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Financial Reform: Will We Even Have a Debate?
The New York Times reports that financial reform is the next top priority for Democrats. Barney Frank, fresh from meeting with the president, sends a promising signal,
"There are going to be death panels enacted by the Congress this year - but they're death panels for large financial institutions that can't make it," he said. "We're going to put them to death and we're not going to do very much for their heirs. We will do the minimum that's needed to keep this from spiraling into a broader problem."
But there is another, much less positive interpretation regarding what is now developing in the Senate. The indications are that some version of the Dodd bill will be presented to Democrats and Republicans alike as a fait accompli - this is what we are going to do, so are you with us or against us in the final recorded vote? And, whatever you do - they say to the Democrats - don't rock the boat with any strengthening amendments.
Chris Dodd, master of the parliamentary maneuver, and the White House seem to have in mind curtailing debate and moving directly to decision. Republicans, such as Judd Gregg and Bob Corker, may be getting on board with exactly this.
Prominent Democratic Senators have indicated they would like something different. But it's not clear whether and how Senators Cantwell, Merkley, Levin, Brown, Feingold, Kaufman, and perhaps others will stop the Dodd juggernaut (or is it a handcart?)
This matters, because there is more than a small problem with the Dodd-White House strategy: the bill makes no sense.
Of course, officials are lining up to solemnly confirm that "too big to fail" will be history once the Dodd bill passes.
But this is simply incorrect. Focus on this: How can any approach based on a US resolution authority end the issues around large complex cross-border financial institutions? It cannot.
The resolution authority, you recall, is the ability of the government to apply a form of FDIC-type intervention (or modified bankruptcy procedure) to all financial institutions, rather than just banks with federally-insured deposits as is the case today. The notion is fine for purely US entities, but there is no cross-border agreement on resolution process and procedure - and no prospect of the same in sight.
This is not a left-wing view or a right-wing view, although there are people from both ends of the political spectrum who agree on this point (look at the endorsements for 13 Bankers). This is simply the technocratic assessment - ask your favorite lawyer, financial markets expert, finance professor, economist, or anyone else who has worked on these issues and does not have skin in this particular legislative game.
Why exactly do you think big banks, such as JP Morgan Chase and Goldman Sachs, have been so outspoken in support of a "resolution authority"? They know it would allow them to continue not just at their current size - but actually to get bigger. Nothing could be better for them than this kind of regulatory smokescreen. This is exactly the kind of game that they have played well over the past 20 years - in fact, it's from the same playbook that brought them great power and us great danger in the run-up to 2008.
When a major bank fails, in the years after the Dodd bill passes, we will face the exact same potential chaos as after the collapse of Lehman. And we know what our policy elite will do in such a situation - because Messrs. Paulson, Geithner, Bernanke, and Summers swear up and down there was no alternative, and people like them will always be in power. If you must choose between collapse and rescue, US policymakers will choose rescue every time - and probably they feel compelled again to concede most generous terms "to limit the ultimate cost to the taxpayer" (or words to that effect).
The banks know all this and will act accordingly. You do the math.
Once you understand that the resolution authority is an illusion, you begin to understand that the Dodd legislation would achieve nothing on the systemic risk and too big to fail front.
On reflection, perhaps this is exactly why the sponsors of this bill are afraid to have any kind of open and serious debate. The emperor simply has no clothes.
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15 Comments so far
Show AllWhich of the large investment banks will Senator Dodd be working for next year?
When was the last time you saw an unscripted debate?
Anything short of restoring New Deal financial industry regulations is not going to alter the banksters' behavior.
Barney's "death panels" will target only the banks that have not bribed him and his ilk.
Financial Reform? We couldn't even wrestle the health care issue for the better. It's much worse now than it was before.
I imagine any financial reform "now", will result in more power going to the top .01% of the population. (The richest 1:10,000)
Yes, the big money people, not your local banker, it's the people who don't even live in your town.
They all have ranches in Paraguay (no extraditions allowed) just in case the heat ever really gets turned up on them here.
There is one other way to hurt these gigantic banks. DON'T DO ANY BUSINESS WITH THEM OR WITH FINANCIAL BUSINESSES THAT DO BUSINESS WITH THEM ! ! ! And agitate against one's states and municipalities doing business with them. If these banks have branches in your hometown, DON'T do business with them.
Jim Shea
Not doing business with a particular bank is a moot point because all financial institutions do business with one another. It would be like trying to avoid water because it comes from enemy territory.
While banks all do business with each other, unlike your locally owned bank, the too big to fail banks each have more than 10% of all dollars on deposit in the US...like each one has more than two trillion dollars.
Teddy Roosevelt's turn of the century trust busting was the main reason the US didn't go fascist when Germany, Italy and Spain did in the 1930s. Meaningful financial industry reform cannot proceed until these behemoths are broken up and regulated.
If you give your money to a too big to fail bank you are contributing to the problem, not the solution.
We all know that nothing will come out of individual or joint efforts by the White House and the Senate that doesn't accomodate the very bandits we are trying to corral. The only place where I see a modicum of integrity is in the House. So, that is where I would place my bet.
Let's do what it takes to empower the House Banking Committee to create an ad hoc group to come up with a reform package that will do the job for all of us, and that will withstand the light of day. REAL REFORM.
William Black would be an ideal Chair, given his knowledge and background with the Savings and Loan scandal of the 1980's. Members that could be counted on to do the job with diligence and integrity are Elizabeth Warren, Eliot Spitzer, Blakesley Born and Joseph Stiglitz.
Simon Johnson is a savvy guy and should be heard. He, too, would be a valuable member of any such effort.
Such a group would have to be insulaed from any oversight or accountability to the Federal Reserve, the Treasury, the Senate Finance Committee and, yes, the White House. Otherwise, whatever comes out will be compromised in favor of the fox guarding the chicken house.
It sure as hell isn't going to be easy, but we urgently need to start somewhere.
" Focus on this: How can any approach based on a US resolution authority end the issues around large complex cross-border financial institutions? It cannot."
This is a very complex and difficult issue as capital can so freely move about the world and banks are free to move their headquarters to other nations. One of our best hopes is that people have learned that derivatives are risky and Moody's and others are of little value in their assessments of risk. That said, we still need some serious legislation.
You cannot have any form of Financial Reform while engaged in a relenless and headlong spending spree.
You cannot restore old protections nor add new ones without cutting into your needed funds.
Who do these idiots think they are kidding? Just because they found 220 credulous and corrupt fools once.......
The fix is already in! We are screwed!
Paul Krugman is quite possibly right. Instead of getting slight financial reform, we may well get nothing:
"Chris Dodd seems to think he can pull in some GOP senators, and some political commentators agree. But my bet is no. Republicans will still, I believe, be eager to deny Obama any further successes; and they’re eager to curry favor with bankers who don’t want their actions monitored by little punk staffers. And I don’t think financial reform can be done through reconciliation, so the GOP doesn’t have to worry about a Democratic success despite unified opposition.
I hope I’m wrong about this. But my best bet is no financial reform, unless, just maybe, Obama can cast the GOP in such a bad light as the defenders of plutocrats that it caves to limit the damage.
This little article from the AP is the most revealing and important thing in today's Globe --- and perhaps in any US newspaper --- if we unpack what it shows about the impact of the disguised, deceitful, and destructive corporatist EMPIRE that is quietly taking over our democracy.
"Group’s ad effort against overhaul called misguided
WASHINGTON — The Obama administration went on the attack yesterday against the country’s biggest business lobby over resistance to an overhaul of the financial rules system.
Deputy Treasury Secretary Neal Wolin told the US Chamber of Commerce on its own turf that a reworking of the financial system was sorely needed and that the attempted obstruction by the chamber was misguided.
“It is so puzzling that despite the urgent and undeniable need for reform, the Chamber of Commerce has launched a $3 million advertising campaign against it,’’ Wolin told a business audience at the organization’s headquarters, a block from the White House. The chamber — “funded, no doubt, with a good deal of your money — has launched a lavish, aggressive, and misleading campaign to defeat’’ the new consumer protection agency proposed by the legislation, Wolin said."
First, the Chamber of Commerce is really not the nice little local volunteer organization of pro-small business chambers that most people think it is, but rather covertly functions as a guileful “Chamber of EMPIRE”.
The national Chamber of Commerce, though they don’t wear the brown shirts and black arm-bands of an overt and visible fascist Empire take-over, is actually working toward nothing short of what Sheldon Wolin (ironically) accurately described as “inverted fascism” --- or the merger of corporatism and state power, similar to Hitler, but where financial corporatism is the Fuhrer (‘leader’) in the driver’s seat, and the state is merely the junior partner in this destruction of democracy.
Far from being the polite little local business organization that it masquerades as, the Chamber of EMPIRE is the Krystalnach SS shock troops and Joseph Goebbles propaganda brigade of a ruling-elite Global corporate/financial/militarist EMPIRE, which is intent on totally controlling ‘our’ country by hiding behind the façade of its TWO-PARTY modern ‘Vichy’ sham of faux democratic government.
The “Chamber of EMPIRE” is actually at the heart of a coordinated Panzer division and Luftwaffe ‘Blitzkrieg’ smashing through not merely France’s physical Maginot Line, but with a 21st century ‘shock doctrine’ (started in the Bush regime) smashing through the defensive line of America’s and the world’s democracies.
Yes, the “Chamber of EMPIRE”, along with the sweet sounding, but global imperialist organizations of the World Bank, IMF, WTO, and all the assembled might of the hundreds of ‘divisions’ of monstrous transnational and global corporate/financial shock troops that this 21st century truly Global EMPIRE can raise --- far exceeding 10th century Popes with their religious Empire dreams, or even Hitler and Stalin with their 20th century dreams of single nation-state Empires --- is now more guilefully and slowly stepping on the throats of democracies everywhere in our world.
Yes, the sweet sounding little local Chamber of Commerce is the epitome of this most deadly 21st century looming Global corporate/financial/militarist EMPIRE’s stealthy ‘Predator Drone’ strategy to ‘fly beneath our radar’ and appear to be “Friendly Fascism” (Bertram Gross’s term) today, while preparing to shoot ‘Hell-Fire Missiles’ at all of us if democracy doesn’t get out of the way of their Global Empire’s way.
The only real defense against this looming threat to our country, our children, and our world by Global EMPIRE fueled with “Empire-thinking”, is for average people everywhere to unite in solidarity and defend our democracy in a Global People’s “Anti-EMPIRE” movement starting with little sparks of populist, progressive, libertarian, anti-war, anti-corporatist, and Anti-EMPIRE movements like the unifying “Anti-Empire” Movement recently founded by Kevin Zeese, David Beito, Ralph Nader and many others on both the left progressive and right libertarian sides of this Global EMPIRE threat.
Alan MacDonald
Sanford, Maine