The New York Times reports that financial reform is the next top priority for Democrats. Barney Frank, fresh from meeting with the president, sends a promising signal,
"There are going to be death panels enacted by the Congress this year -- but they're death panels for large financial institutions that can't make it," he said. "We're going to put them to death and we're not going to do very much for their heirs. We will do the minimum that's needed to keep this from spiraling into a broader problem."
But there is another, much less positive interpretation regarding what is now developing in the Senate. The indications are that some version of the Dodd bill will be presented to Democrats and Republicans alike as a fait accompli - this is what we are going to do, so are you with us or against us in the final recorded vote? And, whatever you do - they say to the Democrats - don't rock the boat with any strengthening amendments.
Chris Dodd, master of the parliamentary maneuver, and the White House seem to have in mind curtailing debate and moving directly to decision. Republicans, such as Judd Gregg and Bob Corker, may be getting on board with exactly this.
Prominent Democratic Senators have indicated they would like something different. But it's not clear whether and how Senators Cantwell, Merkley, Levin, Brown, Feingold, Kaufman, and perhaps others will stop the Dodd juggernaut (or is it a handcart?)
This matters, because there is more than a small problem with the Dodd-White House strategy: the bill makes no sense.
Of course, officials are lining up to solemnly confirm that "too big to fail" will be history once the Dodd bill passes.
But this is simply incorrect. Focus on this: How can any approach based on a US resolution authority end the issues around large complex cross-border financial institutions? It cannot.
The resolution authority, you recall, is the ability of the government to apply a form of FDIC-type intervention (or modified bankruptcy procedure) to all financial institutions, rather than just banks with federally-insured deposits as is the case today. The notion is fine for purely US entities, but there is no cross-border agreement on resolution process and procedure - and no prospect of the same in sight.
This is not a left-wing view or a right-wing view, although there are people from both ends of the political spectrum who agree on this point (look at the endorsements for 13 Bankers). This is simply the technocratic assessment - ask your favorite lawyer, financial markets expert, finance professor, economist, or anyone else who has worked on these issues and does not have skin in this particular legislative game.
Why exactly do you think big banks, such as JP Morgan Chase and Goldman Sachs, have been so outspoken in support of a "resolution authority"? They know it would allow them to continue not just at their current size - but actually to get bigger. Nothing could be better for them than this kind of regulatory smokescreen. This is exactly the kind of game that they have played well over the past 20 years - in fact, it's from the same playbook that brought them great power and us great danger in the run-up to 2008.
When a major bank fails, in the years after the Dodd bill passes, we will face the exact same potential chaos as after the collapse of Lehman. And we know what our policy elite will do in such a situation - because Messrs. Paulson, Geithner, Bernanke, and Summers swear up and down there was no alternative, and people like them will always be in power. If you must choose between collapse and rescue, US policymakers will choose rescue every time - and probably they feel compelled again to concede most generous terms "to limit the ultimate cost to the taxpayer" (or words to that effect).
The banks know all this and will act accordingly. You do the math.
Once you understand that the resolution authority is an illusion, you begin to understand that the Dodd legislation would achieve nothing on the systemic risk and too big to fail front.
On reflection, perhaps this is exactly why the sponsors of this bill are afraid to have any kind of open and serious debate. The emperor simply has no clothes.
Cross-posted from The Baseline Scenario.
Simon Johnson: Hard Pressed, Senator Dodd Gives Ground
Senator Chris Dodd has good political antennae. He knows that his financial reform bill will come under severe pressure because it has a weak heart -- the provisions that deal with "too big to fail" are simply "too weak to make any sense."
Francine Hardaway: Don't Stop Fighting for Finance Reform
Many thousands of five-year adjustable mortgages will reset this year, and 25 percent of homeowners are still underwater in their mortgages even as these resets continue to occur.
In this interview with GATA we continue the saga after just having interviewed Andrew Maguire, the whistleblower out of London. This gives a short and long-term view down the rabbit hole through the eyes of 3 of the GATA board members. GATA was so heavily involved not only in breaking the news at the CFTC meeting about the the metals manipulation but also at the same time quite possibly uncovering the largest fraud in history. The Gold Anti-Trust Action Committee was organized in January 1999 to advocate and undertake litigation against illegal collusion to control the price and supply of gold and related financial securities. The committee arose from essays by Bill Murphy, a financial commentator, and by Chris Powell, a newspaper editor in Connecticut, published at Murphy's Internet site, lemetropolecafe.com. In this GATA Roundtable we will have Bill Murphy, Chris Powell and Adrian Douglas.
Link to King World News:
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2010/3/31_GATA.html
ZeroHedge:
http://www.zerohedge.com/article/eric-king-follow-interview-gata-trail-biggest-gold-manipulation-story-disclosed
The Andrew Maguire LBMA (London Bullion Market Association) whistleblower story just refuses to go away, and it is about time someone from the mainstream media (yes, we know you read us constantly) finally picked up on this massive expose about the decades of fraud and manipulation in the commodities market, with a focus on gold and silver. Don't worry, the Wall Street ad revenue sources you may lose from highlighting this "must read" story will be more than offset by the increased readership you will gain. Today we have the latest segment in this saga, courtesy once again of Eric King who interviews GATA members Bill Murphy, Chris Powell and Adrian Douglas.As is pointed out in the interview, "The CFTC, on the public record, has been shown to have known in advance of massive market manipulation, and have done nothing." Isn't this the same reason why Markopolos called SEC the biggest bunch of idiots in existence vis-a-vis their performance in the Madoff debacle? It is time someone big blew this up finally. Perhaps this will explain why it never get mainstream attention: "JPMorgan chase is an agency of the US government, rigs the markets, and undertakes market manipulation." To all our readers: this is yet another "must hear" interview.
http://www.zerohedge.com/article/eric-king-follow-interview-gata-trail-biggest-gold-manipulation-story-disclosed
The word 'reform' simply means: "...drafting more loopholes".
If 'reform' were serious it would make retroactive the laws of insolvency stick so Goldman Sachs and JP Morgan would still be forced to SHUT DOWN and be placed into RECEIVERSHIP.
As long as you allow Goldman Sachs allude bankruptcy with their dangerous 'off-balance' sheets of worthless derivaives and credit-default swaps, the BREAKDOWN CRISIS will continue, like you see happening in Greece.
Congress need to go after Wall Street with ruthless abandon and break up the big banks "with a quickness." It is incredibly tragic to see both parties take orders from a bunch of crooks. Politicans should be ashamed to be seen in public or to praise any of the filth on Wall Street.
Atm and credit cards are only a way for the big 3 to track buying habits and fleece the public.
You order a big mac for lunch? Expect the insurance agency to raise your premiums.
Did anyone ever try to cancel anything on a credit or debit card. Virtually impossible. The corporations also think nothing of adding a fee or 2 whenever they choose. Better keep extra padding in your account or you could be paying out the *** for something they deem legal.
The customer is never right-they should have read the 200 page terms or some other crock.
We will unite petition, E-mail, and call our Politicians and tell them without effective reform we will work on voting them out. We will show Americans thru media how American are being fleeced by corrupted politicians.
Yes this works and because each one of them care about their future and this is a cause that reflects WE THE PEOPLE regardless of the partty we belong to.
I'm not even close to being an economist, and I can see that Dodd's bill is a gift to the banking industry. Relying on resolution authority is one thing, but putting the CFPA inside the Fed and allowing the FSOC to veto its decisions . . . it's like putting the hen in the fox house! And then leaving everything to the discretion of the agency that can be overruled, rather than setting the guidelines it will enforce into law -- it's slight of hand, and Dodd, the conman, will be gone before we find out we were ripped off.
The bill needs to have measures in place that will force the CFPA's hand, otherwise what are the chances they'll have the nerve to test the system and pull the trigger? And even if they do, what will keep the pro-banking FSOC honest? As is, this will be a mess, but I'm still hopeful that real reformers like Ted Kaufman will stop Dodd from launching his lobbyist career on a watered down smoke-screen excuse for financial reform.
You haven't seen too big to fail yet.
Wait until JP and GS and the like get their hands on Social Security.
Since it's okay to for the US gov't to mandate that Americans purchase a product from a private entity - anything is possible.