Senator Kaufman Proposes Best Financial Reform Proposal Yet: Cap Liabilities

Tyler Durden's picture

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Stu's picture

Goldman CEO Blankfein feels that ‘government is out to kill them.’

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Goldman CEO Blankfein feels that ‘government is out to kill them.’

Blankfein, the embattled CEO of Goldman Sachs, told clients in a telephone call yesterday that he feels under siege due to a Securities and Exchange Commission probe that scrutinizes Goldman for misrepresenting a debt product tied to subprime mortgages. Blankfein, apparently channeling his inner Glenn Beck, reportedly told investors that “the government is out to kill” his firm:

*****One person who received a call from the Goldman chief said he was told the regulator’s case against the bank was politically motivated and would ultimately “hurt America”. <…>

“He was very aggressive,” said one person called by Mr Blankfein on Wednesday. “He feels that the government is out to kill them, that they are under attack and the whole thing is totally political.”

Mr Blankfein said the SEC action “hurts America”, this person said.

truont's picture

Somebody!  Call a WHAAAAAMBULANCE!  Lord Blankfeiny is whiney!

Crab Cake's picture

Goldman CEO Blankfein feels that ‘government is out to kill them.’

Mr. Blankfein, I could be wrong but, I don't think it's the government that's out to kill you and your company...

SteveNYC's picture

Yes, with all the cash they have loaded on Goldman in the past 2 years, I guess the weight of it all coul crush you? But I'm sure it is all for love, as opposed intent to kill. Poor ol' Lloyd.

crosey's picture

I would rather have a bill that does not guarantee anything beyond deposits (up to $250k).  That way, if the banks want to blow themselves up, go right ahead and learn the lesson the hard way.

Trouble with my approach is that, unless there are codified caps, the banks will just go on scaring the shit out of the stupid legislators, and getting what they want.

So, I guess Kaufman-Brown have the best approach.

buzzsaw99's picture

decent people are horribly outnumbered.

Crab Cake's picture

"The few who understand the system, will either be so interested in its profits, or so dependent on its favors that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantages...will bear its burden without complaint, and perhaps without suspecting that the system is inimical to their best interests."
- Rothschild Brothers' of London communiqué to associates in New York June 25, 1863

lesterbegood's picture

We do not need any more new laws! Restore the U.S. Consttitution! Doing this will rid the people of the IRS, Federal Reserve, CFR, Trilateral Commission, NAFTA, CAFTA, Patriot Act and it's progeny, like Homeland Security.

Demand from your elected officials that they Restore the Constitution!

lizzy36's picture

Hey it's the "O" show. 

Lot's of words + Lloyd in the audience (where o where is the house of Dimon).

What about the $400bln ot taxpayer dollars for fannie and freddie Mr. President?

Anyone dare to ask which democratic senator helped kill reform of fannie and freddie in 2005?  Or which was the third largest recipient of campaign contributions from Fannie Mae and Freddie Mac, behind only Sens. Chris Dodd and John Kerry?

Ahhh......the hypocrisy of politicians is only matched by star athletes entering sex rehab.

Grifter's picture

whose only purpose is to make sure banks can blow themselves up once again and this time so spectacularly that only Mars would be able to bail out not only America but the world

The above made me think of this old clip, specifically 1:10 in:

"...and some huge meteor is like 'well f*ck that...'"

alien-IQ's picture

Just the mere fact that TD used the term "dumber than a bag of hammers" makes me very happy.  It's a favorite of mine.


Now if ZH can find a way to incorporate the terms:

"The depth of a $99 paint job"


"Don't piss down my back and tell me it's raining"

I'd be eternally thankful.



Mitchman's picture

With all due respect, I think the original of that last one is "You're pissing on my shoes and telling me it's rain!"  I suggest we start with this as a riposte to 99% of what our President says to be followed as a riposte to 99% of what Helicopter Ben says.

john_connor's picture

Terrific proposal and great post.  Thanks. 

The more that we can grab this political football away from the administration, and Repubs for that matter, the more likely that real reform will happen.  I am not holding my breath however.

BTW, is anyone else sick of this halo crap when MSM photographs Obama? (Check out MW front page).  I am, and I am not fooled.



Caviar Emptor's picture

Obama: "There is no dividing line between Wall Street and Main Street" (!)

That last line told it ALL. 
It's un-American to be critical of Wall Street. And there will be no acknowledgement that the needs of the real economy are different from the needs of Wall Street.

HarryWanger's picture

Certainly is a different world we live in now that the market actually goes up when Obama speaks. Used to be an automatic dive. He may be suffering in the Main St. polls but Wall St. seems to be warming up to the Prez. I wonder why.....

Cyan Lite's picture

This legislation has a snowball's chance...

weinerdog43's picture

It turns out that Kaufman is not running for re-election, and can therefore tell the truth.  Pretty sad state of affairs that only a single Senator has the stones to stand up and say what needs to be said. 

Hondo's picture

Limiting liabilities is a very good idea.  The whimps will say that is will slow growth....there are many reasons that won't happen and will actually produce competition and diversification withing the lending community.

ArsoN's picture

I would prefer eliminating the central bank.  Since that doesn't appear to be an option this is probably as good of a way of treating the symptoms as any other.  

Marc45's picture

We already have a cap on liabilities.  Unfortunately, this was pretty much ignored when mark-to-market was deemed unnecessary.  Let's face it, the banks have everyone by the balls.

chindit13's picture

"Stocks rally on no-reform Reform Bill"

lovejoy's picture

Warren Mosler, running for Senator Dodd'a seat,  has some interesting proposals for banks.

"U.S. banks are public/private partnerships, established for the public purpose of providing loans based on credit analysis. Supporting this type of lending on an ongoing, stable basis demands a source of funding that is not market dependent. Hence most of the world's banking systems include some form of government deposit insurance, as well as a central bank standing by to loan to its member banks.

 The hard lesson of banking history is that the liability side of banking is not the place for market discipline. Therefore, with banks funded without limit by government insured deposits and loans from the central bank, discipline is entirely on the asset side. This includes being limited to assets deemed 'legal' by the regulators and minimum capital requirements also set by the regulators.

Given that the public purpose of banking is to provide for a payments system and to fund loans based on credit analysis, additional proposals and restrictions are in order:

  1. Banks should only be allowed to lend directly to borrowers, and then service and keep those loans on their own balance sheets. There is no further public purpose served by selling loans or other financial assets to third parties, but there are substantial real costs to government regarding the regulation and supervision of those activities. And there are severe consequences for failure to adequately regulate and supervise those secondary market activities as well. For that reason (no public purpose and geometrically growing regulatory burdens with severe social costs in the case of regulatory and supervisory lapses), banks should be prohibited from engaging in any secondary market activity. The argument that these areas might be profitable for the banks is not a reason to extend government sponsored enterprises into those areas.
  2. US banks should not be allowed to contract in LIBOR. LIBOR is an interest rate set in a foreign country (the UK) with a large, subjective component that is out of the hands of the US government. Part of the current crisis was the Federal Reserve's inability to bring down the LIBOR settings to its target interest rate, as it tried to assist millions of US homeowners and other borrowers who had contacted with US banks to pay interest based on LIBOR settings. Desperate to bring US interest rates down for domestic borrowers, the Federal Reserve resorted to a very high risk policy of advancing unlimited, functionally unsecured, US lines of credit called 'swap lines' to several foreign central banks. These loans were advanced at the Fed's low target rate, with the hope that the foreign central banks would lend these funds to their member banks at the low rates, and thereby bring down the LIBOR settings and the cost of borrowing US for US households and businesses. The loans to the foreign central banks peaked at about600 billion and did eventually work to bring down the LIBOR settings. But the risks were substantial. There is no way for the Fed to collect a loan from a foreign central bank that elects not to pay it back. If, instead of contracting based on LIBOR settings, US banks had been linking their loan rates and lines of credit to the US fed funds rate, this problem would have been avoided. The rates paid by US borrowers, including homeowners and businesses, would have come down as the Fed intended when it cut the fed funds rate.
  3. Banks should not be allowed to have subsidiaries of any kind. No public purpose is served by allowing bank to hold any assets 'off balance sheet.'
  4. Banks should not be allowed to accept financial assets as collateral for loans. No public purpose is served by financial leverage.
  5. US Banks should not be allowed to lend off shore. No public purpose is served by allowing US banks to lend for foreign purposes.
  6. Banks should not be allowed to buy (or sell) credit default insurance. The public purpose of banking as a public/private partnership is to allow the private sector to price risk, rather than have the public sector pricing risk through publicly owned banks. If a bank instead relies on credit default insurance it is transferring that pricing of risk to a third party, which is counter to the public purpose of the current public/private banking system.
  7. Banks should not be allowed to engage in proprietary trading or any profit making ventures beyond basic lending. If the public sector wants to venture out of banking for some presumed public purpose it can be done through other outlets.
  8. Use FDIC approved credit models for evaluation of bank assets. I would not allow mark to market of bank assets. In fact, if there is a valid argument to marking a particular bank asset to market prices, that likely means that asset should not be a permissible bank asset in the first place. The public purpose of banking is to facilitate loans based on credit analysis rather, than market valuation. And the accompanying provision of government insured funding allows those loans to be held to maturity without liquidity issues, in support of that same public purpose. Therefore, marking to market rather than evaluation by credit analysis both serves no further public purpose and subverts the existing public purpose of providing a stable platform for lending."
4shzl's picture

In other words, let's make 'em rate-regulated utilities.  Works for me.

fsudirectory's picture

b-b-b-b-b-bb-b- but thats socialism noooooo how will they EVER compete !!, sorry I was channeling CNBC

Ned Zeppelin's picture

Have the TBTFs read this? Dodd will have a lot of friends in high places if they get wind of this guy's "radical" proposals.

RonnieHonduras's picture


I guess this is better than the alternative, but it's still crrrrrap. Especially the pilining on the free market stuff.

Bottom line: the free market has nothing to do with the current fiasco or system, and the analogy made to footbal without referees is totally apples and oranges.

And I suspect most readers here get this, but just in case... The system as it stands is an artficial construct, a political - banking nexus that opperates as if certain systematic assumptiosn are immutable requirements for life.   Central banking, for example.  Fractional reserve banking. Fiat currency. 

So, if those system features are assumed absolute necessities, then the above proposal and observations would seem more sensible.  After all, if you've given certain politically connected players the ability to play with $billinos minted out of thin air, and assert that without such favoritism, all life ends, then it goes without saying that a lack of regulating those players to establish some limits to the pace of their reckless looting is stupid.  Implied, the deregulation of the players in this horribly misdesigned system opened to door for the looting to go on in plain sight, warts and all. Blaming free market advocates is a red herring.  This is corporatism plain an simple before re-regulation and after whatever they cook up in the next 18 mos, nothing free-market about it.

Every grifter knows the best scams are when the victim has no idea he's being scammed.  You can then scam.  Scam some more.  And scam again.   At best, the above proposal is nothing more than an attempt to slow the pace of scamming to something less visible.  As if the implied fraud of fractional reserve banking and outright monetization are so delightful to those subsidizing it.  

Parasites should know better than to get so drunk with themselves as to kill their host in the process.  This proposal merely restates that first rule of parasitism into law.

Ned Zeppelin's picture

Regulating banks as utilities is just another way to reinstate Glass-Steagall. You want to party? Do it on your own money. No FDIC insured assets in the mix. 

This is not hard. Rubin, etc. all got their way with all this deregulation shit, and it took them no time to bring down the whole thing. Assholes - all of them.  Time to get everybody back inside the corral.  At gunpoint, if need be.

RonnieHonduras's picture

All glass steagall did was turn off the lights, add roofies to the common man's cocktail, and use extra lube.  It was still a bend-over rape in progress, only so slow the victim was less aware.  Who want's to be part of THAT corral?

What Rubin et al repealed amounted to ending the roofies, throwing out the lube, and instead of going slow, giving the common man the triple-team.  When the lights went on, nobody like's what they saw. 

Fixing the problem IMO does not include turning lights off again, and going back to eating roofies, and feeling better because we're back to going slow with lube.

That's all the above proposal is.

RonnieHonduras's picture

Oh, and YES, they should party on their own dime. No bailouts. No FDIC. No fractional reserve banking. End the Fed.