thinkprogress.org/
Thank you, Bito. I am about to read those–great find on a topic I need to edumacate myself on. Did you watch Giethner last night on Maddow? He came across really, really well, IMO.
I did see some of that interview. I liked what he had to say. He has gotten some really bad press by many people that don’t even understand the job.
I herd a politician say:
I have to goveren
pundits can just talk.
(click through some of the links, you will know more than you want to 🙂 )
“How A Few Made Millions Betting Against The Market”
Another great interview by Terry Gross on “Fresh Air” on how Wall Street Gamed the system that led to the recession.
Pissed me off again to listen to how these schmucks ruined so many lives.
Worth a listen!!
And j’avaz plenty to read.
According to the White House site here are a few more items in the Dodd bill beyond the Consumer Protection aspect. I have a feeling that the Consumer protection aspect will be the talk on the MSM. Not because it is the most important part,but because it is the easiest to explain in 2min. quips. It will become the “Public Option”of financial talk. Will they want to have to explain derivatives, proprietary trading and controls on hedge funds, in 2 mins.?
Next week the markup on the bill is scheduled. Will anyone watch it? Will Cspan cover all of it?
http://www.whitehouse.gov/the-press-office/statement-president-financial-reform
God bito I was thinking the same thing. Here we go with dumbing down the issue to one point.
HCR=death panels,public option. That’s all!
Republicans will say protecting consumers is job killing legislation.
I would not feel in any way deficient about
not having a total grasp on this or even a good grasp.
Do They ?
That is the scary part.
Something tells me
It’s not just the
“Too Big To Fail” that is a problem
but also
“Too Complex To Understand”
and of course
“Too Greedy to Care”
Several of these Frontline Documentaries answer some of these mysteries
anyone can watch online
Check out (if you have not already)
Inside the Meltdown first air Feb. 17 2009
Ten Trillion and Counting first air Mar. 24 2009
Breaking the Bank first air June 16 2009
The Warning first air Oct. 20 2009 (must see)
The Card Game first air Nov. 24 2009
http://www.pbs.org/wgbh/pages/frontline/view/?utm_campaign=interiornav&utm_medium=topnav&utm_source=topnav
Patsy
I agree frontline has done a marvelous job of breaking it down. IMHO so has Matt Taibbe although in some circles he is being demonized for his reporting. The truth is sometimes hard to digest.
Senator Ted Kaufman addresses Wall Street bail-out and corruption –
I was somewhat surprised that Senator Kaufman had/has been so vocal on this subject. Delaware is known for its lax regulations on corporations and banks. He is fighting some large money in his state. Good for him!!
That was the damn problem wasn’t it there weren’t enough laws in place and the lawman were sleeping.
KQ, I haven’t been keeping up with financial reform proposals as much as I should because of the HCR battle, but it is certainly time to to that. All I can say at this time is that it seems counter-intuitive to place a consumer protection agency– one that should protect consumers from the excesses of the banking industry– inside a bank. The fox/hen house analogy is just too apt here.
The best argument I saw putting it in the Fed is that they oversee banks now and if they become a separate agency Republicans can starve it like they do with other watchdog groups. There is the fox hen house aspect but that’s how it has been. The real test with any legislation is how it’s executed. Most of the watchdogs were on vacation for almost 20 years when they should have regulated.
I wonder why everyone sees Volcker as such a savior these days. I wasn’t following the Fed back when he was chairman but I do know someone who was ruined financially when Volcker raised interest rates drastically (my friend had a bunch of rental properties on variable rate loans and lost most of it). That’s about all I know about him, except that nowadays all the folks who want to lynch Geithner seem to think Volcker is the answer to everything. I’m reserving judgment on both those counts.
“He was a founding member of the Trilateral Commission and is a long time member of the Bilderberg Group.”
This is wiki, though, and I didn’t catch a reference. So…
*I’ll just put this here, not part of a response, but one of my beefs with the HP mains on banking is that I don’t have much to say.
I try to learn, I do, but this stuff makes my eyes glaze over and my mind shut down. I do respect all the more for that reason people who get it though.
That’s why they call it the “dismal science,” Khirad.
I almost half-understand the propensity for woo woo theories. It does spice it up at least.
I just need to come up with my own non-anti-Semitic colored ones.
E’cat, there is a good article about Geithner in The New Yorker and what he has accomplished.
No Credit
Timothy Geithner
The amazing part is Geithner’s plan cost $7 billion of TARP money while getting something like $240 billion from private investors. The plan everyone said would fail. In fact under Geithner most of the TARP to was not spent something like $210 billion of the $350 billion and much of that was redirected to loans for business and consumers. My biggest criticism of Geithner comes from the fact that they have not come up with a good working program to stem foreclosures.
E’cat, yes I remember those interest rates. I also remember the inflation rate, which began to climb under Nixon-then Ford. There was an augment then that the “real interest rate” was not that high when inflation was taken into account.
We will never know for sure but if Volcker had not raised the interest rate, inflation would have eaten the heart out of the economy.
Bito
I bought my second house in August 1978. When we signed the contract, interest was at maybe 8% maybe less. Construction took so long that we did not close until March 1979 and our final interest was 13%! We could not lock into a certain interest rate because they were only good for so many days……..each time it went up they locked us in, then took it away when the timeframe had expired.
Sue, I remember well. I was doing custom home building during that time. Just like now, the interest rate didn’t seem to matter to the rich, but the inflation was eating my wages alive. 🙁
Volker and inflation:
That was the argument used about the “real interest rate.”
Exactly if interest rates were not raised inflation could have been with us much longer. It was painful at the time but could have been much worse. Artificially low interest rates during Greenspans reign ended being much worse in the end.
But KQ, “the markets will self-regulate” themselves!
😀 Right Mr. Greenspan?
If you ask me Greenspan followed closely by Graham were the two most influential people in this crisis. I’m not a blind partisan I think in blame and be apportioned but about 30% of the blame goes to Dems and 70% goes to Repubs. It was not good to give to many loans to people who could not afford it and Dems like Dodd did relax loaning using Fannie and Freddie. But the lion share of the blame goes on the insistence of Repubs to deregulate and worse the whole system was asleep at their posts.
Volkner is horrid, no doubt, but Little Timmy Geithner and the IMF is viewed as a pariah in Asia, and for good reason. During the Asian crisis, he caused a disaster. He applied a current account solution to a capital account crisis.
Because of this, Asia will have nothing to do with the IMF and China has very wisely decided to build a 2 trillion dollar foreign reserve.
Oh and KQ, great post. This is going to be the next big NO from the party of NO.
KQ
I was a banker for 19 years, mostly with WFB. I left in 1998 to work for Visa USA. I can tell you when I was at WFB and the fed did our audits, they were grueling and WFB was a very repsonsible lender. Two things happened, Norwest bought out WFB and the repeal of the Glass-Stegall act. To me it does not matter whether it is federal or private oversight, the thing that has to be done is to reinstate Glass-Stegall. What will happen with regulators, private or gov. is that there will still be little protection for the consumer because the agencies will still have their hands tied. I don’t buy it that the gov cannot regulate and oversee, they did it fine before Glass Stegall was overturned, I know I suffered through many audits. We were under the SF office of the Fed and we never knew when an audit would take place until just before it happened and it might not be the entire bank, but certain divisions, they did it on a round robin type of activity. Knowing that, tends to make bankers more aware of what they are doing and how they are doing it. But without reinstating Glass/Stegall the problems will persist. Derivitives are so hard to figure out, you will need math majors for those areas and they will still have problems. The problem in my opinion is not enough compliance regulation. I am all for the consumer being protected but it has to happen with the reinstatement too. When Banks don’t have investment houses to shore up their earnings, they learn to be lean. You had fees but they were regulated as well.
I had a pleasant experience in banking, but it was because there were rules in place and if you followed the rules, you do not get into trouble. Now I would not be a banker for any money because I learned under the old way, be straight with your customers and your customers will stay with you. Follow the rules and you will get a great audit. Get a great audit, you will see the results in your paycheck. Knowing their are rules and compliance benefits everyone.
Oh and shut down Goldman Sachs completely, they were the dirty dogs in this collapse. AIG helped them along, but Goldman to me is the worst of the lot. Isn’t it funny how they are just about the only game in town now?
Cheers, great insight. I don’t know how much the “Volcker Rule” is part of the Dodd legislation but it was suppose to restore big parts of the Glass-Stegall act.
I will look up the Volker rule, if it is significant then ok go for it, but I just don’t see any new agency working within the confines of no Glass Stegall. An agency does not fundamentally change behavior on it own. Regulation does that.
Volker was fired from the Fed because he was not a great deregulator, by Ronald Reagan, I guess my estimation of his worth, just went up a notch or two. This is what he had to say of banking and their lack of innovation
Volcker has been known to defy the stereotype of a Wall Street insider. A profile in The Week magazine for February 5, 2010, claimed that Volcker
doesn’t even buy the conventional wisdom that “financial innovation” is necessary for a healthy economy. In fact, he likes to say, “the only useful banking innovation was the invention of the ATM.”
Sue, Do you mean reinstate Glass-Stegall?
That confused me too, but this ALL confuses me!
Khirad
It was late I was sleepy, but I just corrected it. Thanks to both of you for pointing it out as repeal of Glass Stegall has already happened, I want reinstatement.
Yes, I must have gotten confused with repeal and reinstatement of glass stegall. I am editing the post…….thanks for pointing it out
Solid post, as usual, KQ. Thanks for gathering up the elements and the citation from Elizabeth Warren.
Somewhere I missed the 1999 absurd death of Glass-Steagall which, established in the Depression, had prevented precisely what occurred the last year. It insisted that investment banking (risk takers) be completely separate from commerical banking (lending to you, me, the shoe store down the street.) What Wall Street wanted was a huge pool of capital – YOUR money – to play with, so they wheedled, dealt, horse traded, and got Glass-Steagall killed.
It shocks me NO end that this happened, not just because I missed it entirely, but because remember 1989? Remember the Savings & Loans debacle? How could we have been flim-flammed into believing that this would not be WORSE for the huge capital presented by banks which commanded so much more of our cash than the S&Ls?
And still we have the drivel being pumped around by Republicans and a few Dems that the ‘free market’ works. Oh? When? Before the Depression there were MANY depressions, about every 3-8 years from the Civil War to 1929. The suffering and loss of family stability was huge. And we never EVER learned from that. It took the near total collapse of our economy in the 1930s to make clear that one essential element of large corporate unregulated capital was unregulated greed. I’m not speaking of this as a moral failing (though it is) but as an irrational element in acquisition of riches. There is no such thing as “enough” for those involved in wheeling and dealing. OPM – Other People’s Money – becomes essential to continuing the spiral. In a very real sense it is ALL a Ponzi scheme if you have unfettered access to OPM.
The other side is a form of cannibalism. OUr entire manufacturing sector in capital and durable goods as well as almost our entire domestic production was decimated by a little known law from Prohibition that allowed businesses, put out of business by circumstances beyond their control (liquor bans) to do an accelerated depreciation, devalue their property to virtually nothing, and get cash back from back taxes paid. The cash is itself tax free. So companies bought other companies to put them out of business, get MORE money than they paid for the now defunct business, and walk away. When Bethlehem Steel shut down its Buffalo, NY plant in 1983, it got almost – hang on – 1 BILLION from the feds to do so. And yet it was productive, profitable, and employed 22,000 men and women. Gone. And the cash swelled the corporate bottom line making the business look flush with money.
We, the nation, need all these fire walls. The shut-down/write- down law once had that proviso – “circumstances beyond the company’s control” – that got removed in 1964. It must be replaced. We need to reward solid investments that produce wealth as in durable, sustainable income that produces jobs, not the flash in the pan riches. We need a new Glass-Steagll.
OK – I’m fine with people being stupid and making up intangible things such as “credit default swaps” and betting on corporate failures in order to win. We are gambling addicts in this nation. But these cannot in any way be linked to the everyday capital of business, home ownership, production, the overall economy. Let the Wall Street gluttons have their fun – but no more bailouts. No free money, yours, mine, or anyone’s, that is not intentionally contributed. Sure the returns are juicy – when they work. It’s a zany, energetic, risky, high-living world, and they are welcome to it. But not with OPM.
In other words, if the Supremes have decided that corporations are people, too, and if the Reeps pontificate about “personal responsibility”, then let it begin here, now.
Spot on analysis.
The deregulation madness was part of the greed is good mentality established during the Reagan years. Unfortunately many Dems bought into the mentality as well. It’s amazing how the accountability party preaches accountability as long as it’s not holding big business accountable. We have to realize that it’s hard to put the genie back in the bottle. It’s not like the Great Depression where we did start from scratch because most of these institutions survived the crisis and people have such short memories. Republicans are back on their deregulation kick as we write.
Regulation does not kill business. In the long run regulations helps business because like you implied it reduces risk in the marketplace.
Regulations also work to force companies to invent new technologies which make them competitive. I would always argue with other scientists I worked with that we should have environmental standards higher than those imposed upon us by the Feds and the State because when they eventually change we will be ahead of the competition. Now with many of the air and water regulations getting stricter many products I worked on that are environmentally safe have much longer commercial shelf lives.
Since the US did not adopt stricter MPG and air emission standards years ago we fell behind the hybrid auto and renewable energy market. Industries evolves and extra stress on businesses, in the form of stricter regulations, help them evolve more rapidly. That’s one reason I’m for cap and trade legislation. The longer we let polluting industries off the hook for what they really cost the planet the further we will fall behind.
Good points, KQ. Interesting how the USA really is falling behind on all the important fronts nowadays…accompanied by a notable shift to the right politically. Hmmm.