Interesting read about the future of financial regulation at the Epicurean Dealmaker:
Meanwhile, the cleverboots in the banking industry have already picked themselves up and dusted themselves off from the 50-car pile-up they drove the economy into. They are sending an army of lobbyists and campaign contributors into the halls of power to make sure any new rules imposed on them are both toothless and rigged in their favor. Congressmen and women, most of whom couldn’t balance a checkbook if you gave them a fucking jeweler’s scale, are no match for smooth-talking operators purring about the need to preserve “innovation” and “efficiency” in the market. This is not even to mention the inevitability of regulatory capture, when underpaid government bureaucrats try to supervise their former and future private sector employers who make, on average, about fifty gazillion times more money than they do.
So I am with Bob Teitelman, who worries that all this CNBC advertising budget-driven drivel about “green shoots” in the economy is letting a once-in-a-generation opportunity to craft a robust, long-lasting regulatory regime for the new financial reality slip away, and against those who urge slowness and caution. These latter argue that we should not rush into anything, since we are likely to make mistakes in forming a new regulatory system in haste, and generate all sorts of unintended consequences.
I say fuck it. Kill ’em all and let God sort ’em out. Wipe the slate clean and start over with some broad principles and some smart, well-paid technocrats and ex-investment bankers who can figure it out on the fly. Let them hire killers and mercenaries who are smart enough not only to enforce existing rules, but also anticipate those areas and practices that will require regulation in the future. How do you think the financial sector itself manages its own business?
Any new regulatory structure that does not address the role of the ratings agencies in this mess is pointless, IMHO. At any rate, is he/she right? Are we missing the window of opportunity to place some sensible and enforceable regulations the market?
jcricket
Yes, for heaven’s sake, let’s not rush in to regulate the fucking wild west of finance that almost destroyed the entire global economy in the span of 6 months.
The only thing we need to rush on is bailing out the banksters. And then once we do, we should not require them to do anything different or give anything up.
In a way I can’t fault the finance types for lobbying in “their own interest”, but I can fault Congress for not seizing on this time to make it clear that industries:
1) Will never voluntarily regulate themselves.
2) It’s the government’s job to craft and enforce regulations, even (especially) when the industry bitches and moans about the restrictions:
3) When an industry is under-regulated, they will FUCK YOUR SHIT UP – destroying your wetlands, raping your 401k, failing to pay for your daughter’s chemo, and throwing your grandma out on the street after she misses a mortgage payment.
I’m continually pissed by Democrats pathetic failure to make it clear that the government is (or can be) the people’s voice against the rapacious “free hand” of capitalism. I expect Republicans, by their nature, to argue that it’s corporations needs that matter most. But Democrats are at least nominally on the right side.
We suck.
kid bitzer
ratings agencies, yes.
and permissible multipliers of leverage.
and the principle: if it can walk like a bank, it gets regulated like a bank.
Slaney Black
I said this a while ago. Obama should get some federal agents to just fucking kidnap major bank presidents for a couple hours, beat the shit out of them and then dump them in an alley. No demands or anything, just put a good scare in them about their own mortality. Maybe use Indian Tribal Police or something – keep it off the radar.
Skippy-san
Why did you strike out the women line-its quite true. :-)
MattF
Obama’s economic team doesn’t seem to be as ruthless as his national security team… Just think, what would Clinton and Gates do if they were faced with the self-serving bullshit that we’re getting from the bankers. Ooopsie… were those your balls I just cut off? Well, excuse me.
SGEW
@Slaney Black: Oh yeah. Secret police and torture are certainly the way to go with this one. That always turns out well.
Starfish
I agree with @jcricket. There has been a faction of the financial blog-o-sphere calling for transparency and honesty as the medicine needed to allow this economy to recover. I have been deeply disappointed that our politicians and bureaucrats will have none of this. Stories titled Fed Hires Former Enron Lobbyist to Burnish Its Image do not inspire confidence in the government.
@SkippySans
Did John mention that one Laura W is one of the advertisers on this site?
Brachiator
It’s obvious that the lobbyists and special interests will fight back. We will see how skillful Obama’s people are, and how craven Democrats and Republicans in Congress are. But there’s not much to comment on until more concrete proposals have been made.
As an aside, I have noted the problems that the UK is having, with members of Parliament quitting because of an expense scandal, and prime minister Gordon Brown on the ropes. One of the possible consequences here would be the election of a new, conservative, government which would fight tooth and nail against significant bank regulation, and might influence US efforts as well. It is, after all, a global financial system, and some US banks have a huge UK presence.
But some regulation is easy, since the GOP had managed to repeal effective post-Depression regulations which had proved very effective.
I would consider cutting Bernie Madoff a break if he would help with crafting new rules. Seriously. In the spirit of the counterfeiter in Catch Me If You Can, sometimes you need a thief to help design better security measures.
I would also use a modified FCC approach. That is, I would let the banks write some of their own damn regulations, outlining the broad principles of simplicity and transparency, but would fine them $10 million per violation.
Elroy's Lunch
Probably. If Rahm is running this, which he probably isn’t, then major changes to the banking industry may come about. But with Geithner and Summers I would expect to see banking-favourable changes made. Watch what happens when the White House/Treasury rolls out it’s regulatory agency reform proposal on June 17th. If it is a simple merger of the OTS with the OCC then I would see that as a signal that they will nibble around the edges of the problem.
Woody
No we are not “missing” an opportunity.
We are being systematically misled to ignore, or worse, disparage, such efforts.
I’m with the “kill’em all and start over” faction…
Alan
Yes. This has been another example of simple answers to simple questions.
Less snarky response: It has been obvious to me that since the 1980’s (and possibly since the 1890’s) our entire system of government has existed to protect and advance the interests of corporations and the wealthy elites. Any benefit from government action which accrues to the middle class is a lucky break for which we should feel thankful. Any benefit which accrues to the lower classes is obviously a mistake to be corrected at the earliest opportunity. Even the New Deal only came about because FDR realized that a communist uprising was on the horizon if there weren’t reforms, and he successfully persuaded the upper classes of that truth.
I have no hopes that this state of affairs will change in my lifetime, and certainly no faith in the Democrats. They’re obviously better than the Republicans, but the Democrats are still hobbled by the fact that a huge percentage of Dem politicians would happily be moderate Republicans if it were demographically possible for them to be elected on that ticket. I suspect Obama himself may be among that number. Certainly, he has made little effort to challenge the Blue Dogs and has demonstrated indifference bordering on contempt toward the Progressive wing of the party.
leo
After what we’ve been through, to end up with the same finance and banking monopolies that we started out with is the nightmare scenario.
It’s as if we had gone though the Great Depression without any New Deal.
Bring on the Pecora Commission!
MikeJ
Why would you use a jeweler’s scale to balance a checkbook?
The Grand Panjandrum
A good start would be to enforce the regulations we already have. Chris Dodd has got his nuts in vice right now over his “deal” with Countrywide so it might be the perfect time to pressure these ratfuckers to do something substantive.
With all this ‘green shoots’ BS rolling around I wonder when the assclowns on CNBC will actually stop cheerleading the stock market. After all the available capital is sucked up into equity markets and interest rates start rising (OK that ship sailed! 30 year mortgages went form 4.91 to 5.29 last week according to Freddie Mac.) even if the fundamentals of the markets look good it is ONLY because interest rates are very low. If you think the housing market looks dicey but see those ‘green shoots’ right now just wait until rates are at 10%. This whole mess will once again spiral down into the toilet bowl and the banks will STILL have all those toxic assets on their books.
Hey nothing like a beautiful Sunday morning, eh? (I guess if you’re Roger Federer it was a good morning.)
JPhillips
We missed the window when we gave them a few trillion dollars with no strings attached.
ThinkTank
This American Life, the NPR-featured radio program, did a wonderful piece this weekend on different parts of the finance industry and the mess that resulted. The most interesting of these is the piece on the ratings agencies and how they were gamed into rating highly structured finance securities (e.g., CDOs, MBSs) for which they had no models and had no financial incentive for modeling. It’s worth a listen once it is archived.
Cat Lady
My rep, Barney Frank, often mentions rating agencies as one of the main culprits when he does his constituent town halls. He’s a pretty smart guy, and has had a front row seat on the financial roller coaster. He ran unopposed last time – I don’t think he’ll roll over on regulations, he doesn’t need to. His district is full of smart affluent liberals who are paying close attention to all of this, and know who the perpetrators are, so he doesn’t have to worry about his right flank, only his left. If he caves, then we’ll know for sure that the bailout was a bust out, and the game is over.
gex
I think any new regulatory regime has to happen sooner rather than later. It’s not just the industry lobbying we need to worry about, but rather the short-lived window in which we can convince the moderates to go along with a regulatory scheme. The fact of the matter is that when things are good, those folks are easily swayed by the mantra that regulation is bad. The fact that we managed to avoid, at least so far, a really dire situation actually hurts the effort to fix the regulatory scheme.
God forbid that people walk away from this thinking it was all really no big deal. You’ve already seen people claim that Obama’s responses have made things worse, rather than better. And the right has been desperately trying to claim that FDRs efforts made the GD worse. Once the scare is past, people will be more than happy to buy into this crap.
Brick Oven Bill
This has been a problem since forever. On this subject I understand where Mohammed was coming from. ‘Usury’ was his word for ‘interest’, i.e. bankers.
2:275 “Those who devour usury will not stand except as stands one whom the evil one by his touch hath driven to madness. That is because they say: ‘Trade is like usury.’ But Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge). But those who repeat (the offence) are companions of the fire, they will abide therein (forever)”
It is worse today though because these bastards have been given license to print their own money. Mohammed’s experience was probably to have borrowed ten gold pieces from some Jew, who then wanted twelve gold pieces back and would not take ten. So Mohammed probably threw the Jew in the fire and paid him nothing back.
Our experience is that we work to make ten dollars, and then the Federal Reserve doubles the money supply, making our ten dollars worth five, but our five dollars of gold is now worth ten, on which we have to pay taxes.
The answer, in my opinion, is to abolish the Federal Reserve, force the federal government to live within its means, and let the chips fall where they may. In the future there must be a firewall between the financial industry and financial regulation.
Goldman Sachs is disgusting in their conduct. I am not suggesting that we light them on fire however. Try them and put them in little jail cells if they are guilty. The jury must consist of people who have manufacturing or construction jobs.
Brick Oven Bill
Moody’s largest shareholder is Presidential economic advisor, as an aside. Drudge is reporting that the President now has a food taster. ‘Green shoots’ CNBC is also owned by a Presidential economic advisor.
Kennedy
It’s absolutely a missed opportunity. Just watch: all the politicians, pundits, ‘journalists,’ and everyone else who has referred, ad nauseum, to present economic events as ‘the greatest financial crisis since the Great Depression’ will have no qualms turning a blind eye to the fact that the new regulatory structure will be gutless and rushed.
Maybe this is just something else that we need to be interested in ‘looking forward’ on.
Kennedy
@ Cat Lady: Rep. Barney Frank definitely has a shrewd wit, and is an able politician on these complex financial matters.
My prediction is that Frank and the House will come up with some form of decent (or as decent as we are likely to see) legislation, and then it will get pissed all over in the Senate and diluted down to its very dregs, all the while Harry Reid stands there lamenting a lack of votes.
Maus
Never ever? That’s the channel’s entire purpose to being, they’d lose their identity.
zed
Eh, nothing to worry about. When the recast of no interest loans hit a whole new wave of chaos will hit, and we’ll get a second chance…
The Raven
We haven’t had the Great Depression yet. Seriously, we aren’t at 1932 levels of desperate, though we’ll get there if there’s no further reform. Unfortunately, the Senate conservatives (3/4s of the Senate) will be moved by nothing less, it seems. Good coverage of this & related issues over at Kwak and Johnson’s Baseline Scenario.
KG
@19: actually, according the the Torah (or as you may know it, the Old Testament), charging interest on a loan was strictly prohibited – there are Jewish banks which will lend with no interest. That actually wasn’t an uncommon theme in ancient societies. In modern times, usury has taken on a slightly different meaning.
And wtf do you mean by a firewall between the financial industry and financial regulation? You want an industry that screwed the pooch to have no regulation?
El Cid
But then, that’s the feature, not the bug.
Brick Oven Bill
My use of the word ‘firewall’ was poor. I had intended to agree with the article’s statement that:
“This is not even to mention the inevitability of regulatory capture, when underpaid government bureaucrats try to supervise their former and future private sector employers who make, on average, about fifty gazillion times more money than they do.”
Henry Paulson was in charge of Goldman Sachs when Goldman originated and bundled a large percentage of these CDOs. This was back when the Federal Reserve tracked ‘M3’, the money supply. Just before things started to fall apart, the Federal Reserve stopped tracking ‘M3’, ‘because it cost too much’.
And then, as things began to fall apart, Paulson installed himself as Treasury Secretary. And Snow went on to be a partner at Cerberus.
Paulson then orchestrated the ‘bank bailouts’. I wonder what he is doing today.
My intended point was that there must be some kind of ban on cycling men between the private and public side of financial regulation. Most (all?) men are not strong enough to resist the call of glittering prizes and endless compromises. This is why government, and banks, should be kept small and decentralized.
ronathan richardson
Listing derivatives on exchanges and requiring a lot of information about them to be out there will go a long way to preventing this same type of crisis from happening again.
Cain
@Starfish:
On the other hand, when they hired former RIAA lawyers in the DOJ, they rip the RIAA a new asshole. We make an assumption sometimes that the lawyers doing this themselves have no ethics, but they might themselves be ethical but they have to be professional. For all we know this could be payback.
If anybody who needs a big STFU, it’s the recording and music industry. I would love to see this industry jump off a cliff. I never understood why we bend backwards for them. They are unnecessary in the scheme of things. In the absence of a recording industry, we will still make our own music. It’s not like musical instruments disappear. Sorry for offtopic. The RIAA story appeared in slashdot, that great well of libertarian thinking loudmouths.
cain
El Cid
Maybe we could put Wendy Gramm in charge of these reform and regulation efforts.
Lesley
Why don’t they reinstate the Glass-Steagall Act that was imposed in 1933 to prevent this shit? HOW HARD CAN IT BE?
Jesus.
Robertdsc-iphone
To date, the choices of Geithner & Summers to lead the econ team stand as Obama’s biggest mistake. As a result, I have zero faith in any kind of reform or regulation.
Cain
@Lesley:
Why don’t they reinstate the Glass-Steagall Act that was imposed in 1933 to prevent this shit? HOW HARD CAN IT BE?
No, we need to create a “VanDamme-Segal Act”.
cain
bago
Complex ethical question: Public pressure in the form of violent extremism. Compare and contrast changes in availability of credit default swaps and late term abortions over time.
Just evaluating the question is much fodder for internal debate.
Massachusetts is your future
Cat Lady:
I doubt your bona fides as a Barney Frank constituent.
First, he had an opponent last time, but the “smart affluent liberals” who pay attention to naught but their navels came out as they always do to put him back in so the rest of the country can suffer his destructive arrogance.
Second, Barney helped build the latest downslope on the economic rollercoaster, forget about having a front row seat. And now he’s meddling in GM management, keeping the Norton MA facility of that bankrupt company open. He just wants to “roll the dice a bit” with GM. Good for you, Baw-ney!
But third, this destructive Congressional lifer will do another 28 years on Capitol Hill with voters like yourself keeping him there.
mclaren
I got your financial regulation right here — 500% interest rates.
“Payday loan offices were sprouting up in strip malls and on street corners across America for years before Wall Street collapsed last fall – quiet evidence that hard times began hitting working families long ago. Now, more people than ever are using payday loans to keep bill collectors at bay. Quick money (at interest rates of around 500% or more), for people with bad credit has been praised by some as a lifeline for the poor and condemned by others as a cynical trap exploiting families in crisis. Some states have passed laws limiting interest rates, but there is one marketplace that knows no borders — the Internet.”
Rick Taylor
It’s hard to tell when you’re in the middle of it. I don’t think we’ll know until later.
But I will say I don’t think the window of opportunity is as narrow as implied. I don’t think we’re anywhere near the bottom of this recession, and there will be fresh outrage at the bankers when things get worse and more irresponsibility is revealed.
Janet Strange
@ThinkTank: I was going to mention to John about this weekend’s This American Life when I saw that it was going to be about the ratings agencies, but you beat me to it.
John – you can get the podcast from iTunes, but they only leave it there for a week. This one’s not up yet, but it should be in a day or two.
Wile E. Quixote
@Slaney Black
I’m just waiting for someone who’s pension lost its value because of the actions of an asshole like WaMu’s Kerry Killinger to get a gun and shoot the worthless son of a bitch. Seriously. I think that the right wing media is thrashing and is desperate to pin the blame on the Obama administration or Nancy Pelosi or Sonia Sotomayor or the Clenis or whoever because if people realized who was responsible for gutting their pension funds there would be a lot of dead CEOs out there.
Face it, if you spent your life working your ass off and expecting to retire and then found out that your pension fund/401k/IRA was worthless because of some bastard like Killinger why not take him out? At least you won’t have to worry about retirement, you’ll get three hots and a cot and health care, paid for by the taxpayer, for the rest of your life.
I’d like to see the laws against fraud and the kind of underhanded financial shenanigans that bought us to this point to have some real teeth put in them. I think that if you defraud a large enough group of people, or if the amount is large enough, that you should go to prison for life. You don’t get to spend 10 years in a country club prison and then get out and enjoy your ill-gotten gains. No, if found guilty you go to a SuperMax prison where you sit in a cell by yourself 23.5 hours a day until you die.
Brick Oven Bill
Hedge funds should be required to disclose their short positions to the SEC, which is not a current requirement. This way, if there is potentially criminal market manipulation, motive can be established. Geithner is the one who made the 14SEP decision.
TenguPhule
Funny thing, this is my retirement plan B.
TenguPhule
Late term abortions do not personally ruin your life.
Next question.
TenguPhule
We’d need a majority of common sense in the House and Senate.
Harry Fucking Reid.
Not gonna happen.
TenguPhule
Yes.
Though if Obama’s current run of luck plays true to form, the Banks will have done something stupid that will leak out in the media just in time for the Admin to bring a fucking nuclear tipped hammer of fire down from orbit on their unsuspecting heads.
Anne Laurie
Maybe we can combine this with Slaney Black’s suggestion — tell Madoff he can help our side craft regulations to keep his spiritual heirs in line, or he can be found broken & weeping in an alley somewhere before being returned to federal prison.
Srsly, I’m with Wile E. Coyote… when some schmuck snaps & starts shooting the soft-handed thieves who stole his life and broke his familty, then we’ll see an earnest call for change in financial regulations.
tavella
JPhillips nails it. It’s too late; the only way there was going to be any new, effective regulation regime was if the major offenders were nationalized. Instead, we bled the real economy dry to give them trillions, which trillions they will happily use to complete their capture of our political system.
Shinobi
Personally I think the whole green shoots rhetoric is a bit overoptimistic.
It’s possible that we’ve finally hit the bottom of a ravine. But nothing grows down here, it’s too dark.
Shell Goddamnit
Personally, I favor the wild use of the corporate death penalty: de-chartering.
“Kill them all – the market will know its own” is a good motto.
Wile E. Quixote
@Brachiator
The funny thing is that there was a president who once did something similar to this, his name was Franklin Delano Roosevelt and after the Securities and Exchange Commission was charted in 1934 he appointed one Joseph P. Kennedy, Sr., a man who was widely rumored to know a thing or two about insider trading, as its first chairman.