Real Financial Reform

09/14/2011 11:17 am ET | Updated Nov 14, 2011

Real Financial Reform: Without Strangulation or Expanding the Bureaucracy

  • Restore a revised Glass/Steagall Act to separate banking and speculation to reduce systemic risk.

  • Restore former individual usury interest limits (7 to 8%) and bankruptcy protection standards (including judicial cram-downs for home mortgages) and limit arbitrary fees and penalty charges. Set and enforce heavy civil and criminal penalties for non-compliance. No need for an additional consumer protection agency.
  • Restrict access to the Federal Reserve Window to legitimate commercial and savings banks for lending and normal operational purposes only [not to bank capital market affiliates, bank holding companies, Wall Street financial houses or hedge or equity funds in order to prevent their gaming of the financial markets, speculation and obscene remuneration at taxpayer risk and expense, and financial system crisis].
  • Set minimum reserve (12% Tier One capital assets) and maximum leverage limits (8 X Tier One capital assets) for each type of bank, financial institution, lender, insurer, pension fund, hedge fund, equity fund mutual fund etc. domestically and globally.
  • Set minimum equity capital requirements (12% of asset value) and maximum leverage limit (8 X equity capital in asset) in each category of financial transactions domestically and globally (via Basel Committee on Banking Regulation and Supervision, Group of 20 and/or the IMF).
  • Establish and enforce uniform standards of transparency, disclosure, and due diligence in all individual and consumer financial transactions including mortgages, credit cards, credit & investment accounts, etc.
  • Prohibit Credit Default Swaps.
  • Establish an exchange for derivatives and put Hedge Funds under SEC supervision and regulations.
  • Prohibit all campaign and political party contributions and personal gifts or benefits to elected or appointed public officials by business, banking, financial entities, unions, and their lobbyists.
  • Prohibit the rotation of officials between Wall Street, financial institutions hedge funds, lobbyists, and banks, and government regulatory agencies and departments (Treasury, Federal Reserve, SEC, FDIC, all other regulators, etc.) to avoid a clubby, revolving door buddy system and stop special individual financial institution, personal, and industry favoritism and gain at public expense. Government agency staffing should mostly come from top highly qualified independent professionals (academics, economists, retired and active top executives of leading corporations, think tank experts, etc.) without ties to banks, Wall Street, financial institutions, hedge funds, investment houses, and industry special interests. An independent agency of independent financial and economic experts to oversee regulation by the Federal Reserve and other regulatory departments or agencies should be established to maintain economic growth and stability, and detect and avoid risk.
  • No bank bonuses until the government gets repaid and then bank bonuses should be paid in stock options at a higher target bank stock price. Restitution by Bank and Wall Street of all Government bailout costs ( loans, toxic assets and subprime mortgage losses).
  • Although they perform certain beneficial financial and capital market and merger services, Wall Street houses, financial institutions, and hedge and equity funds can also suck the wealth out of the economy for themselves at the expense of jobs, economic growth, their corporate targets and their target company stockholders and must be regulated in the public interest.

    Harry L. Langer E-mail: harry