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Nicholas Kamm, AFP / Getty Images Will the president's bill save us from another financial meltdown? Unlikely, says Charlie Gasparino—there are still plenty of loopholes in it for bankers to exploit.
President Obama believes the new financial reform legislation, nearing completion in Congress, will protect us from a repeat of the 2008 banking meltdown.
Don’t bet on it.
For all the rules, regulations, and new “risk” commissions the legislation will be creating, what appears to be missing is a clear, definitive statement that ends the notion that banks like Citigroup—which mindlessly engaged in risk and jeopardized $800 billion in customer deposits before it was bailed out along with the rest—are no longer “too big to fail.” Without a clear statement that the government won’t step in to bailout mindless risk taking, watch for it to return, maybe not tomorrow or next year, but someday, when the Wall Street profit machine kicks in and memories fade about the events of 2007 and 2008.
Why should anyone expect some paper-pushers in Washington to prevent something as complicated as the next great financial meltdown when they couldn’t stop Bernie Madoff's Ponzi scheme?
All of which is one reason why banking stocks, which have gotten hammered in recent months, staged a rally on Friday. To be sure, there’s a lot in the proposed legislation that the banks hate. One banking executive said he expected the legislation to carve at least $3 billion in profits from his firm each year. The Volcker Rule, proposed by President Obama’s senior economic adviser Paul Volcker, appeared to make it through the final cut, meaning, we are told, that firms can’t make risky market bets, which means lower profits. Banks will have to raise capital, which also depresses earnings. There will be limits on the firm’s business of selling derivatives to large clients; they will have to create a special unit with its own capital to sell the most complex of these products. Banks like JP Morgan will get hit because the bill will force them to cap, and thus lower, so-called interchange fees, or the fees they charge for credit card transactions.
And there will be a new consumer agency watching over the banks dealing with individual investors, banking customers, and people looking to take out loans, presumably monitoring whether average folks are getting screwed on interest rates and fees. So look for higher litigation costs as the agency hands cases to state attorneys general and other regulators.
On top of all that, a “Financial Stability Oversight Council” will make sure the banks don’t take the kinds of excessive risks that led to the 2008 meltdown.
Sounds great, right? Well, keep in mind that before there was such a council, there was the SEC, the Federal Reserve, and a bunch of other bureaucratic entities making sure Wall Street risk-taking wasn’t unusual. And guess what? They all failed miserably. And by the way, why should anyone expect some paper-pushers in Washington to prevent something as complicated as the next great financial meltdown when they couldn’t stop Bernie Madoff's Ponzi scheme, the details of which were handed to the Securities and Exchange Commission numerous times on a silver platter before his fraud was exposed?
And that’s my larger point. I’m sure there are some well-intentioned remedies in the proposed law, which still needs final approval and must be signed by the president. The Volcker Rule seems appropriate. Limiting so-called proprietary trading at banks where they come up with their own trading strategies and use their own capital to make market bets seems like a prudent thing given what happened—until, of course, you scratch the surface of the proposal.
From what I understand, the rule doesn’t cover risk-taking trades that begin with a customer order. And guess what caused the great financial crisis of 2007 and 2008? Wall Street trades that began with the big firms packaging mortgage debt and other complex bonds for customers, and then holding the bonds they couldn’t sell on their balance sheet while they earned interest, until they began to crater, taking the banking system down with them.
And here’s something else to chew on: the vast majority of the trades at firms like Goldman Sachs, the most aggressive trader in the market, still begin with a customer order to buy and sell something (a stock or a bond.) That’s when Goldman works its magic and takes a position in the market to make money, often screwing its clients in the process, as Congressional hearings recently showed.
But the biggest hole in the bill is the continued notion that banks and government are really one big, happy family. The banks will take risks as long as it’s approved by the bureaucrats in Washington who don’t understand risk-taking, and the government stands ready to help the system survive a 2008 meltdown scenario by being able to swoop in and “wind down” troubled firms that present grand “systemic risk” to the markets and the economy when they get into trouble.
Sheila Bair, the head of the Federal Deposit Insurance Corporation, was quoted today in The Wall Street Journal saying that such powers will act as a deterrent because firms know that if they screw up, the government will come in and take them over.
“This is a kind of a nuclear bomb that you hope you never have to use,” she said. “The fact that it's there, I think, is going to be important. And if we have to use it, we will.”
12 June 26, 2010 | 7:23am Twitter Emails
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It's the < . > stupid! There's your culprit; that sinister imp, that impudent little wretch, that damned spot. http://bit.ly/ayhZLx
Below you will read comments from mostly retarded RW'ers who don't know shit about the economy, they will just spew the same stupid fox news talking points like brainwashed android dummies. Enjoy. PS If you are pissed about how wall street f**ked over main street than you will be very happy about this financial reform, don't pay attention to the Retard-Wing, the only thing they know about the economy is how to destroy it.
If only you had any idea just how silly you sounded. You're a laugh-a-minute. Talking points? HA! You've got so many of them wrapped up in one package it's as if you shot out of the ass of a collection of every left wing loon ever to grace the airways of MSNBC. Now you're a financial genius too. Too Funny!
Jane You Ignorant Slut There can be no civil discourse with asswipes who want to protect the very derivatives that brought our economy to its knees. Republicans however are back on their knees with Wall Street appreciating the favors. There is a more sinister plot to consider and that is the damage they will deliberately inflict on our economy for political gain.
FarleftFist Unless Obama is ready and willing to take on Goldman (which he isn't) history will repeat itself. Question is are you willing to criticize your messiah over his inability and unwillingness to take on the real beast?
I've never seen the Republicans OFF their knees when it comes to Wall Street, just as I've never heard them say one positive thing about organized labor in my life--not once, not ever.
That's what I like to wake up to on a weekend morning.... a depressing article condemning financial reform from a Fox News guy. So there is nothing, I repeat nothing, good that will come of any of this reform, right? The problem with writing on matters of substance when you are a partisan....left or right..... is that most of us immediately dismiss half of what you say since it sounds like spin. Once that happens we also take your good points lightly. Tante Pis!
Gasparino works for NBC, the same outfit that brings you Olberman and Maddow. Despite that unfortunate provenance, his article is accurate.
@tomfarr, Shush !!! You can't expect a supporter of President Urkle to deal in facts. How silly...LOL
to tarryh.... There ya go, only drawing from Gasparino's thread what your partisan eyes would allow..... now come on, man-up and grapple with the idea that most of these regulations proposed by the Dodd/Frank bill are sure to be litigious because they're unreasonable and nothing more than a governmental power grab. Yes it's great that most of the Volcker Rule, about 97 per cent, is in the bill. However, what's hard to see is how the legislation benefits the small banks when it makes it difficult for these institutions to raise capital by limiting their ability to loan money. Ma and Pa don't need the same heavy handed regulations as their big cousins, the large banks. By stymieing the smaller institutions, the government is only making it easier for just a few mega-banks to monopolize the entire system (wow that in itself should raise some red flags). Over and over we hear how "Too Big to Fail" needs to end....... Shelia Bair insists it will end...... however, her predecessor Bill Issac says," No it won't". He points out where it's written in to the law,"if a bank's failure threatens the economy, then the Fed are to step in and take over the institution." Hello, that says it all. There are 5 banks in this country now controlling over half of the banking sector.....None of these banks will ever be allowed to fail... and this bill sees to it they won't. The final condemnation of this bill falls squarely upon the government's obvious refusal to address the failings of Fannie Mae and Freddie Mac. Cost estimates to the tax payer are now as high as $400Billion that we don't have in order to bailout these 2 quasi-federal institutions... and yet the Obama administration and the democrats on Capitol Hill don't want to reform the most flagrant part of the regulatory system that brought the country down. Why not??????
They became big monopolies over the last 30 years, and no one in either party did anything to stop it. TARP helped them consolidate their power even further, although consolidations like that happena after every crash.
If you oppose it then we know Obama is doing something right, because you are very un-intelligent.
to FarLeftFist... Wow there's only one thing I find funnier than your attacks on me.... and that's how you and many others on this website have burrowed your collective heads soooo far up Obama's alimentary canal that you now believe you know what he's thinking before he does.
The President is delusional about the bank reform. He is into "the greatest since" syndrome. The bankers are slapping each other on the back about the reform. No wonder bank stock went up yesterday. Dodd/Frank decided that they were getting too much money from the banks to do much damage. But pretending at the photo ops was good for their image. Joksters---all.
How about just that......the president is delusional. He thinks that we are unaware that he continues to push his agenda toward the socialist paradise that he envisions. One way or another he plans to stuff his grand scheme down our collective throats, certain that once all is in place and that we have finally come to our senses we will see him for the saviour that he knows that he is. At last our dark past will be behind us. I believe that this is a form of mental illness but I am not sure of the correct diagnostic word. Scary,none the less.
It makes me smile knowing how miserable you RW'ers are. What a blessing. Every time a republican gets upset, a homeless child gets adopted by a wealthy couple.
Our Village Idiot, Barry Soetoro, and his band of nitwit slimebags (Geitner, Dodd, and Frank) fail again. They have just legislated the perfect cornucopia of lunacy. Hard to imagine anyone would pass a bill that will drive up consumer costs, destroy jobs, tighten credit, increase the debt, ignore the corruption and bankruptcy of Fannie Mae and Freddie Mac, codify too big too fail, and limit competition while failing to address the causes of the recent financial meltdown but they have managed to do. The Obama destruction of our nation continues unabated without shame, regret, or an iota of guilt. But his Wall Street kickbacks will continue, you can count on that.
What about Fannie Mae and Freddie Mac ? That was /is the bigger problem. That is what started this whole mess. I hope President Urkle gets on that soon.
Fannie and Freddie are still at it, buying mortgages of people who can't make the payments. Barney Frank is still "rolling the dice".
Please stop repeating right wing lies and talking points. Fannie Mae and Freddie Mac did not cause the economic collapse by loaning money to poor people. Only an idiot would try to blame the weakest most powerless members of society for damage caused by the greed of the rich and powerful.
We do not have the political will in this country to do anything to stop greed. Don't blame the President. Blame the whole bunch. Neither side voted to put real teeth in this and when you have pay more and more every time you leave your house, maybe you'll start to get it. Greed wins the day.
More assistance to Wall Street is not required, Mr. Gasparino, that's for certain. They've pretty much had things their own way for the last 30 years, and inflated the values of all kinds of "assets" far beyond anything in the real world. What's neeeded today are ALTERNATIVES to Wall Street and the big private banks, and as this depression continues I will have been proven right all along in advocating this.
Well our butt of a joke President just insured the Big Five's continued supremacy for a sack of a cash.
Republicans have no idea how to fix anything. All they ever do is vote "no" on any kind of chnage.
@mcmchugh99, Trite response that ignores the obvious fact that passing nothing is better than passing something that makes things worse.
I don't see how matters could get worse than they have been, since we are in another depression, caused by 30 years of playing Monopoly on Wall Street.
OK Charlie, good report, BUT............ That's the Macro Picture from a Wall Streeter! What this Bill means to Main Street?.....Government Control of our individual financial decisions. . . . Not Good & much more serious than even you portray. If you read the bill it's clear that the public is treated like a child that can't be allowed to go outside without adult supervision. Tell me....what is the last example where gov is more efficient at ANYTHING? If we stay on this course you may soon have to ask permission to go to the bathroom. This is another political power grab wherein the party in power can just 'tease' the electorate with a few crumbs for votes. It is yet another disgusting loss of personal freedom and intrusion into your personal life that won't be fully realized by the public until it is much too late. "Hailed by Obama".........heh, heh, heh.....like the fan who has no clue about the sport blindly cheering for home team. The kids on the corner selling lemonade successfully all summer know more about business than our POTUS! What a joke!
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