On September 15, 2008, Lehman Bros. failed and began the market collapse that, to this day, is nowhere near “recovered.” In fact, serious economic soothsayers predict economic fall, part two, as the economy sputters under the weight of European defaults in countries like Greece and Spain, commercial real estate failures here in the United States, stagnant unemployment and abysmal housing values.
After the big fall, and amid the “bailout” and “stimulus” frenzy, legislators ran amok telling us how there were going to impose new regulations so that such a colossal economic malaise could never be caused by the same variables again. European leaders and American officials all rallied for a global consistency of financial regulation that would prevent financial miscreants from fomenting their destructive avarice from friendly, look-the-other-way nations. Those vestiges of those that were “too big to fail” but failed anyway – Lehman, Bearn Stearns, GM, Chrysler, Merrill and AIG – can look at the “new world” in which there is not a whole lot more regulatory oversight than was there when they fell. It took the House of Representatives 15 months from the Lehman fall to propose any materially relevant regulatory legislation . The Senate hasn’t done it yet! Connecticut Senate Democrat, Chris Dodd (not-so-coincidentally Senate Banking Committee Chairman), has just released his personal view of what Congress needs to pass. A “compromise,” he calls it. Needless to say, there isn’t a single Republican in favor of his proposal, and with the filibuster rules very much in play, the lack of Republican support is fatal.
After lots of rhetoric to the contrary, the Republicans realized that any profound, far-reaching financial regulatory legislation would of necessity have to come from the majority party in power… and apparently, the GOP has decided that they will back no significant new laws proffered by the Democrats. So their solution to making sure these horrific financial miscalculations never happen again? Don’t change the laws, just go with what you’ve got and let the existing agencies simply do a better job of prevention… with no new laws, empowerment or guidelines. The Democrats want lots of new agencies – additional layers of bureaucracy that send shivers down the backs of those who lean towards the lean… government that is.
For example, much of the turmoil is over the creation of a consumer protection agency… a government bureau whose sole mandate is protecting Mr. and Mrs. Average American from predatory financial practices and self-dealing mega-financial institutions that pushed over-borrowing and absurd business practices on an gullible and unsophisticated public. Dodd suggests that as a compromise, consumer protection would be ceded to the Federal Reserve, an institution whose primary duty is support of the banking industry (just a slight conflict of interest) and which under both chairmen, Alan Greenspan and Ben Bernanke, who were in the regulatory mix as this economy overheated without any serious intervention by the Fed. Greenspan and Bernanke sat and watched banks borrow themselves silly and did nothing about it. The agency, under the Fed, would theor etically be “independent” and “autonomous” but then why would anyone believe that it should be a part of the quasi-governmental body dedicated to the protection of banks?
Europeans seem to be almost as reluctant to regulate their financial world as well… other than to ban the American-style hedge fund/private equity and other forms of “alternative investment” vehicles from their shores, killing off a huge financial sector in the U.K. (which is home to approximately 70% of such funds in Europe) and effectively banning a very large segment of the American financial industry from playing in the European yard (particularly since we have no real plans to add new regulations to these instruments), although the final decision has yet to be made. “The new law, when completed, could block foreign funds from Europe if they don't face tight oversight at home.” March 16th NY Times. Gone are those promises of regulatory congruency with the United States and other major international regulatory bodies. Gone is the uniformity of commitment from the industrialized world to stop these financial machinations from infecting our global economy once again. The lobbying power of big business and bigger finance has spoken!
And no one, I mean no one, seems happy with Dodd’s proposals. Big business hates the thought of a powerful consumer protection agency, and consumer groups hate the idea of putting that agency under the Fed: “The U.S. Chamber of Commerce, which has led the charge against a consumer agency, called Dodd's proposal ‘an unfortunate step backward.’… And on the other side, Consumers Union said it had problems with Dodd's plan to allow the council of regulators to veto the consumer board’s decisions…. Dodd has been a fierce critic of the Fed and had proposed last fall to strip it of its consumer and bank regulatory authority. But in his latest draft, the Fed fared much better than analysts had predicted a few months ago. .. ‘Their track record is unbelievably horrible and particularly horrible on consumers, ’ said Bill Black, a law professor at the University of Missouri-Kansas City and former regulator who cracked down on banks during the savings and loan crisis in the 1980s. ‘It's an extraordinary thing that they serve so inadequately.’” The March 15th Los Angeles Times. Further, by taking over this consumer-protection function, the Fed’s power would be concentrated in their main offices in New York and Washington at the expense of the regional branches of the Fed, which also seems to depart from the notion that the Fed should be as free of governmental influences (andWashington) as possible in the creation and implementation of its policies.
Dodd spoke the truth when he said: “Let me be clear: We are still vulnerable to another crisis… It is certainly time to act.” But maybe it’s not his “compromise” that does the trick. At least Dodd is trying. But if you think that that the laws that existed on September 15, 2008 are more than adequate to prevent another economic crisis from decimating the United States by reason of the same behavior from Wall Street, then doing nothing is the prudent path. But then, you’d have to ignore the post-bailout behavior of bonus hungry traders creating new derivatives betting that Greece will fail on its credit obligations, making Greece pay even higher rates of interest and falling deeper into the abyss. Add Spain, Portugal…. Oh, did you know the United States is on that list? Want to support a trading industry that is willing to bet against their own country to make money? One that sold mortgage bundles to one group of investors and then created derivatives that made money when those mortgage bundles defaulted? Yeah, well, you might want to mention that to the people you voted into Congress last time around.
Posts
No comments:
Post a Comment