American financial history is a sine curve of excess, crisis and reform. The Crash of 1906 and the Bankers' Panic of 1907 led to the birth of the Federal Reserve System in 1913. The crash of 1929 and related bank failures led to the SEC and FDIC. The S&L meltdowns led to the Office of Thrift Supervision. The Enron and Worldcom bankruptcies led to the Sarbanes-Oxley law of 2002. Now credit laxity has led to the Bankers Panic of 2008. The Fed has responded with lower interest rates and bailouts of overstretched Wall Street firms. How should the Congress and the next president be responding?
Six ideas:
1. Support the Credit Cardholders Bill of Rights, HR 5244.
2. Establish a Presidential/Congressional Credit Council. Bring together the regulators (Fed, Comptroller of the Currency, Office of Thrift Supervision, FDIC, SEC, HUD) and representatives of industry, consumers and local government.
3. End Predatory Lending. The North Carolina Predatory Lending Law of 1999 applies to mortgages of $300,000 or less that carry a rate of eight percent above U.S. Treasury debt and prohibits negative amortization, interest-rate increases after a borrower default, balloon payments and other predatory features. It has been praised by three Wharton professors.
4. End SIVs and Require an Annual SEC Report on Derivatives. By enforcing existing bank regulatory laws and FASB principles, end the dangerous Structured Investment Vehicles. Require the SEC to report to the President annually on new forms of risk in credit markets.
5. Encourage the FDIC to Price Risk Fully in Premiums. The FDIC should exercise its latitude aggressively in requiring higher deposit insurance premiums for risky portfolios. Introduce the Basel II bank capital-adequacy guidelines ahead of schedule.
6. Make Basic Financial Education a National Priority. Raise the profile of the Fed's consumer protection activity (Regulation Z under the Home Ownership and Equity Protection Act). Promote state creation of counselors in every city to assist first-time homebuyers or mortgage-holders in default by looking at proposed deals, providing advice and monitoring local credit practices. Every borrower should be given the phone numbers of local credit-counseling services.
There should be a small office in every city funded by a small fee per house sale (maybe $50-100). For that fee the home buyer gets a once-over by a debt specialist who tries to get them to look at whether they can buy the house. If that official says no, then they can end the sale process and any ernest money is refunded.
The borrowing public has suffered under the merciless hand of fraud and usury for half a generation, while the government that was charged to regulate it turned a blind eye and a deaf ear. Countless civil officers of that Government simply shoveled down food at the public trough, and they still do that today. ("Ike was right.")
In ancient times, a man who charged excessive interest was condemned as a jailer of his own brothers, and his hand was chopped off like that of a common thief ... without anesthetic. He was cast out of society as a pariah, and frequently stoned. What did those men know about human nature that we have since forgotten? Why does our once-proud land lie in waste?
HUFF wouldn't let me comment unless I replied to someone, so I picked you.
Now, to quote JTM:
"American financial history is a sine curve of excess, crisis and reform."
Sooooo correct.
However, his excellent proposals only bring us to the third leg of that aging and totally unacceptable financial stool. Reform '08.
Was it Putney Swope?
pee-peedicking!
Nah.
Do away with the FED.
Establish the sovereign Central Bank of the United States of America.
Empower the Joint Congressional Committee on Currency and Monetary Policy.
(And I DO mean empower!)
This would replace Number 2, and ensure the other five.
Congressional District level banking units.
Put the people's money to work for the people.
Restore the Constitution.
Only the Conress of the United States may create money and regulate its activities in the world.
Let's get on with it!
This would be like establishing a group of OPEC countries to consider the price of oil.
All these bozos represent corporate interest. If they represented the people of America, then maybe things would be different in the first place.
Get rid of speculative loans, period. And reinstitute usury at the Fed Discount Rate plus 700 basis points (in the 70s it was the Fed Discount Rate plus 400 basis points)
Forget about the FDIC pricing deposit insurance premiums as a function of risk in portfolios. FDIC bank examiners can spot corpses, but they have no sophistication when it comes to the nuance of risk, this will only cause mega fights with bankers.
OK, so we get rid of speculative loans, right?
And, we redefine usury back to the 400bp over the FDR.
So, we have somewhat eased the work of the FDIC examiners to price the risk to the system.
But, more importantly, if you replace the Credit Council with the Joint Congressional Committee on Currency and Monetary Policy - it's just a nuance, you would have the body that you call for -
" .... they represented the people of America, then maybe things would be different in the first place."
It's OUR money!