Tag Archives: financial reform

Whatever It Is, They’re Against It

17 Saturday Apr 2010

Posted by in bailout, Congress, economy, financial reform, financial regulation, Politics, special interests, too big to fail, Wall Street

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Senator Mitch McConnell (R-KY), speaking for all 41 Senate Republicans on the prospects for reforming and regulating the financial system:

That was after Susan Collins (R-ME) became the 41st signature on McConnell’s letter to Harry Reid which reads:

“We are united in our opposition to the partisan legislation reported by the Senate Banking Committee. As currently constructed, this bill allows for endless taxpayer bailouts of Wall Street and establishes new and unlimited regulatory powers that will stifle small businesses and community banks.”

All words straight out of a Frank Luntz memo, telling Republicans how to maintain the status quo while sounding like they are in favor of reform. In other words, just repeat the Luntz-inspired tactics from the health care debate, with “endless taxpayer bailouts” replacing “death panels” as the lie du jour. And a lie is exactly what it is. What will guarantee “endless taxpayer bailouts” is doing nothing. The proposed reform calls for applying the same process to the “too big to fail” institutions that the FDIC uses every day for dealing with banks that become insolvent.

Sheila Bair, head of the FDIC, and whose word I’ll take over McConnell’s 8 days a week, said as much in an interview published at American Banker on Thursday:

Would this bill perpetuate bailouts?
SHEILA BAIR: The status quo is bailouts. That’s what we have now. If you don’t do anything, you are going to keep having bailouts.

But does this bill stop them from happening?
BAIR: It makes them impossible and it should. We worked really hard to squeeze bailout language out of this bill. The construct is you can’t bail out an individual institution – you just can’t do it.

If this had been law prior to 2008, would we have seen the bailouts that took place?
BAIR: No. You could not do an AIG, Bear Stearns, or any of that…This bill would only allow system-wide liquidity support which could not be targeted at an individual firm. You can’t do capital investments at all, period. It’s only liquidity support. No more capital investments. That’s banned under all circumstances.

Do you see any way left for the government to bail out a financial institution?
BAIR: No, and that’s the whole idea. It was too easy for institutions to come and ask for help. They aren’t going to do that. This gives us a response: “Fine, we will take all these essential services and put them in a bridge bank. We will keep them running while your shareholders and debtors take all your losses. And oh, by the way, we are getting rid of your board and you, too.”

Here’s all you need to know about the dishonesty of Senate Republicans. One provision of the bill is for a $50 billion fund to dismantle the “too big to fail” banks. The fund is made up entirely of money which comes from the big banks, not one thin dime from the taxpayers. Republicans want this provision removed. But even if it goes, will they support the remainder of the legislation? I think you can guess the answer:

“McConnell suggested it wouldn’t be enough to satisfy Republicans.

“I appreciate the Obama administrations recognition of the need to substantively improve this bill,” McConnell said. “And I hope we can work with them to close the remaining bailout loopholes that put American taxpayers on the hook for financial institutions that become too big to fail.”

Oh by the way, how did the $50 billion get into the legislation to begin with? It was the result of negotiations between Banking Committee members Mark Warner (D-VA) and Bob Corker (R-TN). Needless to say, Corker now opposes the fund he negotiated to include.

Whatever it is, they’re against it.

The Charade of Financial Reform

26 Friday Mar 2010

Posted by in bailout, financial reform, financial regulation, Politics, Wall Street

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Simon Johnson at Baseline Scenario sheds light on Sen. Dodd’s proposed financial reform legislation, and it’s more of the same old, same old we’ve come to expect from Washington—the appearance of doing something while actually doing nothing:

“…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.

[…]

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…

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.”

Health Care “Sleight of Hand”

16 Tuesday Mar 2010

Posted by in Congress, financial reform, health care, Politics, Uncategorized

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If members of Congress have any question as to why they rank somewhere below used car salesmen on the trustworthy scale, there are 2 shining examples relating to 2 pieces of proposed legislation in today’s news—one on health care reform and one on financial reform—which should make it crystal clear. First there’s this from the Washington Post:

“After laying the groundwork for a decisive vote this week on the Senate’s health-care bill, House Speaker Nancy Pelosi suggested Monday that she might attempt to pass the measure without having members vote on it.”

Wait a minute, I thought President Obama said it was time for an up or down vote on health care reform? Que pasa? I guess that only applies when the votes are there. Failing that, the need for an alternative procedure arises. Such as:

“Instead, Pelosi (D-Calif.) would rely on a procedural sleight of hand: The House would vote on a more popular package of fixes to the Senate bill; under the House rule for that vote, passage would signify that lawmakers “deem” the health-care bill to be passed.”

Note to Speaker Pelosi: For future reference, any time the words “sleight of hand” are used in relation to an action by Congress, it doesn’t exactly inspire confidence that what you’re trying to do is on the up and up.

“The tactic — known as a “self-executing rule” or a “deem and pass” — has been commonly used, although never to pass legislation as momentous as the $875 billion health-care bill. It is one of three options that Pelosi said she is considering for a late-week House vote, but she added that she prefers it because it would politically protect lawmakers who are reluctant to publicly support the measure.”

Wait another minute. Haven’t the Speaker and the Democratic leadership been extolling the virtues of this “reform” and how good it will be for us ( just trust them)?  Then why the need for “political protection?” I’m confused.

The other bit of news is Sen. Chris Dodd’s release of his so-called “sweeping financial regulatory reform” bill. This quote from Dodd at the end of a Huffington Post article says it all:

“Interestingly, Dodd seemed to want to minimize expectations for the proposed legislation’s impact by saying several times that it is not enough to prevent another crisis: “This legislation will not stop the next crisis from coming. No legislation can…”

Yes it can, Sen. Dodd. If you want it to. Ay, there’s the rub.

Washington’s Got a Secret—And They Intend to Keep It

14 Sunday Feb 2010

Posted by in Congress, economy, Financial Crisis, George W. Bush, Justice Department, Obama, Politics, Wall Street

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Gretchen Morgenson in yesterday’s New York Times on the lack of action on financial reform from our alleged representatives in the District of Columbia

“As Washington spins its wheels on financial reform, it’s becoming painfully clear that the problem of entities that are too interconnected or “too politically powerful to fail” is also too hard for our policy makers to tackle.”

What Ms. Morgenson calls Washington “spinning its wheels,” is more appropriately named the “appease the peasants” circus. That time-honored D.C. tradition of giving the appearance of doing something while actually, and intentionally, doing nothing. And it’s not that it’s “too hard to tackle,” they have a financial interest in not tackling it.

“As taxpayers, we obviously can’t rely on lawmakers to address the risks we face from the ever-expanding corporate safety net thrown under teetering behemoths. But because we are footing the bills for these rescues — and will do so again if more crises occur — don’t you agree that we should know what these implied federal guarantees will cost us?…If the government won’t reduce the size of the safety net, and it has shown no appetite for doing so, it should at least tell us the price tag.”

To the contrary, “the government”—and not just the Capitol Hill gang but those who give lip service to openness and transparency at the other end of Pennsylvania Avenue—is doing everything in its power to keep us from seeing that “price tag” as well as who received what.

“The Federal Reserve asked a U.S. appeals court to block a ruling that for the first time would force the central bank to reveal secret identities of financial firms that might have collapsed without the largest government bailout in U.S. history.

The U.S. Court of Appeals in Manhattan will decide whether the Fed must release records of the unprecedented $2 trillion U.S. loan program launched after the 2008 collapse of Lehman Brothers Holdings Inc.”

The Obama Justice Department cites the need for secrecy “confidentiality:”

“Confidentiality is essential to the success of the board’s statutory mission to maintain the health of the nation’s financial system and conduct monetary policy,” Assistant U.S. Attorney General Tony West and Fed lawyer Richard Ashton wrote in a legal brief to the appeals court.”

Never mind this:

“The lawsuit, brought under the U.S. Freedom of Information Act, came as President Barack Obama criticized the previous administration’s handling of the $700 billion Troubled Asset Relief Program passed by Congress in October 2008. Obama has said funds were spent by the administration of former President George W. Bush with little accountability or transparency.”

Hypocrisy you can believe in.

The Rubin Influence Runs Deep in the Obama Administration

09 Tuesday Feb 2010

Posted by in Clinton, economy, Financial Crisis, Obama, Politics, Wall Street

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Senator Maria Cantwell (D-WA) is one the lone voices in Washington D.C. calling for meaningful financial reform, and calling out the White House for its lack of leadership on that issue:

“To hear Sen. Maria Cantwell talk, another economic bubble is building as Wall Street banks — backed by taxpayer bailouts — continue to play the high-risk derivatives markets rather than extend credit to struggling businesses on Main Street.

Cantwell says that Congress and the Obama administration are just watching it happen. The Washington state Democrat is among the most outspoken members of the Senate when it comes to calling for tough new regulations to rein in Wall Street.”

Not just “watching it happen,” Sen. Cantwell. There are no innocent bystanders among the president and his team of economic advisers–enablers and co-conspirators are more accurate terms. More on that later. Back to Sen. Cantwell:

“She’s not looking to pick a fight with the White House, the Federal Reserve or powerful congressional committee chairmen. She was, however, one of 30 senators to vote against the confirmation of Ben Bernanke to a second term as Fed chairman; she temporarily blocked the appointment of the White House nominee to head the Commodity Futures Trading Commission; and she’s been highly critical of Treasury Secretary Timothy Geithner and Larry Summers, the top White House economic adviser.”

Geithner and Summers–see enablers and co-conspirators. But to see the whole picture in focus, it takes a few steps backwards get the proper perspective.

In 1985, following Ronald Reagan’s landslide defeat of Walter Mondale in ‘84, the Democratic Leadership Council (DLC)  was formed with the aim of moving the Democratic party away from its “liberal” leanings toward a more “centrist” (read corporate-friendly) position. Bill Clinton chaired the DLC from 1990-1991 before running for, and being elected, president in 1992 as a so-called “New Democrat.”

President Clinton’s director of the newly-created National Economic Council from 1993 to 1995, and his Treasury Secretary from 1995-1999, was Robert Rubin, who spent 26 years at Goldman Sachs prior to joining the Clinton administration.

Matt Taibbi in Obama’s Big Sellout:

“As Treasury secretary under Clinton, Rubin was the driving force behind two monstrous deregulatory actions that would be primary causes of last year’s financial crisis: the repeal of the Glass-Steagall Act.. and the deregulation of the derivatives market.”

Fast forward to April 2006 and the founding of a DLC offshoot, The Alexander Hamilton Project, whose first director was….Robert Rubin. Back to Taibbi:

“There are four main ways to be connected to Bob Rubin: through Goldman Sachs, the Clinton administration, Citigroup and, finally, the Hamilton Project, a think tank Rubin spearheaded under the auspices of the Brookings Institute to promote his philosophy of balanced budgets, free trade and financial deregulation.”

At the founding meeting of the Hamilton Project, one of the featured speakers, and the only United States senator in attendance, was the junior senator from the state of Illinois, Barack Obama.”

Now take a look at President Obama’s economic team:

“At Treasury, there is Geithner, who worked under Rubin in the Clinton years. Serving as Geithner’s “counselor” — a made-up post not subject to Senate confirmation — is Lewis Alexander, the former chief economist of Citigroup, who advised Citi back in 2007 that the upcoming housing crash was nothing to worry about. Two other top Geithner “counselors” — Gene Sperling and Lael Brainard — worked under Rubin at the National Economic Council, the key group that coordinates all economic policymaking for the White House.

As director of the NEC, meanwhile, Obama installed economic czar Larry Summers, who had served as Rubin’s protégé at Treasury. Just below Summers is Jason Furman, who worked for Rubin in the Clinton White House and was one of the first directors of Rubin’s Hamilton Project.

And as head of the powerful Office of Management and Budget, Obama named Peter Orszag, who served as the first director of Rubin’s Hamilton Project.”

…to serve alongside Furman at the NEC [Obama hired] management consultant Diana Farrell, who worked under Rubin at Goldman Sachs. In 2003, Farrell was the author of an infamous paper in which she argued that sending American jobs overseas might be “as beneficial to the U.S. as to the destination country, probably more so.”

…Over at the Commodity Futures Trading Commission, which is supposed to regulate derivatives trading, Obama appointed Gary Gensler, a former Goldman banker who worked under Rubin in the Clinton White House. Gensler had been instrumental in helping to pass the infamous Commodity Futures Modernization Act of 2000, which prevented regulation of derivative instruments like CDOs and credit-default swaps that played such a big role in cratering the economy last year.

Now, considering that tangled web, do you think we’re going to get lip service or meaningful, substantive reform of Wall Street? My money says lots of talk, very little, if any, action.

Who’s In Charge Here? Follow the Money

06 Saturday Feb 2010

Posted by in Congress, Democrats, Financial Crisis, lobbyists, Politics, Wall Street

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The Washington D.C. game of finger-pointing, blame-shifting, and buck-passing rolls on. Robert Reich in Thursday’s Salon:

“Senator Chris Dodd, the chairman of the Senate Banking Committee, scolded Wall Street representatives at a hearing Thursday for sending “an army of lobbyists whose only mission is to kill the common-sense financial reforms” needed by the public. “The fact is,” Dodd said, “I am frustrated, and so are the American people.” He charged that Wall Street’s intransigence was the reason for Congress’s failure to pass any bill to regulate the Street.

Dodd left out the most telling detail, of course. Wall Street is where the campaign money is. Dodd of all people knows that. He’s been on the receiving end of lots of it over the years.

…In other words, it isn’t Congress’s fault. It isn’t the Senate Banking Committee’s fault. It certainly isn’t Dodd’s fault. The reason more than a year has passed since the biggest bailout in the history of the world and nothing has been done to prevent a repeat performance…is what, exactly, Senator? Because the Street has sent an army of lobbyists to Capitol Hill?

Call me old-fashioned, but I thought Congress was in charge of passing legislation, not Wall Street.

A little over $6 million, that’s all. Which leads to the REAL reason for the lack of Congressional action:

“Congress isn’t doing a thing about Wall Street because it’s in the pocket of Wall Street. Dodd’s outburst at the Street is like the alcoholic who screams at a bartender “how dare you give me another drink when all I’ve done is pleaded with you for one!”