Would you support "real" financial reform?

[Gone4Good]

So we have both a House and a Senate financial reform bill. Black and white proposals. So far not a single Republican Senator has agreed to back the legislation.

Does anyone know what the complaints about the bill are, and more importantly, what alternatives are being sought? Said another way, does anyone have any idea what would constitute a bi-partisan compromise?

 

[Westernskies]

Said another way, does anyone have any idea what would constitute a bi-partisan compromise?

Bi-partisanship- coming in November to a polling place near you...

 

[donheff]

Does anyone know what the complaints about the bill are, and more importantly, what alternatives are being sought? Said another way, does anyone have any idea what would constitute a bi-partisan compromise?

Sure, Mitch McConnell has been clear about that. He believes nothing will work until big banks are allowed to fail. He says the bills would provide for perpetual bail outs. Of course the bills do that by requiring the institutions to front money (a la FDIC) to deal with potential crisis. And then they require that crisis causing banks actually be allowed to fail and be taken over with the stockholders screwed and the managers fired before the funds collected are used to address the crisis if needed. I don't know of any alternatives but I assume there are some.

 

[ChrisC]

So we have both a House and a Senate financial reform bill. Black and white proposals. So far not a single Republican Senator has agreed to back the legislation.

Does anyone know what the complaints about the bill are, and more importantly, what alternatives are being sought? Said another way, does anyone have any idea what would constitute a bi-partisan compromise?

If a measure has Obama's footprint on it, then the other side is against it, unless the measure deals with Iraq or Afghanistan where the prior Administration was all over that. I'm partially joking but half serious about that -- it certainly feels that way when you get this: Senate rejects plan to create commission on federal deficit - washingtonpost.com

Republican Senator Corker was on GMA this morning, and part of the current angst against the Bill by the Republican leadership, centers on specific points that he personally negotiated with Democratic Senators Warner and Dodd -- the Consumer Financial Protection Agency and additional regulatory ovesight over derivatives (the WMDs of arcane financial products according to Warren Buffett). Corker said that it would take 5 minutes to resolve the issues and that he would be "stunned" if a bi-partisian Bill didn't get enacted.

On PBS's NewsHour last night, it was reported that the major issue from the Republican side is that the Bill is a "bail-out bill" and doesn't adequately deal with too-big-to-fail. Having navigated a bit in the too-big-to-fail waters a bit myself, I find this almost a laughable criticism of the Bill. From what I'm hearing, the current criticism is that the Bill ensures future tax-payer bail-outs by creating a industry financed fund, by creating systemic resolution authority and by somehow signaling to creditors that the implicit guarantee of the US stands behind certain companies that would now be taxed and regulated additionally.

 

[ziggy29]

On PBS's NewsHour last night, it was reported that the major issue from the Republican side is that the Bill is a "bail-out bill" and doesn't adequately deal with too-big-to-fail. Having navigated a bit in the too-big-to-fail waters a bit myself, I find this almost a laughable criticism of the Bill. From what I'm hearing, the current criticism is that the Bill ensures future tax-payer bail-outs by creating a industry financed fund, by creating systemic resolution authority and by somehow signaling to creditors that the implicit guarantee of the US stands behind certain companies that would now be taxed and regulated additionally.

Sounds like FDIC for investment banks. I would submit that this fails to address "too big to fail" if the industry-financed fund doesn't collect enough to remain secure when major investment banks melt down. For example, would the taxpayers be on the hook to "make them whole" if the fund ran out of money?

Also -- is the "premium" paid into the fund a function of the amount of risky behavior the bank is engaging in? If it's not, you'll have the responsible, conservatively managed entities subsidizing the recklessness of the others. Banks that made few risky loans and maintained very solid reserves shouldn't have to pay as much as those playing fast and loose, just as "good drivers" shouldn't pay as much for auto insurance as someone with a couple tickets and a DUI on their record. I think a LOT of people are tired of seeing reckless behavior subsidized by those engaging in responsible behavior over the last couple years.

Other than those specific concerns, I think it's a pretty good idea. I would like to hear that these two issues are addressed, though.

 

[donheff]

Sounds like FDIC for investment banks. I would submit that this fails to address "too big to fail" if the industry-financed fund doesn't collect enough to remain secure when major investment banks melt down. For example, would the taxpayers be on the hook to "make them whole" if the fund ran out of money?

Also -- is the "premium" paid into the fund a function of the amount of risky behavior the bank is engaging in? If it's not, you'll have the responsible, conservatively managed entities subsidizing the recklessness of the others. Banks that made few risky loans and maintained very solid reserves shouldn't have to pay as much as those playing fast and loose, just as "good drivers" shouldn't pay as much for auto insurance as someone with a couple tickets and a DUI on their record. I think a LOT of people are tired of seeing reckless behavior subsidized by those engaging in responsible behavior over the last couple years.

Other than those specific concerns, I think it's a pretty good idea. I would like to hear that these two issues are addressed, though.

Those are valid concerns but if the institutions are required to go bankrupt and stockholders and managers lose before the "bail out" takes place there will be a substantial incentive to be cautious.

 

[Gone4Good]

I've addressed the substance of the criticism about "bail outs" at length in previous posts. It is a nice talking point to say that you're "against bailouts" but it is a far harder thing to come up with an effective and realistic policy to prevent them. I guess what I'd like to know is what is the specific policy that Republicans are advocating in the absence of the current legislation? What would make them happy? What would they do if they controlled the government?

 

[ChrisC]

Sounds like FDIC for investment banks. I would submit that this fails to address "too big to fail" if the industry-financed fund doesn't collect enough to remain secure when major investment banks melt down. For example, would the taxpayers be on the hook to "make them whole" if the fund ran out of money?

Also -- is the "premium" paid into the fund a function of the amount of risky behavior the bank is engaging in? If it's not, you'll have the responsible, conservatively managed entities subsidizing the recklessness of the others. Banks that made few risky loans and maintained very solid reserves shouldn't have to pay as much as those playing fast and loose, just as "good drivers" shouldn't pay as much for auto insurance as someone with a couple tickets and a DUI on their record. I think a LOT of people are tired of seeing reckless behavior subsidized by those engaging in responsible behavior over the last couple years.

Other than those specific concerns, I think it's a pretty good idea. I would like to hear that these two issues are addressed, though.

It's does address the issue, if you concede as many, including Paul Volker, that there are a few "outliers" that are simply too important to fail that must be resolved slowly and carefully in a controlled resolution setting -- and not through the current, ill-suited mechanism of Bankruptcy liquidation proceedings. Op-Ed Contributor - How to Reform Our Financial System - NYTimes.com

This is essentially the same model currently used by the FDIC, where taxpayers are always potentially on the hook for federally insured banks, if the FDIC Fund runs out of money.

Taxpayers will always potentially be on the hook for too big to fail outliers, but the key is to prevent the outliers from getting to the stage where the industry-financed fund could be exhausted; this can occur by increasing capitalization and leverage requirements and increased supervision. I think the WAMU case is a good example, a $307 billion institution "resolved" by the FDIC by a negotiated sale with JP Morgan Chase, with WAMU shareholders and unsecured bondholders wiped out.

Regarding premium, there are well-worn risk-based premium and capital requirements that international bank supervisors, Central Banks, and international deposit insurers have used for several years now, including the FDIC.

 

[Danmar]

The USA has over ten times the GDP and 10 times the population of Canada. It is easier to manage a smaller economy than a larger one. California alone has a bigger GDP than Canada. It's not the same........

Your banks are probably better run, but I wonder if that would be the case if they had the VOLUME the US banks dealt with............

Maybe. But our banks are pretty big and sophisticated. The largest has a market cap of $85 billion (you pick the currency they are now equal), employs almost 100,000 people worldwide and about 20million customers worldwide. What kind of "volume' were you thinking about?

 

[IndependentlyPoor]

Kewl!
Jesse's Café Américain: UBS Shareholders Vote to Hold Top Management Personally Responsible for Losses

 

[FinanceDude]

Maybe. But our banks are pretty big and sophisticated. The largest has a market cap of $85 billion (you pick the currency they are now equal), employs almost 100,000 people worldwide and about 20million customers worldwide. What kind of "volume' were you thinking about?

It's easier to run $1.3 trillion of GDP through the banking system than over $14 trillion dollars, can we agree on that?

 

[Gone4Good]

Obama to Veto Financial Regulation Without Derivative Rules

“I will veto legislation that does not bring the derivatives market under control in some sort of regulatory framework that assures that we don’t have the same kind of crisis that we’ve seen in the past,” he said.

I like it. Hopefully this will stiffen the spines of wishy-washy Congress critters.

 

[Danmar]

I think we agree that your total banking system is bigger. However with 8-9000 banks (albeit declining in number) many of your banks are small and unsophisticated. In fact my experience has been that even the biggest banks are no more complex or sophistcated than the top Canadian Banks. No US Bank has a significant retail presence in Canada, while 3 Canadian Banks have such a presence in the US (BMO/Harris: RBC : TD Bank). I think US banks could learn a thing or two, thats all.

 

[Gone4Good]

I think US banks could learn a thing or two, thats all.

Oooh, oooh, oooh . . . can one of the first things they learn be how to avoid destroying the world economy?

 

[Gone4Good]

The opposition strategy now seems clear. Simply repeatedly claim "Black is White". Thus the most restrictive piece of financial regulatory reform since the 1930's becomes a "bailout bill" and now this . . .

Republicans tried to tie Goldman to the Democratic majority. House Minority Leader John Boehner (R., Ohio) said the investment bank "has been supportive of President Obama's bill to create a permanent bailout fund for Wall Street."

The WSJ helpfully points out in the next paragraph that this is utter BS . . .

The banking industry remains mostly against the Democrats' plan, objecting to limits on risk and growth, and hotly opposed to sweeping curbs on consumer products such as mortgages.

This is insane.

 

[Westernskies]

Hopefully this will stiffen the spines of wishy-washy Congress critters.

Finally! Something we can agree on. This certainly describes the majority of Congress critters these days.

 

[Gone4Good]

A pretty strong derivatives bill passed out of committee today with Chuck Grassley's support. Some news outlets are reporting that several Republicans are ready to break ranks . . . it looks like real reform may actually happen.

 

[IndependentlyPoor]

A blast from the banking reform past, courtesy of Time's archives. Check out the dateline.
I luvs the internets.
BANKS: Deposits Guaranteed - TIME

 

[Gone4Good]

So it looks like recent polls showing that ~60% of people want financial regulatory reform passed has encouraged the party of "No" and "Hell No" back to the negotiating table. I only wish I knew whether they were negotiating to make the bill stronger or weaker. I haven't really seen anyone describe what they want changed other than to "end bailouts". That means the $50B fund will get scrapped, which is no real loss, but there has to be more going on then that. I'd like to know what.

 

[Gone4Good]

So a compromise is reached and nothing really changes . . .

The Dodd-Shelby agreement would apply to a section of the bill that would give the government authority to liquidate large failing financial firms whose collapse would threaten the economy. The two senators have agreed to replace the proposed pre-funded [with industry paid fees] $50 billion reserve with language that would require regulators to impose fees on the financial industry to recoup costs for unwinding a company after a collapse, Dodd said today.

It's a good thing we're holding up legislation to make important changes like these.

 

[endthefed]

breaking up too big to fail = failed

a full audit of the federal reserve = failed

glass steagall back = failed


there is no financial reform.

oh yeah, they lowered merchant fees on debit card transactions, yipee

 

[Gone4Good]

Senate Republicans Call Reform Bill 'Takeover' of the Banking Industry.

Sounds familiar.

Still wondering what they support.