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.

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bito
Member

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/

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Chernynkaya
Member

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.

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bito
Member

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 🙂 )

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bito
Member

“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.

The Big Short: Inside the Doomsday Machine chronicles the 2008 financial collapse through stories of the people who realized what was happening to the U.S. economy while it was happening

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bito
Member

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.?

This proposal provides a strong foundation to build a safer financial system. It creates a new consumer financial protection agency to set and enforce clear rules of the road and establishes stronger supervision for the largest financial firms under the Federal Reserve. It brings transparency and oversight to derivatives and other financial markets that were central to the crisis and separates banking from proprietary trading and hedge funds. The proposal will also provide 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”.

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

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PatsyT
Member

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

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SueInCa
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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.

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javaz
Member

Senator Ted Kaufman addresses Wall Street bail-out and corruption –

Mr. President, the SEC and Justice Department should pursue a thorough investigation, both civil and criminal, to identify every last person who had knowledge that Lehman was misleading the public about its troubled balance sheet

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bito
Member

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!!

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Chernynkaya
Member

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.

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escribacat
Member

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.

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Kiba
Member
Kiba

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.

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bito
Member

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.

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SueInCa
Member

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.

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bito
Member

Volker and inflation:

given his spectacular record in taming inflation, which he brought down to 3.6 percent after it had risen to 11.3 percent.

That was the argument used about the “real interest rate.”

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bito
Member

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. 🙁

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Chernynkaya
Member

E’cat, there is a good article about Geithner in The New Yorker and what he has accomplished.

No Credit
Timothy Geithner

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Khirad
Member

“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.

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escribacat
Member

That’s why they call it the “dismal science,” Khirad.

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Khirad
Member

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.

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SueInCa
Member

Oh and KQ, great post. This is going to be the next big NO from the party of NO.

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SueInCa
Member

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?

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escribacat
Member

Sue, Do you mean reinstate Glass-Stegall?

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SueInCa
Member

Yes, I must have gotten confused with repeal and reinstatement of glass stegall. I am editing the post…….thanks for pointing it out

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Khirad
Member

That confused me too, but this ALL confuses me!

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SueInCa
Member

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.

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choicelady
Member

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.

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