Financial Regulatory Reform
http://thedianerehmshow.org/shows/2010-04-19/financial-regulatory-reform
Senate Majority Leader Harry Reid (D-Nev.) with House Speaker Nancy Pelosi in the background at the signing ceremony for the Consumer Product Safety Improvement Act in 2008
Flickr user Cosmic Smudge
Senate Majority leader Harry Reid plans to bring to a vote legislation overhauling the U.S. financial system. What the proposal could mean for Wall Street and why many Republicans oppose it.
Guests
Travis Plunkett
legislative director for the Consumer Federation of America.
Douglas Elliott
fellow, Brookings Institution, former investment banker, and president and principal researcher for the Center on Federal Financial Institutions
Peter Wallison
Arthur F. Burns fellow in financial policy studies at the American Enterprise Institute; served as general counsel of the U.S. Treasury department in the Reagan Administration
Comments
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Diane... your panelist never answered your question: what is his solution for banks too big to fail, if not the proposed fund??? Patricia McGrady, Arlington, Virginia
Diane,
I fully expect that the legislative result re. banking regulation will be gutless. I think your commentators are just "wishful thinking" when they talk about anything substantive to happen.
The "Just Say No" Republican party will block anything that Democrats could point to as helping solve the problem. In addition, their monetary special interests drive their agenda.
The heinous filibuster process in the Senate that blocks majority rule will prevail once again.
Dr. Keath L Marx
Blacksburg VA
It seems that the crisis occurred not necessarily because any one bank was big but because certain employees of those banks were incentivized to make huge bets with the bank's money at little or no risk to themselves. Why not let banks do whatever they want to but tie the losses as well as the gains more tightly to the employees making the decisions and their management?
It is a shame that behind the 'need' for financial reform exists simple, albeit excessive, GREED. In fact, lately it seems like our government is tasked with struggling to make sure we ALL behave as responsible and kind adults in both our private lives and at work. This is not a religious issue at all. Just a question of civility.
Dianne,
One of your guests, I believe it was Peter Wallison, said that he has not read the Frank Luntz memo, but he did not say whether or not he has read the bill itself.
Both of them are on-line, and I have read both.
The bill, at the website of the Senate Banking committee, clearly states in Title II, that it provides for taking the failing institution into bankruptcy, causing the stockholders to suffer the losses not the taxpayers, and the management to be fired. The 50 Billion fund, financed by the industry, not the taxpayers, will be drawn on to support this procedure, not to prop up the company.
This is not a "bailout", no matter how many times Mitch McConnell or Frank Luntz propagates this lie.
I feel this is only the tip of the icebug because it wasnt only Goldman who was doing this but others such as Magnum hedge fund which did this. Just listen to the This American Life Show April 9, 2010 and others they did over the last 2 years
What we can do as citizens is to inundate our representatives with our coments and demands for reform.
I want to see changes in the banking industry. We have seen no changes since the melt down. I want to see the deregulation reforms ( Glass Segal act )which was changed in the dead of night in 1999 and really took off under Bush
Something that is not being discussed, but is in this financial regulatory reform which includes the SAFE ACT of 2008, Barney Frank's HR4173 "Wall Street Reform Act of 2009 and Senator Dodd's bill, Restoring American Financial Stabilty Act of Wall Street, is how they prohibit private property owners from selling property they own using owner financing, unless that owner becomes a Mortgage Loan Originator. To become a Mortgage Loan Originator you must pass a national test, put up a surety bond and have a minimum net worth. Tying one's ability to pass a test and their financial status to transfer privately owned property is a slippery slope. Why is my 80 year old widowed mother in law who wants to sell three vacant lots using seller financing being regulated in these Wall Street, too big to fail bills?
This show provided no link from the lead (Goldman civil suit, which can be handled under current fraud regulations), the financial crisis (brought on by collapse of the housing bubble and foreseen by those who sought to short it, Goldman, Paulson, Magnetar, Soros) and the current financial reform legislation (which continues the current system with its faults and protects creditors of too-big-to-fail firms). What is needed instead is an analysis of the financial markets and means to correct their market failures. For example, I would like some way (as Shiller has attempted to have created) to hedge or short residential housing without being blamed for causing the collapse. Free markets without fraud and force can provide stability. Trying to manipulate them (as Barney Frank tries to do by goosing Fannie Mae into giving "affordable housing" mortgages at 3.5% down) is sure to lead to booms and busts when the Fed is printing more dollars and Wall Street is free to create derivatives to recycle the dollars the Chinese and Japanese invest in Treasuries and Fannie Mae. First we need to answer the bigger questions, before considering Obama's financial reforms, we need a real restructuring of the economy after this crisis. Wallinson is right to ask us to wait until after Dec. 15 and the financial crisis investigation committee report.
Bill Moyers interviewed Simon Johnson and James Kwak on his Journal program 4/16/2010. They have written:13 BANKERS: THE WALL STREET TAKEOVER AND THE NEXT FINANCIAL MELTDOWN. Please have them on the Diane Rehm Show to balance what was said on this morning's program. Listen to the Moyers' program or read the transcript. We need the kind of information and analysis they offer to counter the oligarchy controlling finances and political power at the expense of the public, in our country.
Johnson is a former chief economist at the International Monetary Fund. He now teaches at MIT's Sloan School of Management and is a Senior Fellow at the Peterson Institute for International Economics.
James Kwak is studying law at Yale Law School - a career he decided to pursue after working as a management consultant at McKinsey & Company and co-founding the successful software company, Guidewire. Together James Kwak and Simon Johnson run the indispensable economic website BaselineScenario.com.
You missed the last caller's point. The interest rate on savings accounts has been below inflation since at least 2000. Individuals used put their extra money in a safe bank and got a modest return, but that option has not been available recently, so people have put their money into risky stocks and real estate to keep from falling behind.
Greenspan kept the interest rate incredibly low to create a real-estate led boom; that punished savers. Now interest rates are near zero to help recapitalize the banks and prop up the economy; that punishes savers again.
Inflation was 2% for the past decade but my savings and CDs never got more than 1.5%. And the necessities of life -- food, electricity, gas, public transit, healthcare -- rise faster than the official inflation rate, and take an ever-larger portion of our incomes.
Everybody talks about bailing out the banks, but nobody talks about helping people who do the right thing and save; we just get screwed from every direction, both in the problems and in the solutions.
It seems that the core issue is leverage. Banks and financial institutions should be require to maintain a reasonable amount of investment. When you buy a house you need 20% down why would society treat large institutions differently. We also have to decouple the ratings agencies with those they rate. It is all about incentives.
Yeah it is shame that this caller and her like are in essence financially illiterate.
She puts her money in "savings" and just hope that whatever she has done is enough, she wants to be taken care of. Luckily we have social security and she can live, but she cannot complain about interest rates being low she has free will to put her money under the mattress and keep banks out. Of course that is worse than a 0.39% APR.
However that is a different problem than what this legislation is about. She just called to complain about her situation but I might as well have called in because my back hurt, they are irrelevant to the conversation.
response to Alan Moylan
Why do banks need a fund to help them in Bankruptcy? Do individuals? Do auto dealers? Do machine shops and small businesses? Do Airlines?
No. None need money to go bankrupt. They go into receivership and what is left of their assets gets sold off to willing buyers and the entities the business owes money to gets the proceeds split in accordance with the law (unless, of course Obama steps in and violates these laws to pay off his Union benefactors)
Unless, of course you are talking about a Bankruptcy REORGANIZATION. In that case, its all about bailing the bank out without saying you've bailed the bank out (How many times has US Airways declared Bankruptcy?)
Second point. Who pays for this fund? The users of the bank services . . . the customers. You don't honestly thing the Banks will pay into this fund (two years from now by the way) and not pass those costs off to their customers do you? If you cash a check, if you have an account, if you use an ATM you will be paying this tax. I believe this means all of us, although we make less than $250,000.
ticonb: It's a part of financial reform, that's what makes it relevant. What would you consider "financially literate", putting money into the casino called the stock market? Stocks and bonds and real estate have their place, but the idea that most Americans should put the bulk of their retirement savings into these things and hope they don't crash is ludicrous. It may be the best choice people have right now, but is this really the best we as a society can do, tell everybody they have to essentially gamble?
The interest rate is supposed to follow inflation. Holding it artificially low as Greenspan did is unnatural and distorts the market. It's why mom and pop rushed to buy stocks and real estate and load themselves up with debt. We need reforms that encourage savings, not punishing savers and encouraging risky assets.
Your comment is spot on, particularly in respect to the representative from the American Enterprise Institute. Not only, did he fail to offer any solutions to the "Too Big to Fail" problem, he consistently dodged any questions that he was unable to answer with some sort of idealogical spiel.
The bottom line is that some of these institutions are too big to fail. What happened after the bankruptcy of Lehman Brothers in the Fall of 2008 gave us just a taste of what would have happened had we allowed more of the big financial players to go down. For the benefit of all, we need to figure out a way to deal with them so that their misjudgments and misbehavior don't jeopardize us all. This is not something that the free market will just take care of in spite of the Right's wishful thinking.
In my previous comment, I neglected to note that is was in response to the comment made by MCGRADY35.
* Many of the current "too big to fail" banks were created by mergers between banks that were already labeled too big to fail during the 1989 S&L debacle. Any new regulation should outlaw mergers creating a bank with assets greater than, say, $75 billion.
* Apologists claim that regulations would drive banks “elsewhere” presumably to an “unregulated” locale. I think that if the US puts regulations in place most other countries will follow suit. The US can still put in place regulations governing interactions between US investors and foreign banks, such as if you deal with a foreign bank and get your face ripped off, it’s your problem.
* Despite hours of radio talk about these bills, the public has a hard time getting details. If anyone knows, please list what the House and Senate bill numbers are so we can look them up.
Dianne gave Peter Wallison two opportunities to say why we shouldn't break up the too big to fail banks and no one gave a counter argument. If there was no one on the panel who could give the counter argument then she had the wrong selection of people on the panel.
As has been mentioned by others, Simon Johnson should be included to balance Peter Wallison, who seems to be a spokesperson for those with excessive power.
John