With Health Care now out of the way, we can get to what I consider to be the more important issue: Reforming Wall Street and the banking sector.
As I noted 6 months ago, the White House emphasis on Health Care over Finance was a significant tactical error. I would imagine with their weekend health care victory, the White House might push for finance reform. I expect they will see some significant traction.
I do not know what the political fall out from being for or against health care will be. But I can tell you that it will be much harder to oppose re-regulating banking. While the banks have succeeded in buying Congress, I think their attempts to stop a major overhaul of financial regulation will be far more difficult. Political opponents will paint anti-reformers as pro-banks and anti-family.
Ideally, what should that overhaul look like? I can identify at least six areas that need total overhaul:
1. The Ratings Agencies: The prime enablers of the crisis, their pay-for-play business model is a debacle. Their status as Nationally Recognized Statistical Rating Organization (NRSRO) should be stripped, and the space opened up for real competition.
2. Derivatives Must Be Regulated like all Financial Products: Put derivatives on exchanges; require counter-party disclosure and transparent open interest reporting. Capital requirements for trading is needed — and like other insurance products, there should be reserves for losses; Lastly, we should repeal the CFMA.
3. Regulate Non Banks lenders like Banks: The unregulated non-bank lenders were at the heart of this crisis. It doesn’t matter if you aren’t a depository institution, if you loan money, you must be regulated like any other bank PERIOD.
4. Reinstate Net Cap Leverage Rules: Over turn the SEC Bear Stearns exemption via Congress. Reinstate the former 12-to-1 leverage rules.
5. Eliminate Too Big To Fail: Nixon Treasury Secretary George Shultz famously said “If they are too big to fail, make them smaller." Put caps on percentage of total US assets allowed. I suggest 1%. Break up insolvent, incompetent megabanks — like Citi and Bank of America. And I would carve up JPM as well. Separate the Depository Banks from the investing houses. (restoring Glass-Steagall will do that).
6. Do not give the Federal Reserve MORE Authority: The Fed should focus on monetary policy. They can work closely with whoever is ultimately the bank regulator — but I do not believe having them be be the prime over seer of banks can work.
7. Stop Regulatory Forum Shopping: The alphabet soup of various bank regulators OTS, FDIC, OCC, etc. should be replaced with one regulator. The FDIC is the only office that did a good job this entire crisis, put all regulatory responsibility under Sheila Bair’s office.
8. Overhaul the SEC: They need to have numerous improvements: Start by making them less of a law firm and more of a finance shop. Expand the hotline/whistleblower division, offer bounties for discovering and reporting fraud. Add a quantitative division to look for issues mathematically.
9. Reform Compensation: The system of privatized gains, socialized losses must be thwarted. Exec compensation is totally disconnected from their performance. Major overhaul from shareholders is needed. Require custodians — Mutual funds, pension plans, etc. — to vote their holdings (shares) as a fiduciary.
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Essentially, I am advocating a “Do Over.” Reverse the past 3 decades of radical deregulation. The alternative is an even bigger financial crisis, and sooner than you imagine.
The next time around, I plan on watching it all unfold from St. Barts . . .
Better buy your tickets then, financial reform is not happening as long as it is acceptable to add special purpose addendums to bills. Banana Republic in full display today. (too cynical?)
imho, i agree it was a tactical error, yet, it is very possible they are better at this political thing than us, lol
a. perhaps they see it as, if they win, repubs have shot there wad, and are in-effective mouth pieces in the debate
b. u can now go to banks and say, look and see how we did health care, u better get real real real quick or we will jam xyz down ur throat
c.with banks more of an emotional issue for all, wouldn’t it be special if they let things lie for a month and then put on a big show for may-oct. passing a big bill right before elections
makes u wonder, they might be pretty good, it’s how i would paly it now
I don’t believe banking reform is next. They’re going to hand out citizenship to the illegal aliens so they can get re-elected.
Correction
And Now, On to Immigration Reform . . .
And Then, On to Energy Reform . . .
The Dems ran on Health care reform so not sure it was a tactical error. If it failed then yes but the meltdown did not occur until well into the campaign. Either way it looks like the stars are lining up for Financial reform and with the banksters having recovered from their near collapse the gloves may come off. I think the toughest thing u recommend will be number 6.
The country is ungovernable. Period. I don’t confuse ‘governance’ with totalitarian penalties for nonconformance and ramming legislation down our collective throats. The Federal Government as well as most other entities in the states, and counties are essentially the archenemy of the people with willing voters signing their own death warrants.
It is Too big to fail, and must be disassmbled, just like financial reform, mega banks, and any other entity that become elephantine, stumbline from one disaster after another of its own creation.
No one body can efficiently run a territory the size of the disUnited States. It is in this utter chaos that so much corruption, flawed legislation, bribery, blackmail, and other crimes too numerous to mention can flourish.
We need a national do-over, not just ill-conceived health insurance, and financial do-overs and he likelihood of that happening is no greater than finding chickens with lips.
BonVoyage! to those who have decided to leave the disUnited States for they are the vanguard of evolution. Smart, courageous, and taking risky chances not unlike later pioneers that moved the frontier West.
There are and are going to be far better places to live and thrive than in this ever-left-leaning Union of Soviet States our citizens seem to want.
We have been sold out by our financial Tribes, who seem to already sense the decline and fall of this country, sold out by politicians who are all sociopaths who have been bought by wealthy interests and our children sold out by their own parents.
Stay and muddle thru, in true socialist republic style, as the countyr turns ever more grey, or leave and strike out for new frontiers if you dare. There will be no other choice.
My 2 cents:
cent #1: *real* reform is urgently needed; cent #2: using the health “reform” as an example, if our elective representatives even decide to reform financial services industry, they’ll make it worse. just like they’ve delivered 30+ million new customers to the industry, without removing any material inefficiencies or materially reducing existing cost, whatever they may do regarding Wall St. in my opinion will a) give more oversight authority to those who do not deserve to have any, b) will leave loopholes massive enough to squeeze the new GS building through them, c) the reform will be in large part written by The Street lobby and GS alumni in the US Treasury, d) as long as Jamie D. is on the board of NY Fed (which, coincidentally or not supposed to be JPM’s “regulator”) JPM will not broken up
I’m expecting a long bill that only stops the few losers and scapegoats who couldn’t get out of the way of the legislation. Loopholes galore will allow the worst of the current environment to continue. But since nobody in Washington will dare admit failure, the end result will be lots more of the same, only packaged a little differently.
@BR, why not formulate a letter that the readers could use or slightly modify to send to their members of congress. You can sit on the sideline and let lobbyists shove a bill down our throught or use the few tools available to the citizens
b_thunder has it right. Fake reform in health care augers bad for financial markets reform.
Personally, I’ve already told my congressman that I’ll do whatever I can to not comply with any new insurance purchase mandates. I also told him that he has no authority to do this.
Others are doing or have done the same. I make no prediction about what will happen (likely nothing), but people are not going to just sit by and “take it.”
In other words, “Health Care Reform” (so called) isn’t even remotely “over.” The idea that we’ll quickly see congress move to end fraud, abuse and insufficient capital ratios is premature. I expect more hoopla of the Tea-Party variety before the MSM starts talking banks.
Kudos Barry for #9 but I think you should move it up on the list. It hasn’t been mentioned enough but the buy-side is as much to blame in this process as the sell-side (it takes two to tango). The fact that institutions managing multi-billion $$$ were entirely dependent on the grade of the ratings agency cartel was a major problem. The fact is, an overwhelming portion of our institutional money is managed by a politician or politically appointed bureaucrat or the corporate equivalent. In short, these people are using Other People’s Money and managing for their career risk more than for the financial interest of their clients. Somehow we need to strengthen the fiduciary relationship and better align the incentives of the managers with the interests of their clients (pensioners). It’s not a simple issue but very important.
Great list. How do we get it made into law?
I think it needs to be refined to 3 key requirements (difficult, but that is all people can keep in their head). Then pound away repeatedly in mainstream media that reform must have those 3 elements, and not just window dressing.
Thanks to insane actions by the Federal government over the past 40 years this country is ruined. Putting aside the wasteful foreign wars for the moment, we have been mired in an economic Vietnam for those 40 years. A slow, grinding war of attrition, waged by the government against it’s own citizens. Complete with one crazy policy after another that equaled arc light, phoenix, agent orange in Vietnam for mass destruction. Free Trade, Open Borders, Offshoring, ZIRP, No Child Left Behind, TARP, on and on to bankruptcy and destitution. Mission accomplished, only 11% of the people think Congress is doing a good job, and Congress couldn’t care less and we have no one to replace them with. The uber rich will catch the last chopper out of here and leave the rest of us in an economic wasteland!
Frank Rich agrees with you about the popularity of financial reform:
http://www.nytimes.com/2010/03/21/opinion/21rich.html?src=me&ref=general
Now let’s see if Obama will take advantage of this relatively obvious political fact.
Excellent list–excellent. Might I add: “Repeal TBTF. Let ‘em fail. Let ‘em fail. Let ‘em fail. Let ‘em fail.” Politically, your list, though substantively excellent, is infeasible due to regulatory capture within not just de jure (albeit not de facto) regulatory bodies but Congress as well. Until I-banks are allowed to fail miserably, they will always have the rationale that business as usual is “prudent” as well as short-term profitable. The pre-condition for any enactment of these reforms is I-bank failure.
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