Senate passes HR 4173 finance reform conference report
by Linda Beale
crossposted with Ataxingmatter
Senate passes HR 4173 finance reform conference report
[updated to add information on Geithner’s opposition to Warren 7:12 pm]
On a 60-39 vote, the US Senate passed the Dodd-Frank H.R. 4173 financial reform conference report today. While the bill imposes some new restrictions and creates a consumer protection agency, most of the impact will come (if it comes) through regulation as the new systemic risk council oversees bank issues and decides whether activities of banks pose sufficient risk to be regulated or eliminated. Capital requirements and leverage requirements, for example, are not directly set in the bill. The US is likely to settle with the capital and leverage standards set by Basle III, the discussions going on now at the Bank for International Settlements regarding updating of the 2004 standards. In those talks, thje banks lobbying are making inroads on the fairly tough standards originally proposed in December, as officials yield to fears (cited by the banks) that tough capital and leverage requirements will dampen the economic revival. See, e.g., Damian Paletta and David Enrich, Banks Gain in Rules Debate: Regulators Seen Diluting Strictest New ‘Basel’ Curbs; Credit Crunch Fears Remain, Wall St. Journal, July 15, 2010, at A1.
Query whether we have learned anything from this crisis at all. Officials remain at the mercy of banks–bailing them out, providing cheap cost of funds through implicit and explicit guarantees, and letting, even encouraging, them to get back to the old securitization games that allowed them to generate liquid and easy credit without adhering to prudential banking standards since the lender was not the one holding on to the loans over the long term. Banks argue for remaining entangled with their profitable proprietary trading and derivatives businesses, since they know that the synergies of being able to use cheap depositor funding for their investment-banking activities means high profits for them, even if it may mean socialization of losses down the road. See Simon Nixon, Barclays Capped by Regulatory Risk, Wall St. J., July 13, 2010, at C10
Interestingly, Tim Geithner has come out against having Elizabeth Warren appointed as head of the new consumer protection agency created by the reform bill. Nasiripour, Tim Geithner Opposes Nominating Warren to Head new Consumer Agency, Huffington Post, Jul. 15, 2010. Having watched Prof. Warren in action and read the scathingly honest output of her term at the head of the bailout watchdog commission, I can’t think of a better person to head the agency. One suspects that Geithner is concerned about a gradual erosion of the power of the Wall Street clique (Geithner, Summers and Bernancke) with the forceful Warren on the job with the ear of the President. Personally, I think that power needs to be eroded, so Geithner’s concern makes Warren an even better choice.
I’m still a little fuzzy about what happens to local and regional banks. Anyone up on this?
And I repeat, FIRE GEITHNER!
Can someone please explain to me why Goldman Sachs is continually allowed to be registered as a bank holding company? I can understand why they would like to, but what is the rationale for this continuing?
Sarbanes–Oxley Act of 2002 passed by nearly unanimous votes in both the House and the Senate. If you read through a summary of that law’s various categories of over sight and regulation you would think that the financial crisis of 2008 could not have occured. You would get the impression that none of the banking and finance exotic products wouold have been legal to sell. You would even more so think that the finance industry’s audit procedures would have brought the problems to light early on and that the crisis would never have happened. You might even have thought that the ratings agencies would have been more sensitive to the issue of conflicts of interest. If you thought all of that you apparently would have thought wrong.
So what might we now expect of a bill that is so voluminous and detailed as to reguire long term in depth analysis to even know what the new legislation actually will require and what its effect will be. To say nothing of the fact that regulations now have to be written based upon the more general legislation requirements. How many thousands of pages is the thing? I read recently that the Glass-Steagall Act of 1933 was less than fifty pages long and it worked well for about 80 years. What’s the difference then and now? That current day legislation is written by lobbiests rather than by legislators?
Blurt,
You ask an interesting question. I am not familiar with the pertinent regulations that would relate to your inguiry, but one only needs to look at the many GS staff that have taken time to serve in so many various positions within the Fed, the SEC and Treasury. It seems something like a good old boy phenomenon. Wasn’t it one of the key meetings between Paulson and, I think, Geithner wherein they were discussin the fait of AIG that Blankfein was the only industry in sider to be invited to the discussion? And what about the SEC “fine” of $550 million and no criminal prosecution resulting from the Abacuss investigation. Is that really enough of a penalty to discourage such behavior? They measure their profits in the tens of billions. Washiington Post:
“Goldman Sachs reported blockbuster earnings of $13.39 billion for 2009 and said on Thursday that it kept compensation below the levels of its pre-crisis heydays.”
Not bad, but the first quarter of 2010 was even better. Reuters:
“Goldman said first-quarter net income nearly doubled to $3.29 billion, bolstered by strength in fixed income trading and principal investments. The earnings of $5.59 a share easily beat analysts’ average forecast of $4.01, according to Thomson Reuters I/B/E/S.”
So whats $550 million to put the Abacuss issue to bed? Let’s see, we engineer a financial product that is mostly put together by a valued hedge fund operator. That operator bets against that financial instrument taking a very significant short position. We sell that financial instrument to other customers that trust our products, but we forget to tell those customers about customer number one who did the engineering of the product and then bet heavy against the quality of that product. Hmm?? That’s not a RICO situation?
Did you guys see this one?
http://www.economicpolicyjournal.com/2010/07/serious-tracking-of-americans-begins.html
“As for your body, you will be required to have an “electronic health record”, by 2014. They snuck this into one of the “stimulus” bills. The electronic record will include an obesity rating. The information will be required to be on a “national exchange” with only secure access…”
Sarb Ox did work in one sense once the market crashed in 2007 the companies had to report their writedowns. It did not deal with the issue of liquidity. Frankly the model of trying to ride the interest rate spread on lots of borrowed money (that killed Bear, Lehman and Merrill) was a model that was fatally flawed from day on. A bank does this, but history has taught about what amount of deposits move at a given time, and with the FDIC putting runs to bet, the statistics are probably pretty good. The fact that the investment banks lived on overnight loans shows how much their managment was not the best and brightest but rather the worst and dummest of the lot. Assuming that the market will always be stable is not to listen to history. The meme about housing prices chose to say that the 1930s never happened. (I guess now that most that experienced it are no longer around, its out of personal memory out of mind). At least one good thing in the bill the 250k insurance limit is now permanet for FDIC funds.