Four-Step Bank Fix

I spoke today on the Morning Meeting about the four steps the government could take to fix the U.S. banking system and stop the ongoing and expanding corruption of our country. These simple solutions come from the litany of people that I speak with who seek to change the mega-casino our government has built during the past 10 years back to one built on investors, innovators and workers creating things that benefit society.  Unfortunately, our current leaders want to take the easy road of sustaining the casino economy with what I like to call the Magic Money Machine.  Except as with all magic, there's actually a trick; in this case, it is a large bill that will be left to those of us unfortunate enough to still be around when it comes due.  Here are the four pieces of regulation that taxpayers should be demanding from their leaders:

 

1. Inject transparency, primarily to bring almost $600 trillion of crooked insurance scams to the forefront.  Force almost all swaps onto exchanges, not just the 20% as current proposed reform does. 

 

Secretary Geithner, Chairman Frank and Chairman Dodd are protecting the last of the Wall Street secret money-making schemes. They don't want to force transparency on this market because it would disclose the fraud this massive bank scheme is -- a taxpayer subsidized secret insurance market which sells cheap insurance to hedge funds, power and food and energy companies, and makes for huge profits at banks and insurance companies. Insurance and idle speculation in secret is a brilliant way for banks and other financial services companies to make money (who doesn't want to collect insurance premiums every month for something you'll never have to pay for?!) And a great way to make oil, food and electricity company CEOs richer as they pay less for their insurance. One problem -- they are all surfing on the taxpayers back to the tune of $24 trillion at risk last I checked -- and the U.S. government is the one letting them do it. Still. Now bigger than ever.

 

2. Demand capital to back Wall Street's gambling. As Tyler Durden at Zerohedge.com said about this clip from the show, do this and it is a guarantee that very few firms will have Goldman's trading pattern each and every quarter.

 

In Vegas, you need to have actual money to gamble. Your own money. It's crazy, but true. Even today, in many cases more than ever, U.S. banks use America's FDIC insured safe deposits to fund their own mad bonus-seeking speculation. Once the banks blow through that -- they borrow from the biggest money printing house in the world, the U.S. Federal Reserve to do the same thing. This is truly insane. The banks and their traders keep the upside. You, the taxpayer, keep the downside. No one else in the world can pay themselves billions to take infinite risk with little or no money down, except a big bank CEO. And we thought they were good at their jobs making all that money, when all they did was rig the game using our government to do it.

 

3. Enact a tax-code to encourage long-term investment and discourage short-term profit. Fortunes should not be made in minutes but over years through the creation of value to society.

    

As long as the easiest way for a man or woman to make money is to spend their day clicking for dollars, why would they bother doing all the work of investing in the long-term economic development of private business in America? Tax code in general should encourage investment, jobs, and innovation in America and discourage idle speculation as the easiest way for a college kid to get rich.  There are sensible ways to use tax policy to encourage this that do not hamper liquidity.

 

4. Break up the Too Big To Fail banking institutions. Start with Goldman Sachs and J.P. Morgan. Right Now.

        

How do you expect any other business to compete with the chosen few who are guaranteed profits? The more risk they take, the more they make. Why do you think they invented a fake $600 Trillion secret derivative market in the first place? Bigger bonuses baby. All upside. No downside. Thank you Uncle Sam. Thank you Secretary Geithner.

        

 

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Comments

[PotomacOracle]

Why are all the experts on monetary policy silent on the issue of how to resolve the nations insolvency?These experts know perfectly well that the U.S. Government is bankrupt... cannot continue to borrow to pay the interest on approximately $57 trillion in total debt costing Americans $383,363,826,680.60 in fiscal 2009.

From 1790 to 1913 we had manageable debt levels. After 1913 debt and the supply of money explode.

Today we have unmanageable debt thanks to the fractional reserve lending policies of the the private corporation called the Federal Reserve. At the same time the Federal Reserve today is monetizing its bank balance sheets at the expense of near term hyperinflation. These disasterous policies can be terminated by a courageous leader willing to exercise existing authority to monetize the national debt.

Monetizing the global debt of the U.S. would not be inflationary if the Congress, i.e., the Government did it. The Government would buy back its own bonds and take them out of circulation. Government securities are already included in M3. This leaves the overall money supply unchanged. However, under the Federal Reserve's monetization scheme the bonds are not taken out of circulation, although they could be. They become the basis for fractional reserve lending which is highly inflationary.

If a majority of Americans remain silent they can expect a more oppressive debt serfdom as the Goldman-Sachs' of the world rip from them any semblance of the "American Dream."

[stallion]

Dylan Ratigan is truly doing god's work. I have been watching him for about 5-years now and he is without equivication he best journalist in the mainstream TV media. He has consistently asks the uncomfortable and inconvenient questions that truly informs his audience. He should be the future of TV journalsm not "Anderson Copper" the CNN poster boy.

[SeekingClarity]

The saga of the bailed-out banks leads me to think of a compulsive gambler who calls on his dad: "Dad, I lost big and owe the mob $250,000". So dad raids his retirement fund to pay off his son’s gambling debts, and disaster is averted - a least for the moment. But where’s Junior? At the casino, back at the tables. This analogy breaks down insofar as junior risks only his own (and his family's) future, while the banks and financial services companies risk everyone’s well being except (apparently) their own.

[ClarcKing]

The United States is a super power; should not be like a conquered nation, in a submissive posture. Confronting the usurious International Monetary Financier Power is the imperative. Usury and speculation in every financial transaction is unsustainable; creating the demand for trillions in bailouts while the population is exposed to the deadly "market forces".
Put the Fed into bankruptcy protection, recover the bailout trillions, banks that qualify will join the the U.S. National Bank. Credits and currency will be issued into the population's physical economy, with the executive of creating, improving, and expanding the necessary facilities that enhance human life/our standard of living.
Only the United States can confront the International Monetary Financier Power, can lead and cooperate with other nations in reorganizing the world economic/financial system.

[theycallthewindmariah]

This is a vitally important article. I wish that the average man and woman, who go to their jobs each day and come home to try to figure out how to pay their bills, could see what really goes on with the swaps, the insurance scams, and all the other things that have drained away our security for the indecent enrichment of the few.

[valboski]

Every member of Congress needs to read and understand Ratigans's common sense steps to fix this mess and to stop the continuing government intervention. Maybe mr. geithner should get as copy too, as well as bernanke.

[darter22]

I would go to Las Vegas and gamble all the time if I did not have to use my own money. There also needs to be a ban on naked short selling. There have been cases where 40M shares have been "shorted" on a stock that only has a 10M share float. These traders make money on counterfeit shares in trades with zero risk.

[textynn]

We are rational people dealing with entities that act exactly like Sociopaths. They have removed the human element out of all their thinking and focused their policies one hundred percent on awarding themselves the most money possible in any given scenario, no matter the human cost or how insanely indifferent it is in terms of humanity. The too big to fail are worse than that. These entities are too big to escape. We've got a big problem. We are literally being crushed by giants.

These people are so unbelievably immature. Their rationale and behavior is like mentally retarded toddlers. These people want everything and they can't even comput into their warped conscientiousness that they might need to consider other people. The other people that virtually have coddled and subsidized them since birth. We've got a giant sociopathic toddler class ruling our nation and they are deadly vicious when they don't get their way, which, at the moment, they always do..

[Michael Martin - Huffpost Blogger]

Great post and ideas.

Regarding #4: we might consider adding the Federal Reserve Bank to the list...

[mrjames1]

Good article Mr. Ratigan- and you got a camera and mic to be heard.

I am a simple person, and usually ascribe to the KISS model, here is both my basic and detailed fixes

simple 1) Derivatives illegal. Detailed- severly limit complex fin instruments, tax fin transactions
2) TBTFail= TDTExist Det- bust em up,sell em off,regulate em, prosecute crimes,no bailouts
3) 8 to 1 leverage max Det- too much leverage= too much systemic risk, lower risk
4) bring back Glass-ST Det- separate banks, insurance co, invest banks
KISS
thats it, and if you want to lose weight, the simple diet is - Drink a glass of water before you eat, then take what you normally would eat, cut it in two, and EAT HALF. simple fixes work

[WellTickleMeWillie]

America will never fix it economic problems.
Rogue capitalism is too deeply entrenched.
There is too much easy money to be made.
The Wall Street criminals and banksters are in positions of power over America's desitiny.
This system is corrupt to the core.
There are way too many DC politicos on the take.
And finally there is no shortage of greed and indifference to the plight of average Americans amongst the masters of our universe.

The American Dream has died for most Americans. They just haven't fond or buried the corpse yet.

[outside the bell]

A new sucker is born every minute.

[veracity]

Great commentaries here at HuffingtonPost, Dylan.

Don't forget another important item: Do NOT permit corporate LBO raiders - like KKR & other raiders - to use a target company's PENSION FUNDS as an "asset" to negotiate the hugely leveraged, monstrous interest payments LBO loans that takeover consortiums use to take over target companies.

In the "Fact is Stranger than Fiction" department, Oliver Stone's movie "Wall Street," portrays Michael Douglas saying "GREED IS GOOD" to shareholders & attempting a highly levereged takeover of "Blue Star airlines" - a predatory LBO that actually preceeded the real-life Frank Lorenzo LBO buyout of Eastern Airlines, which was bled dry from the inside out by Lorenzo's financial hooliganism -

- with the blessings of the Bush-1 administration!

Which not only eventually cost Eastern investors, workers, & taxpayers hundreds of millions of dollars, but led to Florida succumbing to the Bush1 recession & real-estate collapse, when thousands of laid off Eastern families had to sell their homes at the same time.
Amazingly enough, a mere 8, 10 years later (Jeb elected Gov. 1998), enough Floridians had forgotten the S&L & real-estate collapse of the Bush-1 Recession, to vote in the Bush-2 restoration.
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1. Inject transparency, primarily to bring almost $600 trillion of crooked insurance scams to the forefront.
2. Demand capital to back Wall Street's gambling.
3. Enact a tax-code to encourage long-term investment & discourage short-term profit.
4. Break up the Too Big To Fail banking institutions. Start with Goldman Sachs and JP Morgan.

[Carolab]

Read Eliot Spitzer's "Break The Banks" article at Slate.com from October 1.

[PhilipTaylor]

SUMMERS in 1989 LED THE PACK ON SPECULATION:

Summers Article paraphrased: “Smart Speculators should MAKE the Market and once the Bandwagon Suckers, who buy when prices rise and sell when prices fall, climb on the Bandwagon then pull the carpet out from under them using Massive Leveraged Shorting!” He calls the SUCKERS "feedback traders" who race after price increases and sometimes called Momentum Traders! He explains in the article how to take full advantage of these Suckers!

http://ideas.repec.org/p/nbr/nberwo/3243.html

[PhilipTaylor]

Summary: FOUR STEPS TO FIX US BANKING SYSTEM + TOO BIG TO FAIL:

Stop Wall Street Casino Speculators selling cheap insurance to hedgsters, food &energy companies for huge Bank/Insurance fees and laying $23.7Trillion on taxpayers while Geithner, Frank, &D0DD allow doubled-down bets!

Four Step Regulation:

1. FORCE $600 Trillion in crooked insurance hidden "Off-Balance-Sheet” be put on exchanges!
Force FULL Transparency of secret insurance fraud taxpayers subsidize!

2. Demand Investor capital for each swap on exchange guaranteeing against possible losses! Vegas requires real money to bet but Wall Street places leveraged bets using FDIC insured depositors’ money + FED “OUT-OF-THIN-AIR” money. Banks take $Billions for infinite Transferred Risk for near ZERO down! Then Bonus themselves!

3. Enact Tax to encourage long-term (vs. short term) investment.
G0LDMAN relaxes while (PhD developed software) extracts VALUE from Markets automatically in nanoseconds while others simply click all day to extract VALUE from Casino (mouse Bandits). Taxed this Short-Term Theft Heavily!

Investing/Risking (adding) Value to private businesses in REAL ECONOMY over 6+Months should pay Near ZERO taxes!

4. Break up “Too-Big-T­o-Fail-Ban­ks!” G0LDMAN+JPM to start! No one can compete with Government Backed and Subsidized Mega Banks that make Massive Rewards taking limitless risk subsidized by FED+Government! = How Banks created $600 Trillion in “Off-Balance-Sheet” secret Derivatives!