It's a sign of our shadowy times that the latest regulatory "reform" bill hasn't been laughed out of Washington. Same goes for the latest bankers' complaint, this time about being asked to cover their own bets. And if you think it's bad now, wait and see what happens if Romney takes over.
Think "global catastrophe."
While bank-friendly politicians offer insipid legislation, the world economy is still at risk. And it could get worse.
Off the leash
The Independent Regulatory Analysis Act (S. 3468) might seem to make sense -- until you spoil the illusion by thinking. At the president's discretion, regulators could be forced to perform up to thirteen additional costly and complicated steps before any new banking rule is enacted. it would be a costly and complicated process filled with bureaucratic red tape. In other words, it's everything politicians claim to despise --
-- unless they help banks, it seems. An excellent review by Demos estimates that Senate bill 3468 would delay the implementation of Dodd-Frank financial reforms by as much as a year and a half.
That's the point, of course. Mark Gongloff's summary of this Act in The Huffington Post had the pithy headline, "Senators Want to Give President Power to Stop Insufficiently Lenient Financial Regulations." That pretty much sums it up.
This bill is so bad that a blue-ribbon list of regulators like Fed chair Ben Bernanke and the SEC's Mary Shapiro -- hardly liberals -- signed a letter saying it would give "any president unprecedented authority to influence ... independent regulatory agencies and would constitute a fundamental change in (their) role."
Among other things, the Act would force regulators to explain why they believe "private markets" have failed to solve any problems the rule addresses. (We suggest creating a Word macro for this section that reads as follows: "Um, because this is the real world.")
The bill's sponsors -- two Republicans and Democrat Mark Warner -- seem especially proud of a provision requiring regulators to estimate the cost of new rules before implementing them. But they already do that wherever possible.
The process was simpler under the Bush Administration, as it no doubt would be under Romney's: Just appoint bank-friendly regulators (preferably bank lobbyists) who won't implement any regulations at all.
Estimate this
Here's the problem with this whole 'cost estimate' idea: Nobody's being asked to estimate the cost of not implementing regulations. Want to know how much it cost us to deregulate Wall Street in the decade before the 2008 crisis? $12.8 trillion, according to a comprehensive analysis by the folks at Better Markets. That was the total cost of a financial crisis caused by the actions of Wall Street bankers acting without adult supervision.
$12.8 trillion.
And, as Better Markets CEO Dennis Kelleher observes, that's a conservative estimate. Tens of millions of lives have been tragically disrupted in this country alone, while hundreds of millions have suffered serious financial losses.
The Dodd-Frank bill was at best a modest start on the financial reforms we urgently need. And yet multimillionaire Wall Street bankers continue to whine that the bill has too many pages. C'mon, guys! Have your chauffeurs turn 'em for you!
A modest proposal for the elimination of Dodd-Frank paperwork
A quick story: A friend of mine, who's a pretty reasonable guy, manages an investment fund with one of the biggest too-big-to-fail banks around. One day he came up to me at a social event. "Listen," he said, "I know where you're coming from, but man! You wouldn't believe the paperwork we have to fill out now!"
I said I had an easy fix for that. "Let's just break you guys up so you aren't connected in any way with traditional banking." He thought for a second. "You're right."
He can't say that publicly, of course. He'd lose that fund.
Just one more roll of the dice! We're good for it, honest!
Now Wall Street's complaining about a new rule that says they have to put up some collateral before engaging in massive swaps and derivatives deals like those which crashed the economy in 2008. Bankers insist they'll follow in Warren Buffett's footsteps and stop doing these kinds of deals if this rule is enacted.
You say that like it's a bad thing.
Banks have another option under Dodd-Frank: They can use something called a "financial clearing house." The clearing houses are supposed to provide some measure of transparency and stability, and can establish rules for these transactions which can then be monitored more easily by regulators.
Here's the thing: The clearing house concept under Dodd-Frank is a clunky, Rube Goldberg sort of contraption. They're its way of getting around the Too Big to Fail problem (and a couple of others, too). Regulators are still working out the details. However inadequate this solution may be, it'll be a lot more inadequate if those details are written by bank lobbyists under a Romney Administration.
Gambling in the dark
Here's how little we, and the regulators, know about the banking industry. Bankers say it will cost them $30 trillion -- that's "trillion" with a "t" -- to obey this rule. Peter Eavis helpfully notes in the New York Times Dealbook that this sum is nearly twice our country's GDP, and more than the total assets of the world's ten largest banks put together.
Skepticism, as they say, is warranted.
The $30 trillion figure comes from an industry group which for our purposes we shall call The Association for Making Sh*t Up, drawing on the talents of the many fine analysts in its Department of Extracting Numbers From Posteriors. What would it really cost banks to comply with this rule? They don't really know.
A study by the Office of the Comptroller of the Currency says it could be as high as $2 trillion, but they don't really know either.
Arbitraging catastrophe
Here's what everybody in this conversation seems to be overlooking: If it's going to cost banks $2 trillion or $14 trillion or $30 trillion to cover their own bets, then they shouldn't be making those bets. Because the next time bankers get their bets wrong -- which they have powerful economic incentives to do -- we're going to have another financial crisis.
We dodged an enormous bullet in 2008, when the entire global economy nearly crashed. And I mean, really crashed.
It's true that millions of people around the country, and around the world, are still trapped in the wreckage of the last crisis. But a global depression would be much, much worse -- for them, and for everyone. If bankers are really making $30 trillion in bets which they can't cover, they must be stopped now.
That's what's at stake -- this year, and in the years to come. What's worse: That, or a little paperwork for bankers? They have their answer, of course. They'd still have their bank accounts. But the rest of the planet's population would be living through a tragedy not of its own making.
Like a lot of other people, I've repeatedly been frustrated, disappointed and even infuriated by the way our government has treated Wall Street over the last four years. I'm painfully aware that Dodd-Frank only does a little to fix our broken financial system.
But when you're staring down the barrel of a global catastrophe, a little can suddenly seem like a lot.
Follow Richard (RJ) Eskow on Twitter: www.twitter.com/rjeskow
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You just sit back and whine. That's ALL you do. You expect a President to do EVERYTHING and then complain when he can't. You offer no help whatsoever.
Unlike you--- I am prepared to some degree and I seriously hope to see this Economy and Government fixed with your help---- or see it crash as badly or worse than 1931. It is the ONLY way it can be fixed now
Buying a house with a large mortgage is also a bet. The borrower is betting on the direction of the housing market and betting on continuing to have enough income to service his mortgage debt. Borrowers can’t cover their own bets if things go wrong and neither can banks. Every depositor at a bank is entitled to demand all his money back at any time. By definition, banks don’t have all their depositor’s money on hand - they have lent it out.
I am an optimist but also a realist. The opportunity was lost and we're not going to have meaningful financial reform in the United States - as in another Glass-Steagall or regulation of risky derivatives - until there's another major crash. Too big to fail is bigger, global debt is still rising and the central banks are merely trying to inflate asset prices - another crash is inevitable. Obama's first two years may come back to haunt him in the next four...
2008 showed that this is a hugely predatory 'finance capitalism' whose purpose is to give Wallstreet decisionmaking power over trillions of dollars of investment capital whose only problem is that the capital part is missing, and to make sure the RISK of those investments is shared with Mainstreet, should anything go wrong. But what could go wrong? When humans are offered the authority to act without paying the consequences of their actions, they always make the right decision, don't they?
In technical terms: this discussion proves that bankers know NOTHING about how their transaction costs and risk preferences really influence markets.
It may be true that regulators don't know either. But that's entirely secondary and totally unsurprising given how they're being defunded.
The first and main and major point is that the banking sector itself is nowhere near understanding this. And that simply puts their credibility at ZERO.
Why should Wall St. be any different?
In fact, considering the sums of money in play, the excellent cover for all sorts of shenanigans, no necessity to wear a silly mask or to dodge the shotgun blast you might get from a clerk at a convenience store, you would think that that Wall St. might be a virtual magnet for larcenous souls, even with plenty of tough cops on the beat.
Throw in deregulation as well as virtually certain immunity from prosecution, and the pull could become irresistible.
Glass–Steagall 2016!
Instead, you've prolonged and made permanent the steady decline of the Western economy.
The aftermath of Sandy proves that the US is now just another typical third-world-banana republic who's infrastructure is so fragile because, like countries in Latin America, not enough investment.
In so-called "emerging markets" there's all of this talk about "growth" when in reality if a typhoon was to hit any of these countries, it would quickly remind them that they are in a fragil banana-republic.
The US is now in this situation because, like a third-world mentality, they think they "dodged-the-bullet".
I am writing this from Indonesia, a nation that was brought relief from a civil war by... a tsunami. It was a major disaster, but rebuilding made things better and paved the way for peace talks that were being otherwise sabotaged.
If New York City didn't have subways, then it wouldn't have subway tubes filled with water right now.
The bailouts for Wall Street/City of London instead of "rebuilding" before natural disaster strikes and then having the nerve to claim they "dodged-the-bullet" proves that Western society is full of SUCKERS who could care less Wall Street/City of London made so much money off society's stupidity.
Your biggest problem in New York is NOT this tragic storm Sandy, rather, the headquarters of fraud and malfeasance centered in lower Manhattan called Wall Street.
SHUT DOWN Wall Street and build in it's place some factories to re-industrialize the United States and maybe the country will be better prepared for the storms of the XXI Century.
If you're a Wall Street guy, all you gotta do is conjure up some new nonsense investment things, get your lawyers and accountants to sprinkle a lot of fancy, jargon-laden fairy dust paperwork all over it, and then sit back. If the investment things make money, good. If they don't, it's even better, because the Fed will rush in and buy them up, making you a giant profit for doing absolutely nothing.
All this only proves my position...
If you are a SIFI, you may not purchase any other financial institution nor may you offer any new products or services to the public until you shrink back down to non-SIFI size.
I bet we'd get AT&T style "voluntary" breakups right away, which is why this will never happen.