by Randall Lane Info
Randall Lane is editor at large at The Daily Beast. The former editor in chief of Trader Monthly, Dealmaker and P.O.V. magazines, and the former Washington bureau chief of Forbes, he is the author of The Zeroes: My Misadventures in the Decade Wall Street Went Insane.
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Specialists work their post at the New York Stock Exchange at the end of the day on Friday, June 4, 2010. (Photo: David Karp / AP Photo) The Senate voted 60 to 38 on Thursday to close debate on financial reform, setting up a final vote on the legislation later in the day. The “yay” column includes three Republicans, who chose to break their party’s filibuster: Senators Susan Colllins, Olympia Snowe, and Scott Brown; meanwhile, Democrat Russ Feingold voted against the measure, saying that it was too weak. Once the Senate passes the bill this afternoon, it will go to President Obama’s desk. He’s expected to sign it within days. Randall Lane, author of The Zeroes: My Misadventures in the Decade Wall Street Went Insane, reveals how Wall Street is already planning to get around the new rules.
At a recent lunch with a former financial regulator who now has a big job at a big bank, the topic turned to the financial reform bill Congress seems poised to pass Thursday. “The market,” this human Washington-Wall Street nexus told me with a sly smile, “is always four years ahead of the regulators.”
And that calendar, like the stock options of too many corporate scoundrels, apparently gets back-dated. Calling around Wall Street this week, I got the sense that the powers that be—and their accountants and lawyers—had been hard at work trying to end-run Wall Street reform before it even passed.
“It’s not going to affect us at all. We’ll move some stuff out, have some partial investments.”
Since none of the dozen or so people I spoke with—and virtually no one else in America—has read all 2,000-plus pages of the windily named Dodd-Frank Wall Street Reform and Consumer Protection Act, let’s consider this soon-to-be law in three mental buckets.
First, there’s a big bundle of consumer protections. An independent Federal Reserve offshoot will make sure big banks don’t gouge via credit cards, debit card fees, mortgages, and student and auto loans (though auto dealers somehow get an exemption, courtesy of their powerful lobby). These are good, smart policies that immediately feel as American as fried chicken and driving 80 miles an hour—and other than preventing some types of predatory mortgage practices, they have precisely nothing to do with the last meltdown or the next one.
The second part deals with many of the systemic problems that nearly brought the economy down but that Congress proved too gun-shy—or dysfunctional—to address directly right now, instead kicking decisions to nebulous regulators for determination down the road.
For instance, when banks grow “too big to fail,” a 10-person “council of regulators,” with the Treasury secretary at the helm, can opt to crack down on them if they’re healthy, or liquidate them if they’re not. For pay packages that encourage executives to take risks with other people’s money, the Fed will issue broad guidelines, rather than specific rules, and then try to block plans that run afoul of these nebulous standards. Credit rating agencies that slap high grades on lousy loans made by the banks who pay their bills will face more liability for such actions, which is good—but regulators will also take two years to “study” further the inherent conflict of interest, which is like taking another two years to study further whether cigarettes cause lung cancer.
Realistically, though, the only part of financial reform that Wall Street was paying real attention to was the third area, which pertains to their ability to continue acting less like real banks—making loans and helping companies raise money and other traditional services that prove the lifeblood of capitalism—and more like the casinos they became over the past decade.
The big fight centered around the Volcker Rule, named for Obama’s lanky Wall Street adviser, former Fed chairman Paul Volcker, who pushed for a complete ban on proprietary, or “prop,” trading. This is the money a bank gambles for its own gain, often using customers’ deposits as the seed bet, borrowing wantonly above that to keep things extra interesting. The basic math encourages crazy risk: Hit it big, and bankers get a monster bonus; crap out, and the taxpayers sit on the hook for a bailout.
A strict Volcker Rule would have fixed that, and Wall Street shuddered accordingly. But after new Republican Senator Scott Brown extracted a watered-down version—banks will be allowed to risk 3 percent of their capital via prop trading and own up to 3 percent of hedge funds and private equity funds—Wall Street did what it’s best at: creating complicated solutions to exploit loopholes.
12 July 15, 2010 | 3:24am Twitter Emails
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The Devil is most always in the details. Especially when you combine the weak brainpower of Chris Dodd, and his even weaker character..., then, write the rules and include your details in a 2,500 page document..., why, sure enough, you ought to be able to outsmart any regulator that drifts along.
Yes, but I'm guessing Dodd and his buddies will land sweet lobbyist jobs after "retiring". Payback for all the favors he has done over the years. At least Dodd should get a cut of the CEO bonuses he helped with when he made sure the Obama amendment to secure those bonuses went into the porkulus bill. http://online.wsj.com/article/SB123741741674677723.html "A provision in President Barack Obama's stimulus law might have forestalled payment of $165 million in bonuses to employees of American International Group Inc., but was altered before final passage at the request of the Obama administration, Senate Banking Committee Chairman Christopher Dodd said Wednesday night."
Chris Dodd, Rangle,Franks, and many others should be so gone, far away from Washington.CD, He was retitring, still doing harm and making profits.We need wallstreet out of the media, with all these same, politicians, writing rules, that no one respects or believes. They are paralying,wallstreet
So the democrats are passing a sham financial "reform" bill that the banks and Wall Street have already figured out how to get around.... It could be worse----at least the dems aren't wasting a trillion dollars this time on another porkulus that results in the loss of three million jobs on Obama's watch.
Why should it surprise anyone that Wall Street might "outsmart" Congress. The collective IQ of Congress has to be less than 100. That is why article1, section 8 of the Constitution limited (or thought it was limiting) the responsibilities of the federal government. Unfortunately, starting with Wilson and accelerating under FDR all congresses since the late 1930s have routinely violated their oath of office, ignored the Constitutional limits of their authority and shoved a never ending array of bad progressive ideas up our backsides. And the SCOTUS let them get away with their malfeasance. Wake up people. This November if we expect to ever again survive and prosper we have got to vote out of office all progressive democrats and republicans. Identify and vote for the candidate in your district and state, if you have a senatorial race, the candidate who is the most constitutionally conservative candidate and vote for that person. I am not talking about social conservatives or neo-cons. These people are progressives on the right and have caused as much harm as their counterparts on the left. I am talking about small government, fiscal conservatives who have the fortitude to begin dismantling the federal beast that we have allowed to be created. The social issues important to Christian and Social Conservative are state issues, and the foreign policy adventurism of the neo-cons that try and democratize the world, a fool's errand for sure, far exceed the scope of military action required to secure the nation. In fact, the neo-cons have contributed to the financial crisis by diverting capital unnecessarily for a productive private sector use in order to finance reckless foreign policy adventurism.. Our only hope is at the ballot box this November and in November of 2012. We picked poorly in 2008.
Yes, yes, vote to put Wall Street and BP in charge of everything, with no taxes or "interfenece" from the government, and turn back the clock to 1890. Yes, we've heard it all before a million times. Any new ideas? Like any new ideas at least formulated within the last 100 years or so?
There will never be a change in America , until there is a Flat Tax , Were everyone pay equally ! Then work on political disparity ! Thank A Republican ! (not)
Jerning, everything you are saying sounds so good. All of them, need to be out. republicans and Democrats, and whoever, and caring human beings, for the mainstream, the wealthy ,the poor, and not just the few chosen Never has the economic, spiritually and emotional bankrupcy been felt like now. No innovation,growth productivity, hiring,health reforms, benefitted the industry intead of the persons, all and all it is only political games. They have,everything inplace, agencies,rules, and we just needed leadership,and e caring and all doing their jobs. Not,Incompetent negligent or corrupt..
A bill called the Dodd-Frank bill?!?! The two committee chairs that have made a killing from Wall Street cash and tripped us into the Great Recession with the "lax" (bought and paid for?) regulation? What a joke - the Dem congress IS Wall Street.
Agree, in part and disagree, in part. Yes there is some humor here. A Dodd-Frank bill being tough on Wall Street is as laughable as a would-be Rangel-Geithner bill on tax enforcement. If Congress was as smart, most of them would be on Wall Street instead of in Congress. But all Congress wants is money, and all Wall Street wants is power......errrr...or is it the other way around?! Okay, I've proven myself wrong I digress to your Dem congress is Wall Street comment!
It is a joke. Everyone, bankrupted, and demoralized in this country hear the name CD, BF, CR and others and cringe. But there they are,writing new laws.This is why , the pres, has no credebility, anymore.and NP, how funny she sayid, she does not know who Gibbs, is?She lies right on tv.Who is she?
I HOPE the banks and Wall St, can outsmart Congress and these stupid rules. Otherwise credit will contract at exactly the time we can least afford it to. That is what brain dead reformers on the left, who have zero knowledge of financial markets, fail to understand. If you make credit more expensive, you will get less of it. That is not an opinion, it is a fact.
it is amazing how good ideas or intentions seem to to dwendle down to nothing by the time it gets to a vote. usless waste of time and paper all to make americans feel like there is something being done . lets pretend to give a shit and write a book on how we can regulate people that pay for our very existance. we, congress that is, have eat at that table so long we can't push back and say we have had enough. they have no idea that we have a constitution and we the american people have no freedom except what they want us to think we have. voting is the one thing we have but can be also munipulated even to the last resort of chads, brothers in power, and a supreme court that owes you a favor. so do we really have antthing they have not already screwed with and made a mess of......
It can be argued that we need less credit. Clamp it down like a tourniquet to stop the bleeding. Credit isn't always a good thing. Like more rope to hang yourself.
Wolverine has not yet noticed that credit has already contracted more considerably in the last few years than at any time since the Great Depression, but has no real clue what to do about it.
Kudos to beastyjay for pegging it. Wall St only outsmarted Congress in the sense that it will make more than Congress does. No one is REALLY fooling anyone except that maybe the congress and Wall st are fooling some of the ordinary people whom they are screwing. But I am an ordinary person and I am not fooled. I know they are screwing me while enriching each other. But as one voice in the wilderness there is nothing I can do. Except mourn the loss of the integrity part of our "American Exceptionalism" at the hands of scumbags like Dodd and Frank.
I know it, too. Capitalism is strictly a Dick Cheney-Bernie Madoff-BP thing.
So in the end it isn't really about the socialist Obama its about the corporatist Obama And another Kubuki performance for the American public treated to articles about how Wall Steet is upset and gonna give its campaign $$$/bribes to the Reps The game is stiil rigged The sociopaths are still running the casino/ponzi game From Jesses Cafe: "Having fallen from the eternal, the Evil One's desires are endless, insatiable. Having fallen from pure Being, he is driven by the desire to possess, to fill his emptiness. But the problem is insoluble, always. He is compelled to have and to hold, to possess and consume, and nothing else. All he takes, he destroys. Certainly he rules the material, as he is called the Prince of this World in the gospels - but only of the things of this world." And since material things will have an end, he is condemned to a gnawing hunger, and the wages of his pride, oblivion. The is no greater punishment for pure ego. And the knowledge of this is his torment. "What to do? To restore the rule of law means first a rigorous audit of the banks and of the Federal Reserve. This means investigations. Representative Marcy Kaptur has proposed adding a thousand FBI agents to this task. It means criminal referrals from the Financial Crisis Inquiry Commission, from the regulators, from Congress, and from the new management of troubled banks as they clean house. It means indictments, prosecutions, convictions, and imprisonments. The model must be the clean-up of the Savings and Loans, less than 20 years ago, when a thousand industry insiders went to prison. Bankers must be made to feel the power of the law in their bones. How will this help the economy? The first step toward health is realism. We must first stop pretending that bad assets can be made good, that bad loans will someday be repaid, and that bad people can run good banks. Debt crises are resolved when debts are written down and gotten rid of, when the institutions that peddled bad debts are restructured and reformed, and when the people who ran the great scams have been removed. Only then will private credit start to come back, but even then the result of bank reform is more prudent banks, by definition more conservative than what we've had... The entire host of neglected priorities of the past 30 years should be on the agenda now. That is the way-and the effective path-toward prosperity." James K. Galbraith, Tremble Banks Tremble
This depression is a perfect opportunity to cut Wall Street down to size rather than pumping it back up--and if they crash and burn again, that will happen. What they don't want anyone to know is that the Federal Reserve could easily provide all the public and private capital the country needs for economic development at very low interest rates--even in the form of outright grants or long term loans at near-zero interest rates. In fact, it would cut out all these middlemen totally, and even do away with the need for taxation and deficit spending. That's a very radical proposal, but many economists and historians realized years ago that this would be possible.
LMFAO. "Wall Street Outsmarts Congress." 1. As if that were difficult. 2. When all of Congress is on all of Wall Street's payroll, the issue of smarts is near last on the list.
Bought -off Washington takes Wall Street's Money . . . then has the balls to lecture Wall Street about greed. Confucius say- Ho chastise Pimp . . . as Congress lecture Wall Street ME SO HAWNY
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