Barney Frank Disagrees With Obama On Fund, May Face Fight With Some Financial Firms

bloomberg.com:

Oct. 31 (Bloomberg) -- Barney Frank, chairman of the U.S. House Financial Services Committee, reversed course on paying to unwind failed financial firms, splitting with the White House and setting up a possible fight with the biggest companies.

Legislation Frank crafted with the Treasury Department and unveiled this week will be amended to impose a fee on financial institutions with more than $10 billion of assets before any firms fail, he said yesterday on Bloomberg Television's "Political Capital with Al Hunt." The Obama administration wants to collect fees after a company fails.

Read the whole story: bloomberg.com

Comments

[JBGabriel]

09:17 PM on 11/11/2009

Oh my goodness, I may be on Barney's side on this one. However what I would really like done is to have the big banks that are "too big to fail" broken up. That would apply especially to those banks which have required goverment funds to stay afloat.

BIG banks are BAD!

From Simon Johnson of The Massachusetts Institute of Technology

http://economix.blogs.nytimes.com/2009/10/22/in-banking-bigger-is-not-better/

If the folks at MIT are saying this, then I'm going with it.

[JBGabriel]

10:11 PM on 11/11/2009

Moderator, can you please fix the typo in my previous post?

The word is spelled "government."- in the last sentence in my first paragraph. I use the hunt and peck method of typing and left out the n.

I apologize for the error.

[TJCole]

03:06 PM on 11/02/2009

We can only Reform our Corrupt Banking Culture and System if We Nationalize the Major Corrupt Banks and Reform them from within...!

The American Dream is right now, the American Scheme..!

End the Degenerate Gambling and Criminal Market Manipulation and Speculation..!

[puc4u2]

03:57 PM on 11/02/2009

Go smoke some more pot and while you are nationalizing the banks, let's give you a free loan to go study a red toad frog in California, because industry wants to expand. Your a joke.

[instagladiator]

05:03 PM on 11/02/2009

How about a new monetary system? You know, one that would free you from the bounds of enslavement that you've been enduring for nearly a century?

[TJC]

03:04 PM on 11/02/2009

Every loan a bank makes has some risk. But believe me when I tell you that underwriters and being very carefull. Some would suggest they are being overly carefull about lending to the point of not lending to qualified borrowers. mostly small businesses. I dont have a problem with banks taking on heavily claculated risk, but every product must be transparent.

[puc4u2]

04:05 PM on 11/02/2009

The government could establish different tiers and levels of risk. The higher the risk the more the bank pays into FDIC insurance pool and the more capital requirements the bank has to set a side to offset or mitigate the risk. This money could not be used for lending purposes and treated risk base dcapital. The question is what percent of liquidity should be set aside. The current measure is way too low and does not work.

[mergina]

02:23 PM on 11/02/2009

If America knew what the hell any of this meant Mr. Frank, I am sure they would be supporting you.

[rosiebond007]

01:56 PM on 11/02/2009

Banks should return to 'banking' and not speculating.

Barney Frank has a big job to do here - against big odds !!

[sonofsamphm1c]

02:05 PM on 11/02/2009

When a bank loans money to a person who says "I promise to pay" the bank is speculating.

[DiogenesOfAlaska]

02:09 PM on 11/02/2009

That's exactly true. And it is their job to do that. And they calculate the premium that allows them to do it.

And if a bank says to the taxpayer 'I promise to pay' the situation is no different. Why would it? Because taxpayers aren't banks? Because 'tax' sounds like 'tax-and-spend liberal?' If that's all you've got, then you've got nothing.

[changeself]

01:53 PM on 11/02/2009

another fake battle bewtween a neo-lib and a ne-con.

lemme guess what will come out of this.

another fake law.

[sonofsamphm1c]

01:50 PM on 11/02/2009

Why are taxpayers responsible for the costs of thwarting a systemic failure? Because there is no other way to do it. It's their country.

A fee on systemic-risk institutions, used to build up a huge fund, will simply be paid by consumers - the taxpayer. Costs of borrowing will be higher. Credit will be less available.

If you would like, it could easily be arranged that the answer to "I promise to pay" always be no. Such countries exist. The people live on the dirt.

[DiogenesOfAlaska]

02:06 PM on 11/02/2009

You are quite unaware of the net wealth transfer involved in moral hazard. It's not abstract nonsense at all. It amounts to a mispricing of risk premia.

If you would like to claim that such mispricing recommends itself based on a macro-argument, then please show us a calculation that estimates the impact of allowing external effects due to the risk of failure of financial behemoths on national wealth.

There is no such calculation. And that's why you can't allow the mispricing of the premia. It induces a gigantic misallocation of capital. That alone suffices to oppose the existence of too big to fail institutions. You don't even need to invoke the fact that it is a redistribution of wealth from taxpayers to bankers or bank equity holders.

[sonofsamphm1c]

02:44 PM on 11/02/2009

This is quite simple. If you require banks to establish larger reserves, and then require those that represent a systemic risk to create a systemic-risk fund, every penny of those requirements comes out of the hides of consumer, taxpayers, and every penny of it is not available for lending. Reasonable reserves work; unreasonable reserves harm.

[Jannsmoor]

03:41 PM on 11/02/2009

You have bought the big lie, that financial institutions only charge what the government forces them to plus a modest profit.

Like all capitalist free market institutions, they charge the most they possibly can, completely without regard to governmental regulation.

Therefore, a huge fee on systemic risk institutions will come out of their bloated profit margins and compensation packages, not from the taxpayer.

[DiogenesOfAlaska]

01:50 PM on 11/02/2009

There's nothing complicated about this at all.

Systemically important institutions must demonstrate that they DO NOT enjoy an implicit government guarantee if they wish to get around contributing to that fund. As simple as that.

Of course it's impossible. Because they don't have enough data to prove it. But that's precisely what's wrong in the system and it is precisely why their argument (that they don't need any guarantees) has zero credibility. It's a gambit, nothing more.

And it's also obvious that there is only one way out: those profits that are made possible due to this intransparency alone were never earned. Never. Not now, not in the past. And yes, this means that a significant number of people siphoned off fees that were not earned. Bad enough. But it cannot be allowed to happen again.

To even think about arguing against these simple facts with some kind of 'free market entrepreneurial spirits' is a silly joke.

And apart from being a silly joke, it is also terribly dangerous. It would be the ultimate destruction of credibility. Nobody can afford to do that.

[sonofsamphm1c]

02:07 PM on 11/02/2009

Unless one believes in national suicide, there is always a government guarantee. There always should be one.

[DiogenesOfAlaska]

05:32 PM on 11/02/2009

It exists de facto, exactly because the opposite would be national suicide. And precisely because this is so, banks enjoy unearned profits unless they are regulated or highly competitive (which is possible only if they are ultimately small and large in number).

[acapo]

01:08 PM on 11/02/2009

What a joke.

[maxhardon]

01:06 PM on 11/02/2009

Absolutely absurd. Instead of figuring out a way to get these crooks thrown into a jail they are wasting their time with some harebrained scheme to guarantee the banks a bailout next time they commit securities fraud.

[EqOrbit]

01:01 PM on 11/02/2009

This makes absolute no economic sense.

Barney, show us real reform, that will deleverage bank. Regulations is not the same as breaking it up, and deleveraging.

The credit problem has been stuck since 2007, and it has not eased one bit. And look at those who benefited from TARP, pre TARP, FNM/FRM control about 75% of the residential mortgage market, now, they are only the player in the residential mortgage market. No banks wiil deal any other, since none of them are govt guaranteed.

This is much ado about nothing. At the end of the hearing, the bill will pass, no Senator will oppose it or modify it to its core, and TARP on steroids will now be legalized. Long live the banks.

[humanbeing-rick]

12:20 PM on 11/02/2009

Why should the tax payers foot the TBTF bill for their failures? These financial masters of the universe need to be put down back into their place in the grand scheme of our economy.
Their extreme risks and complex financial instruments they devise are beyond the comprehension of most people. The bottom line is that they should pay for their own way.
More importantly, we need to reform these financial markets and their masters. We do not want them to use our money, our savings, and our investements for high risk gambling and taking of profits.
We want long term security and long term investments. We want the banks to return to what banks do.

Furthermore, I would support legislation to take back the money these financial wizards stole from us over the last two decades, and disposess them of their mansions and yachts. It was all taken by an industry gone wild. We should be compensated for their evil indulgences.

[vernbvb]

01:22 PM on 11/02/2009

Exactly! Please pass this on again and again?

As our economy continues to tank, we are still content with throwing more good money after bad. Let's investigate and prosecute while imposing heavy penalties and recouping taxpayers money. Then we need to get serious about regulating and stop this crime against America!

[vinny]

12:16 PM on 11/02/2009

The Frank legislation creates a council of regulators, which includes the Federal Reserve and the FDIC, to monitor large financial firms and the economy for systemic risk. The FDIC would get power to take apart companies whose failure would pose a risk to the economy. A similar Senate bill hasn’t been proposed.

-----------

There's no accountability mechanism here.

[Chubbster]

12:15 PM on 11/02/2009

Barney has got to conquer Geithner on this.

[vinny]

12:16 PM on 11/02/2009

this sounds more like wagging the dog to me...

[holeybuybull]

12:33 PM on 11/02/2009

More kabuki theater for mass consumption.

[naschkatze]

12:57 PM on 11/02/2009

Pay me now or pay me later.

[bzb]

12:14 PM on 11/02/2009

But those fees are the taxpayer money what is wrong with that Frank?