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Dodd's Financial "Reform" Bill Is Nothing but a Placebo for a Very Sick Economy
- Bank of England
- Creditors
- Fail
- Federal Deposit Insurance Corporation
- Federal Reserve
- Federal Reserve Bank
- Fisher
- Great Depression
- John McCain
- Kaufman
- Market Conditions
- Milton Friedman
- Moral Hazard
- None
- Nouriel
- Nouriel Roubini
- Paul Volcker
- recovery
- Richard Fisher
- Sheila Bair
- Ted Kaufman
- Too Big To Fail
On March 3rd, Richard Fisher - President of the Federal Reserve Bank of Dallas - told the Council on Foreign Relations:
A
truly effective restructuring of our regulatory regime will have to
neutralize what I consider to be the greatest threat to our financial
system’s stability—the so-called too-big-to-fail, or TBTF, banks. In
the past two decades, the biggest banks have grown significantly
bigger. In 1990, the 10 largest U.S. banks had almost 25 percent of the
industry’s assets. Their share grew to 44 percent in 2000 and almost 60
percent in 2009.
The
existing rules and oversight are not up to the acute regulatory
challenge imposed by the biggest banks. First, they are sprawling and
complex—so vast that their own management teams may not fully
understand their own risk exposures. If that is so, it would be futile
to expect that their regulators and creditors could untangle all the
threads, especially under rapidly changing market conditions. 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 the
damages, even if their troubles stem from negligence or trickery. They
have only to look to recent experience to confirm that assumption.
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 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 troubles 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.
The
dangers posed by TBTF banks are too great. To be sure, having a clearly
articulated “resolution regime” would represent steps forward, though I
fear they might provide false comfort in that a special resolution
treatment for large firms might be viewed favorably by creditors,
continuing the government-sponsored advantage bestowed upon them. 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.
I align myself closer to 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.
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. And this should be done before the next financial crisis, because it surely cannot be done in the middle of a crisis.
Fisher
joints many other top economists and financial experts believe that the
economy cannot recover unless the big, insolvent banks are broken up in
an orderly fashion, including:
- Nobel prize-winning economist, Joseph Stiglitz
- Nobel prize-winning economist, Ed Prescott
- Former chairman of the Federal Reserve, Alan Greenspan
- Former chairman of the Federal Reserve, Paul Volcker
- Dean
and professor of finance and economics at Columbia Business School, and
chairman of the Council of Economic Advisers under President George W.
Bush, R. Glenn Hubbard
- Simon Johnson (and see this)
- President of the Federal Reserve Bank of Kansas City, Thomas Hoenig (and see this)
- Deputy Treasury Secretary, Neal S. Wolin
- The President of the Independent Community Bankers of America, a Washington-based trade group with about 5,000 members, Camden R. Fine
- The Congressional panel overseeing the bailout (and see this)
- The head of the FDIC, Sheila Bair
- The head of the Bank of England, Mervyn King
- The leading monetary economist and co-author with Milton Friedman of the leading treatise on the Great Depression, Anna Schwartz
- Economics professor and senior regulator during the S & L crisis, William K. Black
- Economics professor, Nouriel Roubini
- Economist, Marc Faber
- Professor of entrepreneurship and finance at the Chicago Booth School of Business, Luigi Zingales
- Economics professor, Thomas F. Cooley
- Former investment banker, Philip Augar
- Chairman of the Commons Treasury, John McFall
Even the Bank of International Settlements - the "Central Banks' Central Bank" - has slammed too big to fail. As summarized by the Financial Times:
The
report was particularly scathing in its assessment of governments’
attempts to clean up their banks. “The reluctance of officials to
quickly clean up the banks, many of which are now owned in large part
by governments, may well delay recovery,” it said, adding that
government interventions had ingrained the belief that some banks were
too big or too interconnected to fail.
This was dangerous because
it reinforced the risks of moral hazard which might lead to an even
bigger financial crisis in future.
Senators Ted Kaufman, Maria Cantwell, John McCain and others are also demanding that the too big to fails be broken up.
But Senator Dodd is trying to push through a financial "reform" which bill won't do anything to
break up the too big to fails, or do much of anything at all. It's
got a reassuring name and a nice, sugary taste ... but there's no real medicine in it.
For example, Dodd's bill:
- Won't break up or reduce the size of too big to fail banks
- Won't remove the massive government guarantees to the giant banks
- And won't even increase liquidity requirements to prevent future meltdowns
As Senator Ted Kaufman points out:
What walls will this bill erect? None.
***
Just
this week, a Moody’s report stated: “…the proposed regulatory framework
doesn't appear to be significantly different from what exists today."***
In sum, little in these reforms is really new and nothing in these reforms will change the size of these mega-banks.
Our economy is really sick, and the cure is well-known. But Dodd is offering nothing but a placebo.
- advertisements -
From Nathan Hale to Timmy Dodd...talk about regression.
Did we expect anything else from Dodd?
GW is too valuable of a resource to have his time wasted on the empty, cynical charade that is the Dodd Bill.
I wish GW would give us the inside story on all the lobbying for the banksters that is going on in DC. Someone has to expose that travesty.
714 client(s) lobbied for specific issues containing the word 'bank' (See all)Here's the Top 50 (by number of bank mentions)
- American Bankers Assn
- Federal Home Loan Bank
- National Assn of Realtors
- Credit Union National Assn
- Process Handler Et Al for Hire
- Brassell, Robert J Jr
- Estate of Robert James Brassell
- Bank of America
- Goldman Sachs
- JPMorgan Chase & Co
- National Assn of Federal Credit Unions
- Securities Industry & Financial Mkt Assn
- Self Help Credit Union
- Independent Community Bankers of America
- Loews Corp
- Morgan Stanley
- Mortgage Bankers Assn
- Estate of Delois Albert Brassell
- HSBC Holdings
- Citigroup Inc
- US Chamber of Commerce
- Delta Airlines
- UBS AG
- United Services Automobile Assn Group
- ACA International
- Consumers Union of the US
- Council of Federal Home Loan Banks
- Credit Suisse Group
- National Assn of Bankruptcy Trustees
- Delphi Corp
- National Assn of Home Builders
- Financial Services Roundtable
- International Council of Shopping Cntrs
- Advanta Corp
- Deere & Co
- National Cooperative Bank
- US Public Interest Research Group
- American Council of Life Insurers
- American Veterinary Medical Assn
- Clearing House Payments Co
- GMAC LLC
- Principal Financial Group
- American Insurance Assn
- Cerberus Capital Management
- Coalition for Employment Through Exports
- Zions Bancorp
- Ameriprise Financial
- General Motors
- Air Line Pilots Assn
- Arab Bank
https://opensecrets.org/lobby/issuesum.php?lname=Banking&year=Really? The Banks are using profits to pay for their Lobby? not the 0% Fed Window?
http://www.wired.com/threatlevel/2009/08/bank-lobbyists/
**** "In the first three months of 2009, the financial sector spent $104.7 million to lobby Congress and the administration, down 8% from the same period last year" ****
http://online.wsj.com/article/SB124640640747376775.html
So that I am clear... 2008 was a vintage year for Banks? they made soooooooooooooooooooooo much money on 2008 that in the first 3 months of 2009... they could drop $104.7 MILLION DOLLARS?
http://en.wikipedia.org/wiki/Emergency_Economic_Stabilization_Act_of_200...
This fellow is quite a character. Check out the LinkedIn profile, and then search around a little bit for his company's activities...
http://www.linkedin.com/pub/robert-brassell-jr/13/325/b2b
Looks like a political operative. I bet his parents are so proud.
When they have bow season on this particularly obnoxious type of animal I want a license.
Can you imagine? I mean, people wonder whats happening with all that liquidity. Well, It's about to fund the mother of all parties on K st. Serious inflation in the influence market I should think.
placebo is such a great descriptor. love it.
the bulls base their general outlook on a big fat placebo too.
One of the oldest puppets around.
Chris Dodd will never be part of the solution, and you can bet your FRN's that anything he touches is against and at the expense of the common good of humanity.
Dodd, until you are the whistle blower instead of the fudge-packer-frank blower this citizen is all in against you.
What a shameless sad bit of history that poser will leave behind.
Aye, and Barney is a bone smuggler as well mate!
Ditto, LOL
"On March 3rd, Richard Fisher - President of the Federal Reserve Bank of Dallas - told the Council on Foreign Relations:"
While I agree with GW on every point in this article, the Council on Foreign Relations is the belly of the beast, one of the control mechanisms. They know full well what the problems are because they are the ones, along with others, that are pulling the puppet strings. I personally think these entities welcome dissenting opinions as a source of inspiration for other devious ways to manipulate and control.
"You know, we hadn't thought how putting that into the Dodd bill might be so destructive or ineffective. Good show. It even has a bit of irnoy to it which makes it so delicious. Ring up Dodd right away and instruct him to make the appropriate changes. I expect to see it in the next draft."
While this is most certainly an over simplification and was done with poetic license, anyone who still thinks all this is just a terrible sequence of mistakes, greed and self interest run amok should call me up. I've got some great swap land in Florida I'd like to unload...er.....sell you.
Right on, well put.
Thanks CD. Not an over simplification. Just the simple truth.
Dodd = Fail
Perfect choice for the most important task "government" faces right now.
"This is a Friend of Angelo" This is a Friend of Ours...Donnie Brasco
So this is the saving disgrace of a shamed patriot on his way out.
Mr. Dodd, Your Legacy is far more valuable than this. Sit Down for a Moment.
Gee , with Spitzer out, the henhouse is getting rumbled again...
NOBODY...NOT ONE Congressman or Senator, has any balls? Except RonPaul?
WHAT IS THIS? Repeal Phil Gramm's "Modernizations" And Treasury/Goldman Sachs Paulson's "Net Capital Rule"
Not that complicated...If I understand this, then an elected official that can read, and stay home away from the K Street Kriminals one evening, certainly can. Try It!
RE: "NOBODY...NOT ONE Congressman or Senator, has any balls? Except RonPaul?"
God Love Ya!
Thanks! for the laugh.
"But the fifth surgeon, from Washington , DC... shut them all up when he observed: "You're all wrong, Politicians are the easiest to operate on. There's no guts, no heart, no balls, no brains and no spine, and the head and the asshole are interchangeable."
Thank you for one of those "deep from the belly" laughs that brighten the day and make the world a little better. We can still laugh even if we're still swimming in the cesspool.
Anytime.....though it is becoming more and more difficult to hold my nose while swimming in this particular swimming pool.....
+ 1000!
Yea....But look at all the jobs it's going to create!!
There are two simple tools that bankers dislike and regulators should embrace. Sunshine and higher capital standards.
Considering TBTF institutions, why not demand more transparency on balance sheets, and have these balance sheets broken down by profit centers/trading desks of the firms involved? Compartmentalization would go a long way to understand, and isolate risk.
If a certain bank wants to engage in very risky trading, they are free to do so but must have more capital to support a given desk/concept. Same with prop trading.
Consider Mother Merrill. After the fact, we now know that O'Neal specifically allowed MER to ramp its leverage and trading activities in some of the most arcane and toxic asset classes just before the market broke. There were plenty of traders/desks who knew that MER was taking inventory and were happy to dump paper. If MER had to set aside more capital to back that bet, they might not have been so bold.
Keep leverage under control and increase transparency. I don't see how the federal government can directly mandate bank break-ups. That said, it can control leverage and it can force transparency.
"everything that is agreeable is unsound and everything that is sound is disagreeable.”
it kind of reminds me of conversations with my ex wife :)
US Government Policy: lies wrapped in misdirection surrounded by sincerity
In 2008 with the Credit Crisis the To Big To Fail Banks got even bigger. Most of the Power in this Country shifted to that handfull of Banks.
I believe that the Congress and the Senate are afraid of the handfull of Powerfull Banks. They know that they can devistate our Economy and Country any time they want.
Just look at what they did in 2008. Treasury Secrutary told the Congress that if he did not get the Billions he wanted that it would be the end of the United States as we knew it.
Threats and Extortion to get all of the Power they wanted.
In my opinion the few Huge Banks now control the Country not the President, the Congress or the Senate.
Plus the FED now owns FRE, FNM, AIG, C, GM and probably 50% of the Stock Market thru S&P futures. Close to 80 to 90 % of GDP.
Those people are just not as smart as this man:
http://williambanzai7.blogspot.com/2010/03/jackass-ii.html
or this man:
http://williambanzai7.blogspot.com/2010/03/ru-bat-2009.html
or this man:
http://williambanzai7.blogspot.com/2010/03/timmy-gs-regulatory-imaginari...
All just idle rhetoric and conversation, heated and otherwise. The government is only about appearing to do something while it is actually doing what is not at all apparent.
The people in government are not about to tell truth or facts about anything. ALL changes except for tax rates and printing money, will be slightly marginal.
There will be no revolution without an armed conflict and without citizens willing to risk their lives, and militia men who are as brainless as annalida, target innocents and low level bureaucrats instead of taking out the elite.
Armed militas?
We are fortunate in America called the 10th Amendment, which is being invoked by 30 states regarding Obamacare. 49% of the country wants the states to sue the feds over O-care (it's a Rassmussen poll, so I expect this to be somewhat Left biased on issues, I find he's careful to be accurate on elections).
http://serfcity.wordpress.com/2010/03/23/obamacare-just-say-no/
Expect a lot more of this 10th Amendment 'stuff' as things progress. Power will be transferred to the states, either officially through state's rights, or unofficially as the feds simply can't make payroll.
$3.5 Billion dollars in lobby monies... since 1998... out of health professionals alone?
http://www.opensecrets.org/capital_eye/health.php
Health Sector Campaign Contributions and Lobbying Totals, 1989-2009*
Period Covered1
Total Contributions
To Current Members of Congress
Total Spent on Lobbying
All Years
$944,969,972
$376,172,916
$3,590,912,402
2009 Only
$57,029,709
$40,515,330
$576,402,070
Industry/Interest
All 2008
All 2009
Difference
Pct Change
Pharmaceuticals/Health Products
237066569$237,066,569
263377975$263,377,975
26311406$26,311,406
0.11111.1%
Insurance
153244224$153,244,224
163829335$163,829,335
10585111$10,585,111
0.0696.9%
Health Services/HMOs
62311507$62,311,507
72703045$72,703,045
10391538$10,391,538
0.16716.7%
Health Professionals
78021781$78,021,781
84606162$84,606,162
6584381$6,584,381
0.0848.4%
Hospitals/Nursing Homes
101910335$101,910,335
107106372$107,106,372
5196037$5,196,037
0.0515.1%
Misc Health
5866049$5,866,049
10348155$10,348,155
4482106$4,482,106
0.76476.4%
https://opensecrets.org/lobby/incdec.php
But it’s Obama Care? see the problem is... that you have been drinking the Kool-Aid as well... right verses left... left verses right... you are just as stupid as the rest of the sheep standing next to you… Baaaaaaaa… Baaaaaaaaaa!
There is no spoon... only the lobby that controls either, the left or the right.
Obama didn’t spend BILLIONS of his dollars so the poor could have "Healthcare"... Nor did the "Poor" write the check(s) that came crashing in to the Coffers of all of those nice people within the "Beltway".
Who benefits from the healthcare plan? the poor? or is there a 60% allowance for all monies to be dumped into the private sector? are the insurance companies really just feeding at the public trough like everyone else? isn’t the insurance companies turn? let me know if you need me to dumb it down for you some more.
Obama care… stealing sound bite from the “Fox” network isn’t helping you make a real case.
Thank for the info JW. It is a sickening amount of money.
You are right, but it then begs the question why these people, who are not dumb, maintaining the status quo? Is it for selfish personal gain in politics and thereafter, or because they know the system is broken??
The people who have been in government, particularly the bureaucrats who have been the main accomplices of the senior elected incumbents, who have been in office for 20 years or more, are well aware of who butters their parsnips. They are the groups who have figured out that the government itself is 'ungovernable' that they can only influence or control their small section of it. Like the thankfully dead Murtha and Kennedy. Johnstown is now wondering who will save them and they are trying to run Murtha's wife to keep those same corrupt contacts and contracts flowing.
The people of Massachusetts woke up to Teddy Boyo Kennedy's abuse of power for 30 years but kept the bastard in office until recently. Perhaps they will display the same courage and wisening and get rid of that other smegma, Barney Frank.
For them a broken system is broken by DESIGN. If things ran like a swiss watch or an Apple Computer there would be a need for half the members of government we have now. Or less. And that can never be permitted, for in chaos there is great profit, in stability, very little.
GW, you are awesome.
Keep it coming.
It seems to me that these are the required changes for any meaningful, sustainable recovery.
1) TBTF
2) Tax structure change (15% Ctax only)
3) Reduction of legal largesse:
Legal largesse has ruined medicine and small business.
4) Internet based education system (mostly free, for the willing not the connected wealthy Princeton Harvard Yale Klans who collectively are largely responsible for the ruining of the USA) .
5) Political restructuring:
Eliminate the two party win by advertising system. Votes and local proxies by internet per township
6) Health care: would be paid by some fraction of the 15% take per democratic vote, the rest by individuals.
7) Pension system: individuals for themselves.
8) Revamping and defragmenting the exchanges into a seamless worldwide BATS model type exchange whereby all securities are tax free in the name of the most efficient capital.