Someone explain this to me:
Sen. Sherrod Brown (D-Ohio) said he lacks the votes right now to advance his amendment limiting the size of banks.
Brown held out hope that the measure, which he’s offered along with Sen. Ted Kaufman (D-Del.), could win enough support to pass as the Senate debate moves forward.
“I don’t think we do yet,” Brown told Bloomberg’s “Political Capital” when asked if he has the votes. “I think a week ago we weren’t even close. I think this weekend we’re closer.”
The Senate will take up a variety of amendments starting this week on amendments to Democrats’ Wall Street reform bill. The amendment that’s been offered by Brown and Kaufman would place hard caps on the size of banks and the extent to which they can use leverage.
Isn’t ending too big to fail one of the main goals of financial regulation? So why are these folks diddling around the margins with this?
Jody
Because they’re plutocrats. Next question.
Martin
Well, the other provisions go a long way toward too big to fail. What the investment/hybrid banks lacked was an FDIC type mechanism to protect account holders. The Senate bill allows the government to peel account holders away and let the execs and shareholders twist in the wind.
Now, that doesn’t do anything to limit the impact on the stock market and other collateral damage, but it does protect against the run on mutual funds that VERY nearly wiped us out in Sept 2008. That was fucking scary.
So, the Senate bill does a lot even without the Brown/Kaufman amendment. Personally, I’d propose a hybrid between it and the bailout fund that the WH killed (which the GOP actually liked, but needed something to base their propaganda off of) which would be to set up an entirely bank-funded bailout fund to which bank size was keyed. The more money the banks are willing to put into the fund, the larger they can be. That way the banks, and not the government, is determining what ‘too big’ constitutes. Any bank larger than that indexed size would need to split, or convince their competitors to dump more money in (you can imagine how that would go) or dump it in themselves. The banks wouldn’t need to dump money in perpetuity, like a tax, so long as they stayed under the index value. Once it was fully funded, they could stop contributing.
Allison W.
I thought it was derivatives? I thought it was the Volcker Rule or was that Glass-Steagall that was needed?
OT: When I go to check my e-mails, AOL and Yahoo have as their main story: the immigration protests. It’s also at the top on Newser. So its out there.
joe from Lowell
Brown’s amendment is great, but it’s not the whole ballgame on “too big to fail.”
There’s the Volcker Rule, for example.
Still, I hope it passes. And there is a lot of other good stuff in the bill, too.
econlibVA
IIRC, Canada has about 8 banks in the entire country. But, Canada hasn’t had half the problems that we’ve had. So, the Brown-Kaufman amendment isn’t the only way deal with systemic risk. In fact, I’m not sure that their amendment ends TBTF. If a bank that is at their limit is about to fail, we might have to bail them out. But, if you go force banks to be too small, you might lose the advantage of having US banks that are large enough to compete with multinational banks across the world. So, I’m not sure what the solution is. Inevitably, we need to prevent large banks from socializing their risks and privatizing the gains. Solid derivative legislation (like that coming from Blanche Lincoln, of all people) and the Volcker Rule, will move us much of the way there, but maybe not all the way. Maybe they need to be combined with Brown-Kaufman – I’m just not sure.
atlliberal
So why are these folks diddling around the margins with this?
Because they are afraid the mean Republicans will call them Socialists or Marxists or something like that. Can’t break up the banks. Must keep “Free Markets”
Linda Featheringill
Go Senator Sherrod Brown! [and his Pulitzer prize winning wife, who is from Cleveland]
I haven’t studied his proposed bill but honestly, this question needs to be talked about. Too big to fail just about killed us.
JGabriel
John Cole:
It’s a worthwhile goal, in and of itself, for the purposes of reducing the concentration of capital, but no, it’s not the main goal of financial regulation.
The main goal is regulation – particularly of derivatives and the “shadow banking system”, i.e., financial institutions and transactions that currently fall outside the purview of the FDIC and the Feds.
Breaking up banks that are “too big to fail” is a separate issue, albeit a major one with its own set of desirable policy outcomes to recommend it.
.
joe from Lowell
Even if Bill Halter never holds public office again, he will have already provided immeasurable service to this country. This democracy stuff isn’t just about who holds what office.
zed
To be fair, there is disagreement as to whether it is necessary or even wise to break up big banks.
krugman.blogs.nytimes.com/2009/06/18/too-big-to-fail-fail/
Kirk Spencer
The biggest thing I want to see is one of the amendments (there are a few candidates) that separate investment banks from depository/savings banks.
Martin
@Allison W.: Well, there’s a LOT of different things that are needed. Some of them are:
1) splitting the banks from the insurers
2) open trading of derivatives
3) MUCH better safeguards that investors of derivatives have sufficient capital to cover downside risks. For those that are using derivatives as a hedge (as they should be used), that’s simple – they hold the underlying asset and simply hand it over. It’s everybody else that we need to worry about.
4) regulating the trading system so that the investment banks that are also clearinghouses can’t game the system against investors. Also much better regulation regarding the relationship between investment bank private investments and investments on behalf of their customers.
5) massively regulating or replacing the ratings market
6) housing loan rule reforms
There isn’t one problem but really about 20 of them, of varying degrees.
Sentient Puddle
TBTF is a distraction. I certainly wouldn’t mind banks getting broken up, but that’s not what needs to be accomplished with financial reform. Getting the derivatives right is much much more important, because if you can properly regulate the banks from doing stupid shit to begin with, it doesn’t really matter how big they get.
D-Chance.
It’s Saturday. Who cares?
And they should rename the damn race the Calvin Borel Annual Invitational at this point… it’s him and the rest of the world is just along for the ride. He’s amazing.
MattF
You need some good ‘n juicy Krugman. This is the basic analysis of what’s going on in the financial sector.
These are more details:
krugman.blogs.nytimes.com/2010/04/23/pesos-ponzi-and-financial-sector-profits/
krugman.blogs.nytimes.com/2010/04/25/cant-anybody-here-play-this-game/
And this is just “You may be a Princeton professor, but you don’t actually know shit.”
tim
well, gee, john, I don’t know…maybe it is because Obama and the Dems for the most part REALLY ARE in the pocket of the big bankers and wall street frat rats, and that to a large degree, as with so called health care reform, financial reform is a lot of smoke and mirrors for the entertainment of the masses, essentially designed to leave things much as they were before the recent crash.
but then, admitting to that reality would require that you call yourself a Firelicker or Doglaker or something equally stupid, and then you wouldn’t get to pretend to feel smarter and more pragmatic and more sensible, and I don’t know… more SERIOUS than those of us who call bullshit on both parties.
Sound and fury…signifying nothing.
superking
Everybody chill the fuck out. The media is overly focused on the Senate right now, and the coverage is way too detailed, pretending as if the Senate were everything. Remember there was House legislation as well and the two bills will have to go to conference in order to iron out the differences. I have been really annoyed with the press coverage of the Senate. It’s driving me nuts.
One argument is that regardless of actual size, banks won’t be too big to fail if they have to comply with specific regulations on their operations, like, for example, maintaining lower leverage ratios. Also, creating an agency with resolution authority is should help with too big to fail firms. The point is to put them into some sort of bankruptcy where the right people, not the taxpayers, lose out.
rootless-e
40 years of deregulation will not be fixed with one bill.
Mark S.
Somewhat off topic, but this has to be the most pathetic thing I’ve read in a long time (via). It’s by Ramesh Ponneru, and he’s not in the business of trying to make Republicans look bad, so I’ll take his word on it:
Because the Corner is lazy about linking, I don’t know what Seib said, but who cares? How would it not be in one’s interest to have a majority unless you don’t really give a fuck about governing?
Why do these fucks go into government if they care so little? They are like the LA Clippers of government. Well, I hope they get their wish and remain in the minority.
Just Some Fuckhead
If we can’t reduce banks to a size small enough to drown in a bathtub, maybe we can build a giant honking bathtub.
mvr
@zed: What Zed said.
Basically a bunch of banks all doing equally bad things to put themselves on the edge of failure are as much trouble for the economy as one bank of larger size doing the same things. (Recall that in 1929 we didn’t have any one bank that was too big to fail and we still got in trouble.) In either case they will have us over a barrel, which is why appropriate regulation is more important than size limitations, not that size limitations might not make regulation marginally more effective in some circumstances.
rootless-e
@tim:
thanks god you’re here
to speak the truth that
can set us straight
we’re just naive obots who cannot see
that it is way too late
kabuki and ninja chess may fool the standard sheeple
but not those of you with ideological tools
the mark of vanguard people
so explain how hopeless everything is
in simple terms and then
we’ll mill about and groan
inside the veal pen
kdaug
Watch this, John. It’s from last night’s final “Bill Moyer’s Journal”, and one of the guys expresses you sentiment exactly:
pbs.org/moyers/journal/04302010/watch.html
(And no, I’m not trying to get you back for that earlier abomination we were sent to).
kdaug
Link fail:
pbs.org/moyers/journal/04302010/watch.html
mr. whipple
There’s quite a bit of disagreement amongst experts regarding this Issue. Krugman, for instance, says it is of little importance.
urbanmeemaw
Senator Brown was in Cincinnati last week for a fundraiser ($15 pancake breakfast – something I could afford!) and he suggested we contact President Obama and ask him to support the the amendment.
rootless-e
FDL outdoes itself
seminal.firedoglake.com/diary/44505
Brien Jackson
Um, no. There’s a pretty robust argument over whether or not the size of financial institutions matters. There’s even some who point to Canada and the previous state of the US banking industry and argue that having a few very large banks is better than having more, and smaller, banks. So no, “ending too big to fail” isn’t a “main” goal at all, and for plenty of people it isn’t a goal at all.
mclaren
Here’s why.
PeakVT
Rather than break up the big banks, the FDIC should charge an escalating fee for systemic risk such that it becomes impossible for very large banks to be profitable. Then they can break themselves up.
J. Michael Neal
Because they aren’t. There *are* provisions in the bill that limit the size of banks, though, as described above by others, that isn’t their direct purpose. This is a lot like the health care bill, in that there are a shit load of provisions in there that sound innocuous, but actually have huge ramifications.
I agree with the above folks. I’m not at all convinced that ending the “too big” part of too big to fail is all that important. The resolution authority handles the “to fail” part. Beyond that, it’s important to shrink the size of the financial industry, not necessarily the individual banks. A lot of small banks failing would be just as catastrophic as a few big banks doing so, and limiting their size do much to prevent that. It might even be counterproductive.
However, there are a number of things that have the ancillary consequence of limiting the size of banks. I’m particularly struck by Section 610. If you want to see leverage limited, there it is. Banks are going to have to hold reserves against repo agreements. That’s an enormous change. It will drastically limit their ability to run a prop desk, because they have been run primarily on funds from the repo market.
That’s not only in there, I also think that it’s a much more effective way to limit the size of banks than Brown’s amendment. Any hard cap on the size of a bank can be gamed, because there are ways to shift things around in order to stay under the cap while continuing to grow. It’s just window dressing. The problem, of course, is that most people have no idea what the repo market is, let alone what inserting:
into 12 USC 84(b) as a part of the definition of “loans and extensions of credit” means. For god’s sake, everyone needs to stop assuming that, because the specific phrases they are looking for aren’t in the bill, something isn’t covered.
The Raven
Because they’re conservatives. John, I know you want to believe. But…
Island in Alabama
@mclaren:
That article nails it.
Joseph Nobles
Too big to fail = too big to fuck with.