published Wednesday, July 20th, 2011

Financial reform, or not?

Wall Street and big commercial banks and their ever-ready Republican and Chamber of Commerce defenders vehemently opposed the Dodd-Frank Act financial reform act when it was proposed in the wake of the nation's catastrophic financial implosion of 2008. Since the sweeping bill was approved by Congress a year ago, its opponents have continued at every turn to resist or sabotage the work of writing new regulations to safeguard the nation's financial system from another casino-style investment debacle. And when the new centerpiece agency for putting the Dodd-Frank Act to work finally opens for business tomorrow, they promise to deny it a director and to keep working to dismantle the new regulatory watchdog.

Small wonder President Obama says he still believes the battle to safeguard American investors and their retirement and pension funds is far from over. If anything, the battle is destined to heat to new levels in the coming days.

Obama's nomination Monday of former Ohio Attorney General Richard Cordray to head the new Consumer Financial Protection Bureau will put the banking reform act into play, and its adversaries are lining up to crush it at the starting gate.

They've got the lobbying clout and money to entice malleable members of Congress to empathize with the banking industry's desire to keep their profits on risky investments and derivatives intact. According to a report from the Center for Responsive Politics, the banking industry spent almost $52 million in the first quarter of this year -- a 10 percent increase over the previous quarter -- on lobbying efforts to dilute reform and the safeguards the Consumer Financial Protection Bureau will oversee. More money is sure to flow in campaign donations to purchase lawmakers' support.

Wall Street investment banks and the big commercial banks that joined their ranks following the 1999 dismantling of the Glass-Steagall Act want to retain the latitude to keep kiting the sort of toxic-mortgage investments and risky, over-leveraged derivatives that brought on the Great Recession. They shouldn't be allowed to do that. Their excesses led to the destruction of millions of jobs and shuttered businesses, and left the economy in the deepest recession since the Great Depression.

Regardless, the banking industry's lobby is on a roll. It has recently persuaded regulators to lighten the cuts to debit card fees; to defer regulations on derivatives by six months; and, to exempt other more exotic investment securities from regulation entirely. It has swayed the Commodity Futures Trading Commission to reconsider its pending curb on derivatives, as well.

Banks also oppose transparency and reporting rules on investments, and bans against trading out of their own accounts, which put their investors' money into play. They oppose a rule to require them to hold higher capital reserves on own their investments to reduce the risk of failure and bailouts, and a plan to require banks that sell mortgage-backed securities to hold a portion of those investments on their own books to stem short-selling the investments they peddle to their clients. And they apparently have succeeded in requiring whistle-blowers to report suspicions of fraud to the banks first, before taking their claims to regulators.

Banks certainly can't argue that tighter oversight over the past two years has hurt them, however. Stock market indexes are up substantially across the board this year over last year, and executive salaries are soaring.

The Dodd-Frank Act is already weaker than it should be. If regulatory overhaul is going to provide any benefit to ordinary investors, concessions have to end, and some two dozen GOP bills to dismantle reform piecemeal will have to be defeated.

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328Kwebsite said...

One of the great tragedies of our current financial situation is that it didn't have to be this way. Yet, we saw not only a shocking moral failure, but also an intellectual failure of staggering magnitude.

We got in this fix by not only letting businessmen be greedy, but also by letting them be stupid.

Where were their basic risk controls? The repeal of Glass-Steagall didn't make the world live on fantasy money. Why should we begin to believe that they have suddenly gotten smarter now? When we let banks and investment bankers regulate themselves the first things they stopped doing were: banking and investing. Instead, they completely divorced themselves from the most basic of intellectual requirements for the task at hand: personal interest.

Ask anyone in insurance if personal interest is important to a lawful financial contract. It's been an important principle of financial laws in this country since the Great Depression. Why? Because blindly gambling on anything contributed to the Great Depression. It also contributed to the recession we're in now.

Our bankers used our accounts and contracts as their personal casino and ATM.

Today's bankers and traders cared so little and thought so little about each transaction that they blindly bought and sold, instead of investing. It's obvious. The bundling of securities, the disguising of risk, the great speed and volume of the trades: it's not reasonable for an intelligent person to believe that these buyers and sellers knew what they were doing. Their actions and direct relationship with the contracts themselves deliberately created a situation where the ability to grasp what was occurring was a fiction. The contracts were written for one purpose alone: to be as stupid a view of reality as possible in order to make accepting the liability of reality as unlikely as possible.

Commerce doesn't have to work this way.

It just works that way when we put our money, our faith and our trust in people who have so dumbed down and divorced from reality their work that they trade on pure emotion and social reaction. It's as though our fate was determined by adults who were acting like four year old children. Then, upon bailout, they had the audacity to demand massive paychecks so that we could "retain talent."

Yes, we need the Consumer Protection Bureau. Yes, we know Brooksley Born was right about the CFTC back in the 90s. We're aware of the damage done by the banking industry to the banking industry by not being a banking industry.

We simply don't have enough handcuffs to lock up the liars who destroyed this country with fraud. We don't just need financial reform, we need fines that come directly out of the personal bank accounts of the wealthy in exchange for their foolishness.

We'd also like to see Elizabeth Warren as Secretary of the Treasury.

July 21, 2011 at 1:38 a.m.
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