There needs to be a clear message coming from the public regarding exactly which changes are being sought. Perhaps there are too many views for everyone to agree, but from what the New York Times is reporting, it appears that there just isn't enough understanding of the regulatory hairball that governs our nation's financial system in order to untangle the mess -- which is hardly the public's fault. Here's my own view on what we should be demanding:
- Reinstatement of the Glass-Steagall Act. This law kept retail banks separate from investment banks from the Great Depression until 1999, when Larry Summers thought it was no longer necessary. Citigroup in particular benefited from the repeal in the short term, but in the long term it allowed banks to take on insane amounts of risk, which eventually led to the 2008 financial crisis.
- Federal preemption of state money transmission laws. Money transmitters, such as PayPal (and FaceCash, which my company operates), are the best hope consumers have for an alternative to traditional banking services. With banks instituting fees left and right for debit card use, checking accounts, ATMs, and other supposed benefits, one would think that an entire industry of money transmitters would be popping up in order to take advantage of consumer anger. That's not happening because the financial lobby has made money transmission illegal in most states without licenses that come at exorbitant expense. Right now, every state has a different law -- just yesterday, the New York Department of Banking changed its interpretation of New York law to make it harder for money transmitters to compete with banks in the State of New York. The current system is insane, hurts consumers, and should be centralized at the U.S. Treasury (via FinCEN), Consumer Financial Protection Bureau, or Federal Reserve. In order for this to happen, Congress needs to act.
- Criminal investigations of government and banking officials. There's a long list of bank CEOs who aren't in jail but should be. There's a similarly long list of government officials who paved the way for them but never got caught. Right now more entrepreneurs are being threatened with jail time for violating money transmission laws than former bank CEOs.
- Elimination of Wall Street bonuses. For a while the investment banks decided that it would be bad PR to keep on giving away six-figure bonuses to traders--"a while" meaning a few months. Wall Street bonus culture is toxic and needs to be fixed.
- New taxes and SEC requirements for extremely high (greater than 500,000) levels of executive compensation. The last CEO of Hewlett-Packard, a publicly-traded corporation, walked away with more than7 million as part of his golden parachute after only 11 months on the job. During that time he made a series of catastrophically bad decisions that hurt the company's brand, employees, and stock price. Yet this is hardly an exception; criminal levels of compensation are the norm among CEOs of large companies, and Board of Directors rarely if ever account for the reasoning behind fat paychecks. At least embarrass them a little.
- New semantic rules. How exactly is a "savings" account going to help you save any money with an interest rate of 0.05%? With1,000.00 in deposits, you might earn two quarters per year. It should not be legal to call such an account a savings account, especially when fees are attached.
- Required disclosure for credit default swaps and other unregulated securities. Though it might in rare cases be necessary for some transactions to remain confidential for a time, there need to be records. Half of the battle in the mortgage mess is figuring out who owns what. We live in an age where two-terabyte hard drives cost100. It's ridiculous that we don't know this information.
- One banking regulator. Your bank might be regulated by the Office of the Comptroller of the Currency (http://www.occ.treas.gov). Or the FDIC (http://www.fdic.gov). Or the Federal Reserve Bank (http://www.federalreserve.gov). Or the California Department of Financial Institutions (http://www.dfi.ca.gov), if you live in California. It gets complicated quickly. Complexity is bad when you are trying to prevent fraud.
- Simpler taxes now. Everyone is always arguing about how high tax rates should be, but have you bothered to look at the forms? If the Secretary of the Treasury (who oversees the IRS, among other divisions) can't figure out how to do his own taxes, then we shouldn't have to either. It should not require a CPA or any other degree to figure out how much to pay the government.
This is just a start. The financial system is complex and even the most knowledgeable experts only understand a fraction of what is going on at any given point in time. But it's better than nothing.