Dodd's financial reform bill

[sois]

[quote name='Elflocko' date='12 April 2010 - 03:22 PM' timestamp='1271110958' post='877133']
Yeah, but the government is run by evil and stupid people.

Often times the most evil and most stupid people...
[/quote]

Yeah but the stupidity is clearly marked and I can navigate around it.

[CTBengalsFan]

Seriously though, petition Go to have your handle changed to "Mr. Parsons"

[|Bengal Migration|]

[quote name='sois' date='13 April 2010 - 06:54 AM' timestamp='1271112856' post='877144']
Yeah but the stupidity is clearly marked and I can navigate around it.
[/quote]
Ironic. That's exactly how I feel about your posts.

[sois]

[quote name='CTBengalsFan' date='12 April 2010 - 04:28 PM' timestamp='1271114895' post='877151']
Seriously though, petition Go to have your handle changed to "Mr. Parsons"
[/quote]

Who's that. The sound guy of pink floyd?

[CTBengalsFan]

http://www.politico.com/news/stories/0410/35752.html

[quote][size="5"]Blanche Lincoln Wall Street bill tacks left[/size]

A new proposal by Senate Agriculture Committee Chairwoman Blanche Lincoln would require sweeping changes to the $450 trillion derivatives market, including forcing big banks to spin off “swaps desks” that handle the complex financial instruments — a more aggressive approach than either the White House or other congressional committees have advocated so far, according to the Arkansas Democrat and her aides.

Lincoln’s plan is likely to burnish her standing with progressive groups inside the Democratic Party ahead of her May 18 Senate primary, where she is facing a challenger from the left. Lincoln drew fire from liberals in her party for opposing the public health insurance option in the recent health care reform bill.

Lincoln’s plan is certain to evoke widespread opposition from Wall Street and the banking industry. For instance, her provision to move swaps desks out of banks — what her aides have dubbed the “too big to fail” language — could cost major banks billions of dollars of revenues reaped annually from such transactions.

Lincoln is planning to formally introduce her legislation as early as Thursday, her staff said. Her bill focuses on tighter regulation of the markets for derivatives — which were at the heart of the 2008 global meltdown but have been largely unregulated up until now.

Lincoln argues that such a move is necessary to avoid future bailouts of the industry.

“It will include strong mandatory trading and clearing requirements as well as real-time price reporting that will bring 100 percent transparency and accountability to Wall Street. My bill will vigorously reform unregulated markets, close all loopholes, and protect jobs on Main Street,” Lincoln said in a statement to POLITICO.

And she said her bill goes further than previous proposals in cracking down on the complicated financial transactions. “Proposals that I have seen from the administration have not gone far enough to prevent bailouts of ‘too big to fail institutions’ and could contain loopholes. If we pass reform, it needs to be real reform. My proposal will go further than any other congressional or administration proposal to prevent future bailouts.”

Lincoln, who is briefing Democrats on the Agriculture Committee on Tuesday afternoon about her initiative, is focusing on four main areas:

— first, Lincoln will propose regulating foreign currency swaps, an action even the Treasury Department has opposed;

— second, Lincoln would bar any “major swaps dealers,” including big banks, from receiving federal financial assistance in the event of a market meltdown;

— third, the Arkansas Democrat would require dealers to consider their “fiduciary duty” to all governmental agencies, pension plans, endowments or retirement funds during any transaction;

— and fourth, swaps dealers or other traders in the complex financial instruments would be open to fraud actions brought by federal government, if they engage in a transaction with another party knowing the deal could be used to defraud other investors or the public.

And on a topic that has energized progressives tracking the derivatives debate, Lincoln would require “mandatory exchange trading” for most derivatives contracts, although there would be an exemption from such requirements for nonfinancial institutions.

Lincoln’s position is similar to the provision approved by the House Financial Services Committee, according to her aides, although with fewer exemptions on which “commercial end users” sell be exempted from “clearing” their swaps, and is “at least as stringent” as that called for by the Senate Banking Committee. Under Lincoln’s proposal, manufacturers, agriculture companies and commodities producers would not be covered by this clearing requirement.

“The financial regulatory reform legislation that I am poised to introduce this week is historic reform. I have been working closely with ranking member [Sen. Saxby] Chambliss, the administration, and other Senate Democrats and Republicans to craft this legislation and my proposal is reflective of those conversations,”

Lincoln came under pressure from the White House not to cut a deal on a derivatives proposal with Chambliss, the Georgia Republican who serves as her GOP counterpart on the Agriculture Committee.

But Chambliss refused to back a call for “mandatory exchange trading” for the most common derivatives contracts, a position that Lincoln supported.

Once it was clear that a deal with Chambliss was not possible, Lincoln decided to craft a proposal that could win as much as possible within her own caucus, aides to the Arkansas Democrat said.

In addition, Lincoln’s discussions on the derivatives package involved a much wider circle of participants than Chambliss, including Sen. Maria Cantwell (D-Wash.), a leading progressive voice on derivatives legislation, the Lincoln aides said.

"I think she is going to stand up and have a strong bill," Cantwell said of the Lincoln proposal. "Out of the House and the Senate bills that have been on the table before, it sounds like Blanche Lincoln is going to put the strongest reforms on the table."

On Wednesday, Chambliss took a shot at Obama administration officials, saying they worked to undermine his talks with Lincoln.

“My staff and I have worked diligently over the last several months with Chairman Lincoln to craft a bipartisan plan that we believe would have received wide bipartisan support in the Senate Agriculture Committee,” Chambliss said in a statement released by his office. “Unfortunately, the White House, [Treasury] Secretary Geithner and [Commodity Futures Trading Commission] Chairman Gensler have forced politics in the pathway of meaningful financial regulatory reform."

Under Lincoln’s plan, any “major swap dealer” would be barred from getting Federal Deposit Insurance Corporation backing, or funds from the Federal Reserve. That means that even if the big banks spin off their derivatives operations to separate subsidiaries — as would be expected under Lincoln’s bill — those new commercial units would be allowed to fail if their derivatives trades go bad.

Lincoln believes that failing to take this step would expose the big banks, which received hundreds of billions of dollars in taxpayers’ funds following the 2008 economic crisis, to potentially huge losses in the event of another market downturn and is thus too big a risk for American public to accept.[/quote]

Thoughts ladies and germs? [though I think we're out of ladies on this part of the board]

[Jamie_B]

[quote name='CTBengalsFan' date='13 April 2010 - 06:10 PM' timestamp='1271196611' post='877479']
http://www.politico.com/news/stories/0410/35752.html



Thoughts ladies and germs? [though I think we're out of ladies on this part of the board]
[/quote]

Expect a fight...

http://www.huffingtonpost.com/stacy-mitchell/what-big-banks-fear-more_b_528785.html

[quote]What Big Banks Fear More Than the CFPA

At stake in the financial reform debate is an issue that has received far less attention than the Consumer Financial Protection Agency, but is at least as important: whether Congress will restore the authority of states to oversee national banks.

If you don't believe me, then take it from U.S. Bancorp CEO Richard Davis, who chairs the powerful big bank lobbying group, the Financial Services Roundtable. In an interview with the Minneapolis Star Tribune editorial board two weeks ago, Davis revealed that the industry's "number one concern" about financial reform is not the CFPA, but rather the power of states to regulate the activities of national banks.

"If we had one thing to fight for, it would be to protect [federal] preemption [of state law]," Davis said.

Much has been said about the failure of federal banking regulators in the years leading up to the collapse. But that is only half the story. The other half has to do with how state regulators reacted. Unlike their federal counterparts, state regulators were onto abuses in the mortgage industry more than a decade ago. As early as 1998, states were taking predatory lenders to court, connecting the dots to Wall Street, and passing laws that limited risky, high-cost mortgage terms.

But the states were stopped in their tracks by a powerful federal agency that operates deep inside the Treasury Department: the Office of the Comptroller of the Currency (OCC). Relying on a dubious legal justification, the OCC declared many of these state laws preempted by federal law and told national banks to ignore them. Then, in 2004, the OCC issued a sweeping preemption order that basically nullified all state laws governing consumer lending.

That 2004 order remains the law of the land and Davis and other big bankers want to keep it that way. In the House, they managed to significantly weaken a provision in the financial reform bill that would have restored state authority. Now, in the Senate, big bank allies are hoping to cut a deal in which they'd support other aspects of Dodd's bill, perhaps even the CFPA, in exchange for broad federal preemption of state banking laws.

We'd be fools to accept that deal.

For 150 years, the U.S. had a system of dual oversight of banks. Banks had to follow both federal law as well as the laws of the states in which they operated. This system worked remarkably well. States served as first-responders, spotting new problems well ahead of federal regulators and experimenting with solutions. Bad policies generally came and went without affecting more than one state. Good ideas spread. In fact, many of the consumer protections that have been written into federal banking law -- rules on fair lending, credit card disclosures, identity theft, and more -- were pioneered by the states.

In the late 1990s, this system was working just as designed. Alarmed by the sudden proliferation of risky, high-cost mortgages, state lawmakers and regulators swung into action, gathering data, initiating investigations, and debating policy approaches.

"I remember when my consumer people came to me and said, we are going to have a tidal wave of foreclosures on our hands in a few years," recalls Illinois Attorney General Lisa Madigan, who, in 1998, together with attorneys general in Minnesota and Massachusetts, filed one of the first lawsuits against a predatory lender, a company called First Alliance Mortgage, which was pushing people into bad mortgages and selling the loans to Lehman Brothers.

In 1999, North Carolina became the first state to adopt an anti-predatory lending law. In all, more than 30 states would enact some form of legislation. Based on decades of judicial precedent, states assumed that their laws were valid so long as they did not conflict directly with federal law.

But by then the OCC had developed a much more expansive view of its preemption powers. A few years earlier, the agency had started knocking down state consumer protection laws that were not in conflict with federal law, but simply constrained the activities and profits of banks -- things like caps on ATM fees and rules about what credit card issuers had to disclose to customers.

As states tried to address the explosion of risky mortgages, the OCC stepped up its preemption activities and began running an aggressive interference on behalf of big banks. When Michigan tried to enforce a state lending law against a Wachovia subsidiary that dealt in mortgages, the OCC stepped in and gave Wachovia carte blanche to ignore the law.

When New York Attorney General Eliot Spitzer launched an investigation into whether Citigroup, JPMorgan Chase, and Wells Fargo had been pushing minorities into expensive subprime loans even when they qualified for better loans, the OCC went to court on behalf of the banks to block Spitzer's case. (Spitzer appealed and the Supreme Court eventually ruled in New York's favor, but not until June 2009, when the damage had long since been done.)

But the state law that perhaps best illustrates our lost opportunity to avert the financial crisis was enacted in Georgia in 2002. This prescient law extended what is known as "assignee liability" to Wall Street investors. Normally, if a lender misrepresents the terms of a mortgage or otherwise tries to defraud you, you can take them to court to stop foreclosure on your house and even win damages. But this liability disappears when the mortgage is sold. Georgia decided that the liability should stay with the loan, making Wall Street banks and investors dealing in mortgage-backed securities accountable for the loans they were buying.

Wall Street freaked out. The ratings agencies declared that they wouldn't touch any loans coming out of Georgia -- a pretty clear indication that they knew mortgage fraud and deception was widespread.

"[Georgia's law] could have been a game-changer," says John Ryan of the Conference of State Bank Supervisors. "If the secondary market had to think a little more seriously about what it was funding, that could have made a real difference."

But Wall Street was let off the hook by the OCC. Shortly after Georgia's law took effect, the OCC preempted the law at the request of National City Bank, whose subsidiary, First Franklin, was a major subprime lender in Georgia.

Five months later, in January 2004, the OCC issued a sweeping order that essentially nullified all state consumer lending laws. The order says that states may not "impair" or even "condition" a national bank's ability to exercise its powers. The only state laws still valid are those that only "incidentally affect" a bank's activities.

In an unprecedented show of unity, all 50 state attorneys general opposed the OCC's action. Many legal scholars argued the OCC was acting well outside the bounds of its Congressionally defined authority, but neither the Bush Administration nor the Republican-controlled Congress were inclined to rein in this rogue agency.

A House subcommittee did manage to hold hearings, in which some lawmakers pressed OCC Chief Counsel Julie Williams to justify the agency's actions. She told the subcommittee to consider the plight of national banks, which were facing "uncertain exposure" and "additional costs." Worse, she said, "the secondary market [i.e., Wall Street] was being impacted."

Clearing the way for big banks to do whatever they want was a disaster for American families. A study just released by the University of North Carolina found that, in states with strong anti-predatory lending laws, the effect of the OCC's 2004 order was an immediate and significant increase in the share of mortgages issued with risky, high-cost terms. Predictably, defaults also shot up after 2004.

Another immediate effect of the 2004 order was that many nonbank mortgage companies, which had been subject to state law, sold themselves to national banks in order to take advantage of federal preemption. Big banks were quite happy to swallow these highly profitable subprime subsidiaries, which, a few years later, turned into poison pills that would bring down many of them, including Merrill Lynch, Wachovia, and National City.

Meanwhile, some banks that had operated under state charters -- notably the giants JP Morgan Chase and HSBC -- switched to federal charters and thereby gained immunity from state laws and state attorneys general. By 2005, the share of all bank assets held by banks overseen by the OCC had shot up to 67 percent. This in turn boosted the OCC's funding, which is derived almost entirely from fees levied on the banks it oversees.

The OCC is a perfect example of an agency that has been "captured" by the industry it regulates. After disabling the states -- which in 2003 initiated more than 20,000 investigations of abusive lending and took more than 4,000 enforcement actions -- the OCC undertook just three public enforcement actions involving consumer mortgage lending between 2004 and 2007.

The hope is that a CFPA would be different and actually put consumers first, but we would be unwise to take fifty states off the beat in order to get it. The CFPA ought to work hand-in-hand with the states, setting minimum consumer protection standards that states are free to exceed. "The only way it works is when both the states and the federal government are involved," contends Iowa Attorney General Tom Miller, who has been lobbying Congress for both the CFPA and state authority.

This dual oversight is essential, because the reality is that it's much easier for an industry to influence, game, or capture a single federal agency. "It's much harder to capture the states, because there's fifty of them," notes Arthur Wilmarth, an expert on banking law and a professor at George Washington University. "It's particularly hard to capture the attorneys general, because they are elected. Many of them want to become governors, so they have a real reason to have consumers think well of them. None of the federal agencies have that viewpoint."

Big banks understand this, which is why, in the House, they put the lion's share of their energy into fighting state authority, not the CFPA. Both President Obama's proposal and the original bill would have repealed the 2004 preemption order and fully restored state authority. But a coalition of New Democrats led by Rep. Melissa Bean, who ranks 9th in the House in contributions from the financial industry, held up the bill and managed to substantially weaken the language.

The bill the House passed says states can adopt consumer protection laws so long as they do not "materially impair" national banks. Courts will have to decide what that means, but to my ears it sure sounds like any state law that inhibits maximum profits will be thrown out.

Meanwhile, in the Senate, Dodd's bill as currently written restores at least some degree of state authority, but people privy to the discussions have told me that he does not seem all that committed to it and, unless there's more public attention and pressure, he may well bargain it away to win support on other aspects of the bill.[/quote]

[Jamie_B]

[url="http://www.nytimes.com/interactive/2010/03/16/business/financialreform-billcompare.html?dbk"]Comparing the House and Senate Bills[/url]

[CTBengalsFan]

That article is a great example of why I believe the vast majority of things need to be left to states to decide...

[url=http://www.slate.com/id/2250699/]Eliot Spitzer: Two Disagraceful Failures, How Congress and the Finacial Crisis Inquiry Commission are botching their only chance to reform Wall Street[/url]

[quote]Before it's too late, we need to try to salvage the investigations of the financial meltdown and overhaul the proposed financial reform bills.

The Financial Crisis Inquiry Commission has so far been a waste. Some momentary theater has been provided by the witnesses who have tried to excuse, explain, or occasionally admit their role in the cataclysm of the past two years. While this has ginned up some additional public outrage, it hasn't deepened our knowledge about what critical players knew or did. There is a simple reason for this: The commission has not issued a single subpoena. Any investigator will tell you that you must get the documentary evidence before you examine the witnesses. The evidence is waiting to be seized from the Fed, AIG, Goldman Sachs, and on down the line. Yet not one subpoena.

Rather than accept Robert Rubin's simple disclaimers about Citigroup, why hasn't the FCIC combed through the actual communications among the board, the executive committee, the audit committee, and the risk-management committee? Why hasn't the FCIC collected AIG's e-mails with the Fed and Goldman Sachs? Unless the subpoenas are issued, we will lose the chance to make the record.

Because the FCIC report is going to be issued too late to directly affect the financial reform legislation now being debated, its primary utility will be to set out the historical record in excruciating detail. If the commissioners don't do this, they fail. If Republican stonewalling on the commission is preventing issuance of subpoenas, then FCIC Chairman Phil Angelides should either get Congress to alter the process whereby subpoenas are issued or threaten to resign rather than preside over a sham. Maybe this would shock the other members of the commission into doing what needs to be done. There are still too many secrets being hidden inside the e-mails, permitting guilty parties to lie and cover up their misdeeds.

Take, for example, the missing information about AIG. The real reasons the AIG counterparties were paid 100 cents on the dollar have never been revealed. Taxpayers invested $180 billion in AIG to stabilize the financial markets, not to honor every contract AIG had entered. Everybody and everything should have been subject to negotiation. Indeed, virtually everything other than the counterparty payments to investment banks was re-negotiated. But Goldman and others walked away with billions, unbothered. Yet the Treasury and the Fed have failed to reveal more about why those payments were made in full. This is not just a footnote. It goes to the core of the relationship among Wall Street, the secretary of the treasury, and the Fed.

The situation in Congress is no better. The reform proposals under consideration are classic rearranging of deck chairs on the Titanic. They will modestly rejigger how Wall Street is monitored but do nothing to fix the real problems.

There is strong evidence that banks are still playing shell games to mask their levels of debt. And banks are not honestly accounting for the value of their enormous commercial real estate holdings. Even if the proposed congressional reforms pass, we will still have a "too big to fail" structure, now with explicit, not implicit, federal guarantees behind these institutions. We still have executive compensation that is based on a heads-we-win, tails-you-lose structure, creating the same risk asymmetry that caused the crisis.

The banks are making the creation of a consumer protection agency the litmus test for reform's success or failure. While a consumer protection agency would be a step forward, it isn't the critical measure of reform's success. The creation of the agency matters less than who is in charge at the OCC, OTS, FDIC, the Fed, or the new consumer agency. By and large, the government already has the regulatory powers that exist at the new agency: What we need are government officials who have the courage to act on those powers and challenge Wall Street.

During the pallid congressional debate over reform, Washington has utterly abandoned the structural reform that we actually need. There is an international consensus that banks are too big and the concentration within the banking sector is increasing, not decreasing. Fundamental reform will not come from having a few regulators "oversee" the sector. Reform will come from breaking apart the overly concentrated banks and separating them. The banks need to be broken up as AT&T and Standard Oil were busted, in order to stimulate competition and creativity.

Perhaps it's not too late for Congress to consider adding these three simple rules to its reform bill:

-Banks receiving taxpayer guarantees cannot engage in any nonbanking activity. Institutions must choose: Either you can have public guarantees or you assume risk through investment banking and proprietary trading, but you can't have both.

-Increase capital requirements to no less than 15 percent, and require on-balance-sheet disclosure of all material information pertaining to liabilities of the entity.

-require that banks pay penalties, dilute equity, eliminate management options, and repay executive bonuses before receiving any taxpayer bailout.

Americans have been betrayed by Washington over financial reform. Our leaders have failed to get the evidence, failed to push back when clearly inadequate explanations were provided, and failed to explore the structural reforms that will work. Pretend tears will drip from bankers' eyes after the consumer protection agency is created. Then their wolfish teeth will slowly break into a grin, the pure delight that Washington has failed to do anything meaningful to restructure the banking sector.[/quote]

I'd vote for that guy for president. He can have all the hookers he wanted as far I'm concerned, too.

[Jamie_B]

[quote]This is not just a footnote. It goes to the core of the relationship among Wall Street, the secretary of the treasury, and the Fed.[/quote]

[img]http://api.ning.com/files/c7GEJ3V1PrabjdUcypGmYTHbJPIfODercighgduRDJg470WZau1PNrY2Yn8nyTk7up*Fusj1PgYageVO4P52-temkFmQgKFh/winner.jpg[/img]

[Jamie_B]

[quote name='CTBengalsFan' date='15 April 2010 - 02:01 AM' timestamp='1271311289' post='877825']
That article is a great example of why I believe the vast majority of things need to be left to states to decide...

[/quote]

http://en.wikipedia.org/wiki/Usury#Usury_statutes_in_the_United_States

[quote]Usury statutes in the United States

Each U.S. state has its own statute which dictates how much interest can be charged before it is considered usurious or unlawful.
If a lender charges above the lawful interest rate, a court will not allow the lender to sue to recover the debt because the interest rate was illegal anyway. In some states (such as New York) such loans are voided ab initio[25]

However, there are separate rules applied to most banks. The U.S. Supreme Court held unanimously in the 1978 Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp. case that the National Banking Act of 1863 allowed nationally chartered banks to charge the legal rate of interest in their state regardless of the borrower's state of residence.[26] In 1980, because of inflation, Congress passed the Depository Institutions Deregulation and Monetary Control Act exempting federally chartered savings banks, installment plan sellers and chartered loan companies from state usury limits. This effectively overrode all state and local usury laws.[27][28] The 1968 Truth in Lending Act does not regulate rates, except in the cases of some mortgages, but it does require uniform or standardized disclosure of costs and charges.[29][/quote]

[Jamie_B]

more on Lincoln's plan...

http://www.washingtonpost.com/wp-dyn/content/article/2010/04/14/AR2010041403322.html?hpid=topnews

[quote]Obama calls together congressional leaders in push for new financial regulation

By David Cho, Brady Dennis and Scott Wilson
Thursday, April 15, 2010
The battle over reshaping the country's financial regulation escalated on several fronts Wednesday, with President Obama stepping up his personal efforts to win Senate passage of an ambitious bill while senators from both parties fought to claim the anti-Wall Street mantle.

After a White House meeting between Obama and congressional leaders, Republican leaders criticized the Democrats' proposal for leaving the door open to future bailouts of big financial firms. But the president, who has turned his attention to the financial overhaul after winning passage of health-care legislation, said he was confident that a bipartisan bill could be worked out to ensure that the economy is protected from the collapse of large financial companies.

Taking center stage in the fight over the legislation are exotic financial instruments known as derivatives. A Democratic senator who chairs a key committee is advocating new rules that would force the nation's largest banks to stop trading nearly all kinds of derivatives -- a move that would dramatically reshape several critical markets and deprive the firms of a major source of revenue.

The proposal by Sen. Blanche Lincoln (D-Ark.), who chairs the Agriculture Committee, sent shudders through Wall Street. For nearly two decades, five U.S. banks -- J.P. Morgan Chase, Goldman Sachs, Morgan Stanley, Bank of America and Citigroup -- have acted as middlemen, allowing commercial firms and financial speculators to trade vital goods such as oil, natural gas and cotton, as well as contracts called derivatives. These are essentially side bets on which way such commodities, stocks and other assets will move.

Under Lincoln's plan, as described by her aides, the companies would have to spin off that activity if they wanted to remain banks.

The proposal is tougher than what the administration has sought. The Senate bill, which largely reflects administration thinking, stops short of an outright ban on derivatives trading by the Wall Street companies. Lincoln's proposal, which her staff said is due out this week, could be added to that legislation.


"The dark days of deals are over," Lincoln said in a statement. "Financial institutions will have to decide if they want to be banks or if they want to engage in the risky financial trading that caused the collapse of firms" such as American International Group.

Derivatives have been traded on Wall Street for decades, but they exploded in popularity over the past decade with the help of big banks, which reaped a windfall in fees for their services. Some private research groups estimate that acting as middlemen -- "swap dealers," in Wall Street parlance -- generates $20 billion to $40 billion every year for large Wall Street firms. Trading in derivatives, which officials estimate have a paper value of half a quadrillion dollars, exacerbated the recent financial crisis.

The Senate and House agriculture committees have long played a leading role in the oversight of derivatives related to commodities. But the activity expanded well beyond trading in farm products, and most kinds of derivatives today are beyond the reach of regulators.

At the White House meeting, Obama said he would demand strong oversight of derivatives in the final bill. Derivatives, he said, should be brought "into daylight so that regulators and ordinary Americans know what's going on when it comes to this huge segment of the financial system."

Both the administration and Lincoln want derivatives to be traded on exchanges and approved by a clearinghouse that would cover losses in case one party to a derivative contract could not pay up. An exemption would be given to manufacturers and commercial companies, which often use derivative contracts to guarantee the delivery of a commodity at a set price and time.

Under Lincoln's plan, however, if these companies chose to trade in private, the decision could cost them more money. The firms could have to put up more capital to prepare for unexpected losses on any private trades. Lincoln's proposal would also force all derivative contracts to be made known to regulators and the public. The Senate bill, which was written in consultation with the administration, calls for making derivatives known only to regulators.

Republicans and industry officials sharply criticized Lincoln's proposal, saying it would wreak havoc on the financial system and disrupt the economy.

Sen. Judd Gregg (R-N.H.), a key member of the banking committee, said in an interview Wednesday that the derivatives rules Lincoln plans to propose would make U.S. markets uncompetitive in the global economy. "You might as well say, 'Take every derivative to Singapore,' " Gregg said.

Sensing momentum on their side, administration officials have encouraged Democratic lawmakers to forge ahead and not concede too much to Republicans or financial industry lobbyists.

"I think it's a critical moment for reform, a promising moment," Treasury Secretary Timothy F. Geithner said during a briefing at the White House. "This is going to be the most sweeping set of reforms we have contemplated as a country since those put in place after the Great Depression."

Lincoln initially reached a bipartisan deal on derivatives with the ranking Republican on her committee, Sen. Saxby Chambliss (Ga.). But the administration and liberal Democrats pushed back, saying it created too many loopholes for Wall Street, industry and congressional sources said. Lincoln, who faces a strong primary challenge from a liberal candidate, then abandoned the deal, the sources said.

As Republican leaders left the White House, they called on Democrats to restart bipartisan talks about the overall shape of the legislation. Senate Minority Leader Mitch McConnell (Ky.), echoing comments he made Tuesday, said the bill amounts to an "endless taxpayer bailout for Wall Street banks."

Obama rejected that criticism. "I'm absolutely confident that the bill that emerges is going to be a bill that prevents bailouts," he said. "That's the goal."

Sen. Bob Corker (R-Tenn.) urged his colleagues to cool their "overheated" rhetoric. He agreed that loopholes in the Senate bill might allow failing firms to stay in business, "but the fact is, I think we could fix those in about five minutes."

Before the April congressional recess, which ended last week, Republicans and Democrats were sparring primarily over the proposed creation of a consumer protection agency. But industry lobbyists say they are no longer pressing that issue. And GOP lawmakers are wary of appearing to defend Wall Street at a time when polls show the industry is highly unpopular among voters, congressional aides said.[/quote]

[Jamie_B]

http://www.huffingtonpost.com/2010/04/15/another-top-fed-official_n_537934.html

[quote]Another Top Fed Official Calls For U.S. To Break Up Megabanks

Referring to the danger posed by megabanks as one that's able to spread "debilitating viruses throughout the financial world," a second top Federal Reserve official called for policymakers to bust up the nation's financial behemoths before they cause another worldwide financial crisis.

Richard W. Fisher, president and chief executive of the Federal Reserve Bank of Dallas, told a gathering of economists and financial experts Wednesday that "a truly effective restructuring of our regulatory system will have to neutralize what I consider to be the greatest threat to our financial system's stability... 'too big to fail'."

"In the past two decades, the biggest banks have grown significantly bigger," Fisher said in New York during a lunchtime speech that elicited rounds of applause. "The average size of U.S. banks relative to gross domestic product has risen threefold. The share of industry assets for the 10 largest banks climbed from almost 25 percent in 1990 to almost 60 percent in 2009.

"Existing rules and oversight are not up to the acute regulatory challenge imposed by the biggest banks," he said. So U.S. policymakers, along with their international counterparts, should come up with a system that will break them down into a manageable, less-risky size.

Fisher's comments echoed those from last month in which he also called for giant financial firms to be broken up. Along with Federal Reserve Bank of Kansas City President Thomas M. Hoenig, the two regional Fed presidents are arguably the most qualified and influential voices calling for a new blueprint for the nation's financial system -- a level playing field between Wall Street and Main Street, embodied in ending mega-institutions' dominance over the U.S. economy. Both are deficit- and inflation hawks and both represent the nation's heartland -- Kansas City and Dallas.

Their calls amplify what had been voices on the fringes calling for a fundamental redesign of the nation's financial system. It's not so easy for the White House, the Treasury Department, the Board of Governors at the Federal Reserve or influential members of Congress to dismiss calls to break up megabanks when two regional Fed presidents are calling for just that. Fisher and Hoenig, whose jobs put them above the partisan bickering in Washington, want to reform what's been laid bare as a broken and inefficient financial system.

"First, these large institutions are sprawling and complex -- so vast that their own management teams may not fully understand their own risk exposures, providing fertile ground for unintended 'incompetence' to take root and grow. It would be futile to expect that their regulators and creditors could untangle all the threads, especially under rapidly changing market conditions," Fisher said as he began his defense of his position.


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Shahien Nasiripour
Shahien Nasiripour
Posted: April 15, 2010 09:00 AM
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Another Top Fed Official Calls For U.S. To Break Up Megabanks

First Posted: 04-15-10 09:00 AM | Updated: 04-15-10 09:26 AM
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Read More: Break Up Big Banks, Federal Reserve, Financial Crisis, Fisher Fed, Fisher Too Big To Fail, Regulatory Reform, Richard Fisher, The Financial Fix, Too Big To Fail, Wall Street Reform, Business News
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Referring to the danger posed by megabanks as one that's able to spread "debilitating viruses throughout the financial world," a second top Federal Reserve official called for policymakers to bust up the nation's financial behemoths before they cause another worldwide financial crisis.

Richard W. Fisher, president and chief executive of the Federal Reserve Bank of Dallas, told a gathering of economists and financial experts Wednesday that "a truly effective restructuring of our regulatory system will have to neutralize what I consider to be the greatest threat to our financial system's stability... 'too big to fail'."

"In the past two decades, the biggest banks have grown significantly bigger," Fisher said in New York during a lunchtime speech that elicited rounds of applause. "The average size of U.S. banks relative to gross domestic product has risen threefold. The share of industry assets for the 10 largest banks climbed from almost 25 percent in 1990 to almost 60 percent in 2009.

"Existing rules and oversight are not up to the acute regulatory challenge imposed by the biggest banks," he said. So U.S. policymakers, along with their international counterparts, should come up with a system that will break them down into a manageable, less-risky size.

Fisher's comments echoed those from last month in which he also called for giant financial firms to be broken up. Along with Federal Reserve Bank of Kansas City President Thomas M. Hoenig, the two regional Fed presidents are arguably the most qualified and influential voices calling for a new blueprint for the nation's financial system -- a level playing field between Wall Street and Main Street, embodied in ending mega-institutions' dominance over the U.S. economy. Both are deficit- and inflation hawks and both represent the nation's heartland -- Kansas City and Dallas.

Their calls amplify what had been voices on the fringes calling for a fundamental redesign of the nation's financial system. It's not so easy for the White House, the Treasury Department, the Board of Governors at the Federal Reserve or influential members of Congress to dismiss calls to break up megabanks when two regional Fed presidents are calling for just that. Fisher and Hoenig, whose jobs put them above the partisan bickering in Washington, want to reform what's been laid bare as a broken and inefficient financial system.

"First, these large institutions are sprawling and complex -- so vast that their own management teams may not fully understand their own risk exposures, providing fertile ground for unintended 'incompetence' to take root and grow. It would be futile to expect that their regulators and creditors could untangle all the threads, especially under rapidly changing market conditions," Fisher said as he began his defense of his position.
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"Second, big banks may believe they can act recklessly without fear of paying the ultimate penalty. They and many of their creditors assume the Fed and other government agencies will cushion the fall and assume some of the damages, even if their troubles stem from negligence or trickery. They have only to look to recent experience to take some comfort in that assumption," he said.

Then, Fisher went after the heart of the Obama administration's and Wall Street's central argument -- that the U.S. needs megabanks to compete on a global stage.

"Some argue that bigness is not bad, per se. Many ask how the U.S. can keep its competitive edge on the global stage if we cede LFI [large financial institutions] territory to other nations -- an argument I consider hollow given the experience of the Japanese and others who came to regret seeking the distinction of having the world's biggest financial institutions. I know this much: Big banks interact with the economy and financial markets in a multitude of ways, creating connections that transcend the limits of industry and geography.

"Because of their deep and wide connections to other banks and financial institutions, a few really big banks can send tidal waves of trouble through the financial system if they falter, leading to a downward spiral of bad loans and contracting credit that destroys many jobs and many businesses, creating enormous social costs. This collateral damage is all the more regrettable because it is avoidable."

Hoenig similarly discarded arguments favoring megabanks, referring to the ideas supporting them as "a fantasy -- I don't know how else to describe it."

"These costs are rarely delineated by analysts," Fisher said. "To get one sense of their dimension, I commend to you a thought-provoking paper recently written by Andrew Haldane, executive director for financial stability at the Bank of England.

"Haldane pulls no punches," Fisher said in a clear endorsement of Haldane's arguments. "He considers systemic risk to be 'a noxious by-product' or a 'pollutant' of an overconcentrated banking industry that 'risks endangering innocent bystanders within the wider economy.' He points out that the government's fiscal transfers made in rescuing or bailing out too-big-to-fail (TBTF) institutions -- whether they are repaid at a profit or not -- are insufficient metrics for tallying both the cost of the damage caused by their mismanagement and their subsequent rescues.

"Like me, he puts things in the perspective of the entire cardiovascular system and the body of the economy. He concludes: "...these direct fiscal costs are almost certainly an underestimate of the damage to the wider economy which has resulted from the crisis."

In fact, Haldane argues that "evidence from past crises suggests that crisis-induced output losses are permanent, or at least persistent, in their impact on the level of output." The "world economic output lost relative to what would have obtained in the absence of the recent crisis might be $60 trillion or more," Fisher said, referencing Haldane. "That's $60 trillion with a "T" -- more than four years' worth of American economic output."

While Haldane "may significantly overstate the real social costs of TBTF... the message is clear: The existence of institutions considered TBTF exacerbated a crisis that has cost the world a substantial amount of potential output and a whole lot of employment," Fisher said.

He went on to cite Haldane's study of the funding advantage enjoyed by TBTF institutions -- "which has widened during the crisis" -- and quoted a figure calculated by Dean Baker, co-director of the Center for Economic and Policy Research in Washington, who said that advantage amounts to a $34-billion-a-year taxpayer-provided subsidy for the 18 largest U.S. banks.

Haldane's study "simply adds grist to the mill of my conviction," Fisher said. "[B]ased on my experience at the Fed... the marginal costs of TBTF financial institutions easily dwarf their purported social and macroeconomic benefits. The risk posed by coddling TBTF banks is simply too great."

Based on Fisher's desire to break up the nation's biggest banks, the present financial reform proposals before Congress just don't go far enough.

"To be sure, having a clearly articulated "resolution regime" would represent a step forward, though I fear it might provide false comfort: Creditors may view favorably a special-resolution treatment for large firms, continuing the government-sponsored advantage bestowed upon them," he said. "Given the danger these institutions pose to spreading debilitating viruses throughout the financial world, my preference is for a more prophylactic approach: an international accord to break up these institutions into ones of more manageable size -- more manageable for both the executives of these institutions and their regulatory supervisors."

And if not possible to do this on an international level, then the U.S. should act unilaterally and go it alone, Fisher said.

"It would obviously take some work to determine where to draw the line," he said. "Haldane's paper suggests that 'economies of scale appear to operate among banks with assets less, perhaps much less, than $100 billion,' above which 'there is evidence... of diseconomies of scale'."

"[T]here are limits to size and to scope beyond which global authorities should muster the courage to draw a very bright, red line. I align myself closer to former Fed chairman Paul Volcker in this argument and would say that if we have to do this unilaterally, we should. I know that will hardly endear me to an audience in New York, but that's how I see it," Fisher said.

"Winston Churchill said that 'in finance, everything that is agreeable is unsound and everything that is sound is disagreeable.' I think the disagreeable but sound thing to do regarding institutions that are TBTF is to dismantle them over time into institutions that can be prudently managed and regulated across borders," Fisher said. "And this should be done before the next financial crisis, because we now know it surely cannot be done in the middle of a crisis."[/quote]

[Jamie_B]

http://www.npr.org/templates/story/story.php?storyId=126025877

[quote]GOP Strategist Enlisted To Help Derail Financial Bill

Now that Congress is done fighting over health care, it's on to the next big brawl: a new set of regulations for banks and financial transactions.

Republicans oppose the bill the Senate is about to take up, but in doing so, they risk being seen as siding with the bailed-out financiers of Wall Street who also oppose the bill.

So they've turned to Republican strategist and talking-point wordsmith Frank Luntz of the political consulting firm The Word Doctors.

'If There's One Thing We Can All Agree On'

Through polling and focus groups, Luntz sculpts what he calls "words that work." He instructed Senate Republicans in talking about health care, and now a leaked 17-page memo he wrote in January tells the GOP which words to use in the financial regulation debate.

Connecticut Democrat Chris Dodd, who chairs the Senate Banking Committee, on Wednesday took to the Senate floor and accused his GOP colleagues of taking their script from Luntz.

"Frank Luntz suggested that allies of the big banks say, and I quote him, 'If there's one thing we can all agree on ... it's that the bad decisions and harmful policies by Washington bureaucrats that in many ways led to the economic crash must never be repeated,' " Dodd says.

Dodd pointed out the quote was remarkably similar to this one from Senate Republican leader Mitch McConnell the day before: "If there's one thing Americans agree on, when it comes to financial reform, it's absolutely certain they agree on this: Never again, never again should taxpayers be expected to bail out Wall Street from its own mistakes."

Dodd then took the unusual step of asking to enter Luntz's memo into the Congressional Record.

"I ask consent that the entire memo be put in the record," Dodd said. "I want the public to read this document that gets quoted by the other side, so they know what we're really up against here with political chicanery."

When he learned that his talking points memo for Republicans was becoming part of the Senate's official history, Luntz said he would frame it and put it up in his guest powder room.

"I'm from Connecticut. Chris Dodd met my father," Luntz says. "This would be his greatest day. Even if Dodd didn't mean it as a compliment, my parents would be really proud to know that their son has a memo in the Congressional Record put there by Chris Dodd."

Luntz said he was surprised Democrats were making so much of the advice he dispensed to Republicans -- advice such as, "The single best way to kill any legislation is to link it to the big bank bailout."

"I don't see that I have that much of an impact, but I appreciate knowing that Chris Dodd apparently thinks it's so important that he would draw this much attention to it," he says.

Communicating Rather Than Killing Legislation

Dick Durbin of Illinois, who's the Senate's No. 2 Democrat, says those on his side of the aisle have also consulted pollsters and consultants, and taken advice on how to talk about legislation. But he says it's all done in the spirit of communicating better, rather than killing legislation.

"What Frank Luntz did on health care reform and did again on financial regulatory reform was to send out the playbook to Republicans before the bill was written, and said, 'This is how we'll defeat the bill,' " Durbin says. "And that to me was kind of a cynical approach to this thing. He didn't care what was in the bill. This was how we're going to defeat it. And that seems to be their approach: 'We defeat whatever's brought to the floor, under Frank Luntz's leadership.' "

Not all Republicans embrace Luntz's rhetoric, says Tennessee Republican Sen. Bob Corker, who says that he can't even recall what the Luntz memo said.

"I don't think you've heard me use any heated rhetoric about the bill," he says. "Maybe I have used some of the language unknowingly. I don't think so. OK? ... Let's get a deal done."

Corker has been considered the best bet for a bridge between the parties on the bill, which Democrats hope to bring to the Senate floor next week.[/quote]

[Jamie_B]

http://progressive.org/conniff0510.html

[quote]The Bankers’ Latest Scam
By Ruth Conniff, May 2010 issue

Of all the devious tricks practiced by the financial industry—hidden fees, usurious interest rates, and incomprehensible contracts that take advantage of consumers—the campaign strategy for 2010 has to rank right up there.

As the banks begin pouring cash into Congressional elections, they are targeting members of Congress who support consumer protections that could cut into their bottom line.

But here is the kicker: Opponents of financial reform are tarring members of Congress who want to regulate the banks as tools of Wall Street. This Orwellian tactic is designed to confuse voters. In effect, the banks are running against themselves. Look for lots of ads that tie reform legislation to “bailouts,” “fat cats,” “Wall Street,” and “lobbyists.”

“The banks are going to be huge players in the 2010 elections,” says Mary Bottari, director of the Center for Media and Democracy’s Real Economy Project and editor of the website BanksterUSA.org. In Massachusetts, she points out, the financial services industry dumped $450,000 into Scott Brown’s race for Ted Kennedy’s Senate seat, helping Brown to win as a crusader against Wall Street, even as he opposed such basic reforms as a tax on banks to help pay back the bailout.

In January and February she began tracking deceptive ads targeting Democrats in ten states that tie bank reform legislation to “Wall Street bailouts.”

One such television ad in Montana urges voters to contact Senator Jon Tester and tell him to oppose a “$4 trillion bailout” for Wall Street.

The ad, paid for by a group called the Committee for Truth in Politics, begins with ominous music as words appear on a black screen:

“Fat cat lobbyists. Special interests. Lining their pockets at our expense. HR 4173 already passed in the U.S. House.” Photos of House Democrats Nancy Pelosi and Barney Frank flash past. More words appear: “Soon to be considered in the Senate.” Photos of Harry Reid and Chris Dodd standing beside Frank and Pelosi pop up, followed by pictures that move almost too fast to follow: Wall Street, wads of cash, a man smoking a cigar and two men in suits shaking hands in front of the White House, scenes of people out of work, the word “foreclosure” and the figure $4,000,000,000,000. Then more words appear: “The Big Bank Bailout Bill. Lobbyists and Bureaucrats. They play. We pay.” (Photos of ordinary Americans.) “More taxes. Spending. Debt.” (A beleaguered-looking citizen in reading glasses, apparently doing his taxes.) “Call Your Senators” (phone numbers for Senators Max Baucus and Jon Tester). “We won’t be fooled again. EVER.”

In the wake of the financial collapse, it’s no surprise to see political ads that focus on Wall Street and bank bailouts. But wait a minute. HR 4173, also known as the Wall Street Reform and Consumer Protection Act, is the House bill designed to end bank bailouts and create a Consumer Financial Protection Agency. Watchdog Elizabeth Warren has said she is “delighted” with the bill.

And Jon Tester, the Montana Senator who is one of the ad’s main targets, is the only Senate Democrat who voted against the Wall Street bailout and the auto industry bailout.

Tester also authored the Credit CARD Act, which includes such consumer-friendly features as a ban on interest rate hikes for customers who are less than sixty days late paying their credit card bills, and requirements that credit card companies mail out statements earlier, give more notice of fee changes, and make other important information more readily available to consumers.

“I can see why some folks with a lot of money to burn don’t want this bill to pass,” Tester says of the companion legislation to HR 4173 he has been working on in the Senate Banking Committee. “They don’t want it to pass because it finally puts referees on Wall Street.”

The financial reform legislation in the House and Senate would, besides establishing a consumer protection agency, limit the Fed’s authority to pursue future bailouts and empower the government to shut down institutions that overextend themselves through risky financial dealings.

But lately, Tester’s staff has been fielding hundreds of calls from constituents who have been contacted by phone with a recorded message from the Committee for Truth in Politics and then directly connected to Tester’s office, where they are urged to demand that the Senator vote against the “$4 trillion bank bailout.”

“Many callers were relieved—and confused—to learn that Wall Street reform is not a bailout,” Tester says.

In response to all the calls and ads, Tester wrote a letter to the Committee for Truth in Politics, demanding to know “who you are and where your funding comes from.” The letter was addressed to William W. Peaslee and James Bopp Jr.—the lawyers whose names are listed on legal documents associated with the group.

The committee has not responded to Tester’s challenge. When I reached William Peaslee, a former political director of the North Carolina Republican Party, and the sole member of the group’s board of directors, according to the articles of incorporation he filed in North Carolina in 2008, he declined to say anything about his group’s aims.

“I am just the attorney who filed the articles of incorporation,” Peaslee told me.

In fact, Peaslee has been active in Republican politics for some time. His group also ran ads targeting Barack Obama in the 2008 Presidential election. And his colleague James Bopp Jr. is the lawyer for National Right to Life and the architect of the Supreme Court’s recent Citizens United decision. Bopp was the attorney for Citizens United in lower court. Recently, he sued the FEC, saying that the Committee for Truth in Politics should not have to disclose anything about its finances or spending to the government.

I asked Peaslee if he could say anything at all about his group’s political objectives, the ads it is running, or what sort of legislative reform it seeks. Is banking reform his issue?

“I’m not making any representation about whether it is my issue or not,” Peaslee said. “You can send me a list of questions and I will send it along to the people who formed the group and ask if they want to respond. I have no idea if they will or not.”

(No one replied to a list of questions I e-mailed to Peaslee.)

The Committee for Truth in Politics ads are a classic example of “muddying the waters,” says Ken Goldstein, a professor of political science at the University of Wisconsin-Madison and director of the Wisconsin Advertising Project. But there are more ads of this type than ever, he says. “It’s very early, and it’s already very noisy and toxic.”

While the Committee for Truth in Politics is determined to reveal nothing about itself, the ads it is running seem to be taken almost word for word from a memo written by Republican pollster Frank Luntz, leaked to HuffingtonPost, advising Republicans on how to take advantage of the financial crisis:

“Public outrage about the bailout of banks and Wall Street is a simmering time bomb set to go off on Election Day,” Luntz writes in the seventeen-page memo.

He advises Republicans to harness this outrage as they oppose Democrats’ efforts to regulate the banks:

“Ordinarily, calling for a new government program ‘to protect consumers’ would be extraordinarily popular,” Luntz writes. “But these are not ordinary times. The American people are not just saying no. They are saying ‘hell, no’ to more government agencies, more bureaucrats, and more legislation crafted by special interests.”

Republicans, Luntz says, can take advantage of “the simple belief the government cannot effectively regulate the financial markets at any level.”

“Frankly,” Luntz writes, “the single best way to kill any legislation is to link it to the Big Bank Bailout.”

Luntz singles out Representative Barney Frank, citing his big unfavorable ratings as evidence that voters don’t trust Washington.

He advises Republican candidates to use some of the same words and phrases that appear in the TV ads that ran in Tester’s district:

“Bailouts for Wall Street. Government takeovers for insurance companies. Trillions of taxpayer dollars to bail out CEOs and their risky investment schemes. And now Congress is preparing to enact legislation to pass a law with $4 trillion more for bailouts.”

He even advises using the words “never again.”

(Never mind that the Republicans, under President Bush, passed the first massive Wall Street bailout.)

So close is Luntz’s language to the actual ad the Committee for Truth in Politics produced, it seems as though he scripted it.

That’s no coincidence, says Congressman Barney Frank.

“Understand that Luntz’s memo is aimed at the consumer protection agency,” Frank says. “The big financial institutions don’t want consumer protection. This is one of the things they hate the most in the world. That’s their major focus, trying to undermine it.”

Luntz’s clients, by the way, include not just Republican politicians but insurance and financial services companies. Some of the big names, according to a list obtained by Lee Fang of ThinkProgress.org, include subprime lender Ameriquest, American Express, and Bank of America.

All of these firms face greater regulation under the proposed Consumer Financial Protection Agency, which is why lobbying groups like the American Bankers Association oppose the financial reform bills. (A spokesman for the ABA said the group is not part of the Committee for Truth in Politics.) The Chamber of Commerce recently held a press conference to oppose the Consumer Financial Protection Agency and pledged to pour $3 million into ads in six states to fight financial reform. Meanwhile, the banks themselves have been meeting with, and giving money to, Republicans who oppose financial reform.

Minority Leader John Boehner, Republican of Ohio, in an appearance before the American Bankers Association, promised to delay action on financial reform, and told bankers to “stand up” and fight. “Don’t let those little punk staffers take advantage of you,” he said.

Frank shot back with a letter deploring Boehner’s “cheap shot” at Hill staffers. He made buttons for the financial services committee staff that said “little punk staffer.” “They’re mostly gone,” Harry Gural, Frank’s press secretary, told me. “I had a box of them under my desk.”

All of this shows that the banks have “buyer’s remorse” when it comes to electing Democrats, Frank says.

The financial sector has traditionally funded both Democratic and Republican campaigns about evenly. In 2008 the industry helped propel Obama into office. But in 2010 it has substantially shifted its giving to Republicans.

“What happened is when we took power they gave us a lot of money. I made a lot of new friends without getting any nicer,” says Frank. “But they’ve since moved away from us.”

In a widely circulated column headlined “Bankers Get $4 Trillion Gift from Barney Frank,” financial journalist David Reilly sounded the alarm about future bank bailouts.

Although the banks oppose Frank’s bill, “they should cheer for its passage,” Reilly wrote. “It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for ‘no-more-bailouts’ talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate’s health care bill look minuscule.”

Indeed, $4 trillion is a mind-boggling number.

But “right now, the Fed can spend any amount of money,” says Steve Adamske, the House Financial Services Committee staffer who has worked closely on the bill. “David Reilly made the mistake of calling me the other day, and I told him there’s no more irresponsible way to describe that number.”

It is misleading to call the $4 trillion a “bailout,” since it is actually a cap on the amount of money the Fed could pump into a future economic rescue in the event of another financial crisis, Adamske explains. And furthermore, that money would not go to the banks that made risky investments.

In fact, the purpose of the bill is to end bailouts, say Adamske and Frank.

“The Fed can no longer make loans to individual companies,” Frank says.

The $4 trillion number “probably should not have been in there,” he concedes. “It’s kind of a joke—it was just in there to have a number. But it is a limitation, and it’s not a bailout fund for banks. It has nothing to do with bailing out companies. We take away the authority whereby they can bail out companies.”

In the event that a big bank goes down in the future, “shareholders are wiped out, and unsecure creditors are never paid,” Adamske explains. “But we also have to stop the spread of economic calamity. There will be an orderly unwinding of the institution. If you run into trouble and you’re too big to fail, you are history. We’re going to send you to the funeral home. But we are not going to allow the problem to spread.”

That anti-bailout provision of the bill, along with the Consumer Financial Protection Agency, is what consumer advocates like best.

“There are areas we’d like to see strengthened, around regulating derivatives and control of the shadow markets, the casino economy,” says Heather Booth of Americans for Financial Reform. “But Frank fought hard for consumer protection and for the language that says you wind down an institution like AIG. There is no more bailout.”

Still, critics on the left say the Obama Administration and Democrats are not going far enough.

William Black, associate professor of economics and law at the University of Missouri-Kansas City, is an expert on bank deregulation and the savings and loan crisis, former litigation director of the Federal Home Loan Bank, and author of The Best Way to Rob a Bank Is to Own One.

Black has been an outspoken critic of both the Bush and Obama Administrations’ handling of the financial crisis, as well as Wall Street’s influence on Congress.

On the Real News Network, he recently observed that the House Financial Services Committee has grown so large precisely because freshmen members of Congress vie to get on it in order to cash in on the big contributions financial institutions dole out to committee members’ campaigns.

The claim that the bills contain a massive bank bailout is “simply made up,” he says. But there are other problems. “If you do everything they wanted, it still wouldn’t have prevented the last crisis nor will it prevent a future crisis.”

“The fundamental mistake of the Administration is to put so many eggs in the legislative basket. Ninety-five percent of the problem could have been fixed by regulating with no new legislation. Instead they left in place Bush’s wrecking crew—Geithner and Bernanke,” says Black, referring to the Treasury secretary and Fed chairman. “We’re now coming up on one year and a quarter and it’s really astonishingly bad, in the financial field, who has been appointed. We could have fixed this months ago.”

Black is for breaking up what the Administration calls “systemically important” institutions.

“It’s nuts to keep this system going,” he says.

As for the Committee for Truth in Politics: “One has more than a sneaking suspicion that the people behind this are the enemies of effective regulation.”

But if the banks have their way, not only will the system keep going, even modest consumer protections will be thwarted—with the help of voters who are confused about whether their legislators are punishing or coddling the big banks.[/quote]

[Jamie_B]

For those who think this is just about my "hatred of republicans"

http://globaleconomicanalysis.blogspot.com/2010/04/geithner-and-ny-fed-accused-of.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:%20MishsGlobalEconomicTrendAnalysis%20(Mish's%20Global%20Economic%20Trend%20Analysis)

[quote]Geithner and the NY Fed Accused of Willfully Ignoring Fraud and Covering Up Lehman's Bad Assets by Senior Regulator During the S&L Crisis


Inquiring minds are digging into a 27 page statement made by William Black before the Financial Services committee. Black is an Associate Professor of Economics and Law, at the University of Missouri.

Professor Black's statements regarding the collapse of Lehman and the role the Fed played in that collapse are refreshingly candid.

Please consider "Public Policy Issues Raised by the Report of the Lehman Bankruptcy Examiner". Emphasis, highlighting, and subtitles are mine.

I begin with a short description of my background that is relevant to your questions. My primary appointment is in economics. I have a joint appointment in law. I am a white-collar criminologist. My research specialization is financial fraud by elites and financial regulation. I was a senior regulator during the S&L debacle (and had the honor of testifying many times before this Committee).

Valukas Report Documents Three Major Deficiencies In Lehman Governance

The [Valukas] Report documents at least three major deficiencies in Lehman’s corporate governance that need to be addressed globally. First, it points out that Lehman, and many other Delaware corporations, have eliminated the fiduciary duty of “care.”

... Alan Greenspan has admitted that he had a similar view and that events have falsified this naïve account. It is insane to withdraw accountability for negligence. Doing so encourages negligence. Congress should mandate that corporate officers and directors be subject to the fiduciary duties of care and loyalty. They will still, of course, have the very substantial protection of the business judgment rule.

Second, the same individual should not serve as the CEO and Chair of the Board of Directors of a large corporation. The imperial CEO is a consistent problem in this and prior crises.

Third, Lehman ignored its stated risk “limits” and simply increased its limits retroactively to accommodate its violations of its risk limits. In plain English, that means it had no meaningful limits. ....

I have a different view than Mr. Valukas about the overall state of Lehman’s corporate governance. First, Lehman’s nominal corporate governance structure was a sham. Lehman was deliberately out of control with regard to “risk” in its dominant operation – making “liar’s loans.” Lehman did not “manage” the risk of making liar’s loans. It engaged in massive, fraudulent transactions that were “sure things”.

The Valukas Report bears witness to the consequences of these transactions. The Report provides further evidence of the accuracy of Akerlof’s and Romer’s famous article – “Looting: Bankruptcy for Profit.”

Lehman’s principal source of (fictional) income and real losses was making (and selling) what the trade accurately called “liar’s loans” through its subsidiary, Aurora. (The bland euphemism for liar’s loans was “Alt-A.”) Liar’s loans are “criminogenic” (they create epidemics of mortgage fraud) because they create strong incentives to provide false information on loan applications.

The FBI began warning publicly about the epidemic of mortgage fraud in 2004 (CNN). Liar’s loans also produce intense “adverse selection” – even the borrowers who are not fraudulent will tend to be the least creditworthy. The combination of these two perverse incentives means that liar’s loans, in economics jargon, have a deeply “negative expected value” to the lender. In English, that means that the average dollar lent on a liar’s loan creates a loss ranging from 50 – 85 cents.

That loss, however, may not be recognized for many years – particularly if the liar’s loans become so large that they help hyper-inflate a financial bubble. In the near-term, making massive amounts of liar’s losses loans creates a mathematical guarantee of producing record (albeit fictional) accounting income. (As long as the bubble inflates, the liar’s loans can be refinanced – creating additional fictional income and delaying (but increasing) the eventual loss. The industry saying for this during the S&L debacle was: “a rolling loan gathers no loss.”

Lehman Hid Its Insolvency

Lehman’s underlying problem that doomed it was that it was insolvent because it made so many bad loans and investments. It hid its insolvency through the traditional means – it refused to recognize its losses honestly. It could not resolve its liquidity crisis because it was insolvent and its primary source of fictional accounting income collapsed with the collapse of the secondary market in nonprime loans. If Lehman sold its assets to get cash it would have to recognize these massive losses and report that it was insolvent. Investors knew that Lehman was grossly inflating its asset values, so they were generally unwilling buy stock in Lehman or acquire it.

There is no way to “manage” the “risk” of making massive amounts of liar’s loans. Lehman was the world leader in making liar’s loans. As the name makes clear, Lehman’s top managers knew that their principal source of income was making fraudulent loans. It was necessary, therefore, that Lehman not document that its liar’s loans were frequently fraudulent. Lehman, instead, classified its massively fraudulent liar’s loans as “prime” loans. Its disclosures did not identify how many of the “prime” loans it held were actually liar’s loans. As I will discuss in more detail in response to your final question, Lehman personnel that pointed out the fraudulent liar’s loans were attacked, even fired, by Lehman’s management. Honest managers, of course, would be delighted if employees identified frauds.

That same pattern of conscious managerial indifference to pervasive mortgage and accounting fraud was the norm at other nonprime mortgage participants that have been investigated. I refer to it as the financial “don’t ask; don’t tell” policy.

Making liar’s loans is not risky – it is suicidal. That is why every significant lender specializing in liar’s loans failed. The pervasive fraud cannot be admitted – for Lehman’s entire business model was premised on massive sales of liar’s loans to others.

Lehman’s senior managers consciously chose to take the unethical path because they viewed it as extraordinarily profitable. ....

Black Accuses Geithner and the NY Fed of Willfully Ignoring Fraud

It was a painful, as a former regulator, to read the Valukas report’s discussion of the FRBNY staff’s open disdain for working cooperatively with the SEC to protect the public. The Valukas report exposes the sick relationship between the country's main regulatory bodies and the systemically dangerous institutions (SDIs) they are supposed to be policing. The FRBNY, led by President Geithner, had a clear statutory mission -- promote the safety and soundness of the banking system and compliance with the law – stood by while Lehman deceived the public through a scheme that FRBNY officials likened to a “three card monte routine”. ...

Translation: The FRBNY knew that Lehman was engaged in fraud designed to overstate its liquidity and, therefore, was unwilling to loan as much money to Lehman. The FRBNY did not, however, inform the SEC, the public, or the OTS (which regulated an S&L that Lehman owned) of the fraud.

The Fed official doesn’t even make a pretense that the Fed believes it is supposed to protect the public. The FRBNY remained willing to lend to a fraudulent systemically dangerous institution (SDI). This is an egregious violation of the public trust, and the regulatory perpetrators must be held accountable. ....

The FRBNY acted shamefully in covering up Lehman’s inflated asset values and liquidity. It constructed three, progressively weaker, stress tests – Lehman failed even the weakest test. The FRBNY then allowed Lehman to administer its own stress test. Surprise, it passed.

The Fed’s defense of its disgraceful refusal to protect the public is meritless. It argues that it was not there in its regulatory capacity and that it sent only a few staffers that laced the capacity or the leverage to accomplish any supervisory goals. This is either a deliberate obfuscation or a confession of a core failure.

Structural Problems at the Fed

The Fed has inherent problems even in safety & soundness regulation due to its structure. First, the regional FRBs have boards of directors dominated by the industry. Congress already made the policy decision, in removing all regulatory functions from the FHLBs in the 1989 FIRREA legislation, that this is an unacceptable conflict of interest.

Second, supervision is, at best, a tertiary activity at the Fed and regional banks. Monetary policy gets all the emphasis, the credit windows come second, and economic research and safety & soundness regulation vie for a distant third place. (Consumer regulation is a bastard step child at the Fed and most agencies.)

Third, the Fed is far too close to the systemically dangerous institutions. The SDIs are in an ideal position to exploit opportunities for regulatory “capture.”

Fourth, the Fed is dominated by neo-classical economists that have no theory of, experience with, or interest in the complex financial frauds that are the dominant cause of our recurring, intensifying financial crises. Bernanke appointed an economist, Patrick Parkinson, with no examination or supervision experience to head all Fed examination and supervision.

Fifth, the Fed is addicted to opaqueness and its senior ranks believe the bankers when they claim that the people must never be allowed to learn the truth about asset losses. One of the conflicts of interest that a banking regulator must never succumb to is the temptation to encourage or allow the regulated entity to lie about its financial condition for the purported purpose of preventing a run on the bank. Geithner, unfortunately, embraced that temptation and stated it openly to the Bankruptcy Examiner.

It is very easy, psychologically, to believe that you are letting a bank lie to the public for a noble reason – protecting the public. The bankers always tell the regulators that the world will end if the banks tell the truth – but that is a lie. Regulators’ greatest asset is their integrity.

The relevant issue was never: can Lehman be saved? The relevant issue, one that the SEC and the Fed appear never to have even asked, was: how can we stop Lehman from serving as a vector spreading the epidemic of liar's loans? They should have asked themselves that question -- and acted -- no later than 2001.
That is a very damning appraisal of the competence of Ben Bernanke and the entire Fed.

It is also grounds for indictment of Tim Geithner and the board of directors at Lehman. Assuming Bernanke was a willing conspirator in the ongoing coverup of Lehman, he should be indicted for criminal fraud as well.[/quote]

[sois]

You haven't said anything in like five posts. Say something yourself that doesn't take 1000 years to read.

[Jamie_B]

[quote name='sois' date='21 April 2010 - 01:31 PM' timestamp='1271871113' post='879956']
You haven't said anything in like five posts. Say something yourself that doesn't take 1000 years to read.
[/quote]


Lazy but ok

Geither as a former new york fed banker is protecting his boys.

[Jamie_B]

http://blogs.forbes.com/streettalk/2010/04/21/banks-fear-senates-swap-desk-rules/

[quote]
The Senate Agriculture Committee handed the banking industry a huge headache Wednesday, passing a derivatives regulation bill that would force Wall Street's derivatives dealers to spin their swaps trading desks into separate companies or divest them completely. The goal is to separate the risky business of derivatives trading from the parts of a bank that take federally insured deposits and put an end to taxpayer bailouts of the financial industry.

The idea surfaced only a week ago after Democrats on the committee, led by Blanche Lincoln (D-Neb.) broke with Republicans on bipartisan talks. The provision survived a committee meeting today by 13-8 vote without any amendments being offered to pull it back. The derivatives bill will become part of the financial reform legislation winding its way through the Senate, and some believe the swaps desk provision will be used as a bargaining chip as the full Senate argues over what issues have yet to be ironed out.

If passed it would have big repercussions for the five biggest swaps dealers, which happen to be five of the biggest banks: Citigroup, JPMorgan Chase, Bank of America, Goldman Sachs and Morgan Stanley. The industry's argument against it is that forcing the dealers to ring-fence or divest their swaps operations would take capital out of the banking system that could be used to lend. They also argue that companies using swaps to hedge commercial risks also might not be willing to use a no-name swaps counterparty. Part of the reason why the five biggest dealers do 96% of the trades in the over-the-counter derivatives market is because of their status as strong counterparties.

Of course it practically hands the business over to swaps desks of foreign banks, which wouldn't be affected by the legislation.

"The divestiture requirement is a draconian measure that ironically would increase risks in the system" says Scott Talbott from the Financial Services Roundtable, whose members include the top U.S. financial companies. "Clearly the politics have taken over the substance."

But the Obama administration has been eager to show it wants to clean up Wall Street. President Obama is scheduled to speak in New York on Thursday about financial reform with the wind at his back given the public outrage over the latest case of alleged Wall Street greed: the Securities and Exchange Commission's fraud case against Goldman Sachs.

Republicans in Congress accused the SEC of deliberately timing the Goldman charges, but the SEC has forcefully rebutted that claim. In a statement Wednesday afternoon, SEC Chairman Mary Schapiro said "I am disappointed by the rhetoric," she said. "In all my years as a Commissioner and Chair at the SEC and the CFTC -- having been nominated to these posts by Presidents of both political parties dating back to Ronald Reagan -- I cannot think of any instance where politics was a consideration in bringing an enforcement action. Nor should it ever be."[/quote]

[|Elflocko|]

Here's an idea: Just fucking reenact Glass–Steagall instead of trying to reinvent the wheel.

Wankers...

[Jamie_B]

[quote name='Elflocko' date='21 April 2010 - 07:07 PM' timestamp='1271891263' post='880065']
Here's an idea: Just fucking reenact Glass–Steagall instead of trying to reinvent the wheel.

Wankers...
[/quote]


Seems so simple doesnt it?

[Jamie_B]

[media]http://www.youtube.com/watch?v=3-HTylLzXu8[/media]

[CTBengalsFan]

Well it got shot down today at least. After looking further into it I can't say I'm too disappointed.

http://www.washingtonexaminer.com/opinion/columns/Goldman-rallies-for-Obama-in-Wall-Street-_reform_-90957879.html

[Jamie_B]

http://globaleconomicanalysis.blogspot.com/2010/04/financial-reform-provision-would-break.html

[quote]Financial Reform Provision Would Break Up Nine Biggest Banks and Affect All Primary Dealers

Details are still sketchy at the moment but it is clear that financial reform is going to pass. Moreover, according to Marketwatch, Provision would break up nine biggest banks.

Nine of the largest financial institutions including Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase & Co. would have to scale down by about 40%, according to legislation introduced by a group of eight Democrats on Thursday. The group is hoping the measure will be approved as part of sweeping bank reform legislation under consideration on Capitol Hill. The measure limits the size of non-deposit liabilities at financial institutions to 2% of U.S. gross domestic product, or about $300 billion. It's unclear whether congressional leaders will allow the measure to be voted upon by the full Senate or whether lawmakers would approve it.

Inquiring minds seeking additional details are reading U.S. Senate Opens Debate on Wall Street Legislation

The U.S. Senate began debate on Democrats’ financial-overhaul bill today, including a provision to create the first formal regulatory structure for the $605 trillion over-the-counter derivatives market.

Republicans decided to allow debate after Democrats agreed to change a section of the bill aimed at preventing future bailouts of Wall Street banks similar to the $700 billion bailout Congress approved in 2008 for firms including Citigroup Inc. and American International Group Inc.

Earlier this week, Republicans blocked Democrats from starting debate on the measure in three procedural votes.

At issue is a provision that would give the government new power to take apart failing financial firms whose collapse would shake the economy. It would create a $50 billion industry- supported fund that regulators would use to pay the cost of dissolving a firm. Republicans say the language contains loopholes that wouldn’t end bailouts.

Dodd acknowledged the concern and said the Senate would consider an amendment offered by Senator Barbara Boxer, a California Democrat, to require that no taxpayer funds be used to disassemble a failed company.

The legislation would create a consumer financial protection bureau at the Federal Reserve and a council of regulators to monitor the economy for systemic risk. It would strengthen oversight of hedge funds and ban proprietary trading at U.S. banks.

I am in favor of a ban on proprietary trading but it will accomplish nothing unless enacted with teeth, and without loopholes. Properly executed, all the Primary Dealers would be affected. That list includes Bank of America, Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley and others.

In regards to creating a new $50 billion oversight industry funded by the industry, I suggest it is a waste of time. Worse than that, the bill will likely punish small banks and financial institutions that were not involved in this mess, by making them pay a part to cleanup the next mess the bill creates.

Regulators always get in bed with the institutions they regulate. This time will not be different.

Bank Size Limitations

Credit.Com notes Bank size limited under new financial reform measure

Under the measure, companies would not be able to hold any more than 10 percent of the nation's total insured deposits. Bank of America Corp., JP Morgan Chase & Co. and Wells Fargo Co. already violate this size limit, according to the report, and would be given three years to downsize.

Nondeposit liabilities would also be limited under the bill, to 2 percent of America's overall gross domestic product for banks or 3 percent of GDP for nonbanks. U.S. Senator Ted Kaufman spoke to the National Organization of Investment Professionals about the importance of the legislation.

"When mega-banks fail, their interconnected nature inevitably leads to a systemic risk, a collapse in confidence and the classic patterns of a bank run," Kaufman, a Democrat from Delaware, said. "By splitting up these mega-banks, we by definition will make them smaller, safer, and more manageable."

Democratic Senators Sherrod Brown of Ohio, Jeff Merkley of Oregon, Robert Casey of Pennsylvania and Sheldon Whitehouse of Rhode Island also offered their support for the measure, which would be included in the financial reform passed in March.

In theory, significant changes are coming. In practice, the devil (loopholes) is in the details.

Also note that financial reform is centered around preventing the last problem from reoccurring. However, it's not the last crisis we need to worry about but the next one.

Even if Congress did nothing, the odds of blowing another housing bubble are negligible. Moreover, somewhere in these reform bills, perhaps not even intentional, will be loopholes or totally new provisions that financial institutions will exploit to create the next crisis. Such problems may not surface for years or longer.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
[/quote]

[Jamie_B]

The Fed is getting audited, great news if the audit goes like it should be allowed to.

http://www.huffingtonpost.com/2010/05/06/fed-audit-amendment-deal_n_566661.html

[Homer_Rice]

[quote name='Jamie_B' date='07 May 2010 - 01:35 PM' timestamp='1273253747' post='886859']
The Fed is getting audited, great news if the audit goes like it should be allowed to.

http://www.huffingtonpost.com/2010/05/06/fed-audit-amendment-deal_n_566661.html
[/quote]
Toothless in one very important respect: doesn't address the policy-making functions of the Fed. And that is where the action is.

The fight (on the economic front) is not so much liberal/conservative, it's financial (speculative) capital versus industrial capital. Thankfully, a select [url="http://cantwell.senate.gov/news/record.cfm?id=324753"]few members on both sides of the aisle get it.[/url]