May 6, 2010
As I discussed on April 26, expectations for serious financial reform are pretty low. Worse yet, Lloyd Blankfein (CEO of Goldman Sachs) felt confident enough to make this announcement, during a conference call with private wealth management clients:
“We will be among the biggest beneficiaries of reform.”
So how effective could “financial reform” possibly be if Lloyd Bankfiend expects to benefit from it? Allan Sloan of Fortune suggested following the old Wall Street maxim of “what they promise you isn’t necessarily what you get” when examining the plans to reform Wall Street:
President Obama talks about “a common sense, reasonable, nonideological approach to target the root problems that led to the turmoil in our financial sector and ultimately in our entire economy.” But what we’ll get from the actual legislation isn’t necessarily what we hear from the Salesman-in-Chief.
Sloan offered an alternative by providing “Six Simple Steps” to help fix the financial system. He wasn’t alone in providing suggestions overlooked by our legislators.
Nouriel Roubini (often referred to as “Doctor Doom” because he was one of the few economists to anticipate the scale of the financial crisis) has written a new book with Stephen Mihm entitled, Crisis Economics: A Crash Course in the Future of Finance. (Mihm is a professor of economic history and a New York Times Magazine writer.) An excerpt from the book recently appeared in The Telegraph. The idea of fixing our “sub-prime financial system” was introduced this way:
Even though they have suffered the worst financial crisis in generations, many countries have shown a remarkable reluctance to inaugurate the sort of wholesale reform necessary to bring the financial system to heel. Instead, people talk of tinkering with the financial system, as if what just happened was caused by a few bad mortgages.
* * *
Since its founding, the United States has suffered from brutal banking crises and other financial disasters on a regular basis. Throughout the 19th and early 20th centuries, crippling panics and depressions hit the nation again and again. The crisis was less a function of sub-prime mortgages than of a sub-prime financial system. Thanks to everything from warped compensation structures to corrupt ratings agencies, the global financial system rotted from the inside out. The financial crisis merely ripped the sleek and shiny skin off what had become, over the years, a gangrenous mess.
Roubini and Mihm had nothing favorable to say about CDOs, which they referred to as “Chernobyl Death Obligations”. Beyond that, the authors called for more transparency in derivatives trading:
Equally comprehensive reforms must be imposed on the kinds of deadly derivatives that blew up in the recent crisis. So-called over-the-counter derivatives — better described as under-the-table — must be hauled into the light of day, put on central clearing houses and exchanges and registered in databases; their use must be appropriately restricted. Moreover, the regulation of derivatives should be consolidated under a single regulator.
Although derivatives trading reform has been advanced by Senators Maria Cantwell and Blanche Lincoln, inclusion of such a proposal in the financial reform bill faces an uphill battle. As Ezra Klein of The Washington Post reported:
The administration, the Treasury Department, the Federal Reserve, and even the FDIC are lockstep against it.
The administration, Treasury and the Fed are also fighting hard against a bipartisan effort to include an amendment in the financial reform bill that would compel a full audit of the Federal Reserve. I’m intrigued by the possibility that President Obama could veto the financial reform bill if it includes a provision to audit the Fed.
Jordan Fabian of The Hill discussed Congressman Alan Grayson’s theory about why Treasury Secretary Tim Geithner opposes a Fed audit:
But Grayson, who is known for his tough broadsides against opponents, indicated Geithner may have had a role in enacting “secret bailouts and loan guarantees” to large corporations, while New York Fed chairman during the Bush administration.
“It’s one of the biggest conflict of interests I have ever seen,” he said.
With the Senate and the administration resisting various elements of financial reform, the recent tragedy in Nashville provides us with a reminder of how history often repeats itself. The concluding remarks from the Roubini – Mihm piece in The Telegraph include this timely warning:
If we strengthen the levees that surround our financial system, we can weather crises in the coming years. Though the waters may rise, we will remain dry. But if we fail to prepare for the inevitable hurricanes — if we delude ourselves, thinking that our antiquated defences will never be breached again — we face the prospect of many future floods.
The issue of whether our government will take the necessary steps to prevent another financial crisis continues to remain in doubt.
Banking Lobby Tools In Senate Subvert Reform
May 20. 2010
The financial pseudo-reform bill is being exposed as a farce. Thanks to its tools in the Senate, the banking lobby is on the way toward defeating any significant financial reform. Although Democrats in the Senate (and the President himself) have been posing as reformers who stand up to those “fat cat bankers”, their actions are speaking much louder than their words. What follows is a list of the Senate Democrats who voted against both the Kaufman – Brown amendment (to prevent financial institutions from being “too big to fail”) as well as the amendment calling for more Federal Reserve transparency (sponsored by Republican David Vitter to comport with Congressman Ron Paul’s original “Audit the Fed” proposal – H.R. 1207 – which was replaced by the watered-down S. 3217 ):
Akaka (D-HI), Baucus (D-MT), Bayh (D-IN), Bennet (D-CO), Carper (D-DE), Conrad (D-ND), Dodd (D-CT), Feinstein (D-CA), Gillibrand (D-NY), Hagan (D-NC), Inouye (D-HI), Johnson (D-SD), Kerry (D-MA), Klobuchar (D-MN), Kohl (D-WI), Landrieu (D-LA), Lautenberg (D-NJ), Lieberman (ID-CT), McCaskill (D-MO), Menendez (D-NJ), Nelson (D-FL), Nelson (D-NE), Reed (D-RI), Schumer (D-NY), Shaheen (D-NH), Tester (D-MT), Udall (D-CO) and Mark Warner (D-VA).
I wasn’t surprised to see Senator Chuck Schumer on this list because, after all, Wall Street is located in his state. But how about Senator Claire McCaskill? Remember her performance at the April 27 hearing before the Senate Permanent Subcommittee on Investigations? She really went after those banksters – didn’t she? Why would she suddenly turn around and support the banks in opposing those two amendments? I suppose the securities and investment industry is entitled to a little payback, after having given her campaign committee $265,750.
I was quite disappointed to see Senator Amy Klobuchar on that list. Back on June 19, 2008, I included her in a piece entitled “Women to Watch”. Now, almost exactly two years later, we are watching her serve as a tool for the securities and investment industry, which has given her campaign committee $224,325. On the other hand, another female Senator whom I discussed in that same piece, Maria Cantwell of Washington, has been standing firm in opposing attempts to leave some giant loopholes in Senator Blanche Lincoln’s amendment concerning derivatives trading reform. The Huffington Post described how Harry Reid attempted to use cloture to push the financial reform bill to a vote before any further amendments could have been added to strengthen the bill. Notice how “the usual suspects” – Reid, Chuck Schumer and “Countrywide Chris” Dodd tried to close in on Cantwell and force her capitulation to the will of the kleptocracy:
Russ Feingold’s criticisms of the bill were consistent with those voiced by economist Nouriel Roubini (often referred to as “Doctor Doom” because he was one of the few economists to anticipate the scale of the financial crisis). Barbara Stcherbatcheff of CNBC began her report on Dr. Roubini’s May 18 speech with this statement:
The current mid-term primary battles have fueled a never-ending stream of commentary following the same narrative: The wrath of the anti-incumbency movement shall be felt in Washington. Nevertheless, Dylan Ratigan seems to be the only television commentator willing to include “opposition to financial reform” as a political liability for Congressional incumbents. Yves Smith raised the issue on her Naked Capitalism website with an interesting essay focused on this theme:
Her must-read analysis of the “head fakes” going on within the financial reform wrangling concludes with this thought:
As always, it’s up to the voting public with the short memory to unseat those tools of the banking lobby. Our only alternative is to prepare for the next financial crisis.