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While you were out: Democrats are deforming financial reform even worse than health care reform

Get a load of this:

As currently drafted, the Financial Stability Improvement Act of 2009 (released by the House Financial Services Committee on 10/27/09) contains several important elements for reducing systemic risk. It aims (1) to identify systemically dangerous financial firms, (2) to apply heightened regulation to these firms, (3) to establish a stabilization system to prevent or quell panic during periods of systemic distress, and (4) to create a resolution mechanism that would wind down complex financial firms when necessary. These could represent very important steps forward.

Unfortunately, these reforms may ultimately be undermined by one very significant weakness – the explicit requirement in the bill that the identification of systemically dangerous financial firms by federal regulators remain entirely secret, and never be revealed to the public. This is the bill’s Achilles heel.

So, the problem isn't that our rulerz put the taxpayers on the hook for $22 trillion with no transparency and no accountability. The problem? The taxpayers know the names of the firms their money went to.

[pounds head on desk]

The decision that there be “no public list of identified companies,” as the bill currently reads, stems from a belief that secrecy about the identity of these firms will limit moral hazard. However, after more than a year of costly bailouts, the federal government’s implicit guarantee of major financial firms is, sadly, rock solid. To try to make it magically disappear by refusing to name the most systemically dangerous firms not only won’t work, but will severely jeopardize the effectiveness of the regulation itself.

It never fails, does it? When our ruling elites fuck up, which they do, constantly -- except for the money they keep for themselves, naturellement -- they always double down.


UPDATE The writer buries the lead:

Moreover, to the extent that secrecy was somehow maintained, it would leave the systemic regulator highly vulnerable to capture by the very financial institutions it was charged with regulating. Just imagine how weak regulations would become if the regulated firms themselves were the only parties that could weigh in on a proposed regulation, since the regulatory process was required to be hidden from everyone else.

That's not a bug. That's a feature.

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beowulf's picture
Submitted by beowulf on

I wonder if the Financial Services bill will have a clause like this one from page 216 of the Healthcare bill.

1(3) NO BAILOUTS.—In no case shall the public
health insurance option receive any Federal funds
for purposes of insolvency in any manner similar to
the manner in which entities receive Federal funding
under the Troubled Assets Relief Program of the
Secretary of the Treasury.

After all, aren't children taught about the level playing field clause of the corporate rights section of the constitution? :o) (this one is on page 212)

Consistent with this subtitle, the public health insurance
option shall comply with requirements that are
applicable under this title to an Exchange-participating
health benefits plan, including requirements related
to benefits, benefit levels, provider networks, notices,
consumer protections, and cost-sharing.

Submitted by lambert on

Would you do me a favor, do that, with a link to the sourcing? Especially the first one. It's crying out for a headline...

BDBlue's picture
Submitted by BDBlue on

To be censored and ignored. Naked Capitalism has the gory details. And while Barney Frank wasn't at the hearing, he chairs this committee, so presumably would have some f'ing say on who gets invited to testify and what goes on the website.

To quote Jesse at Jesse's Cafe Americain about a different issue of financial reform:

Perhaps Barney Frank and Chris Dodd can bring the Princes of Wall Street down to Washington again, profusely thank them for taking time from their busy day to speak to the people's representatives, privately thank them for their generous campaign contributions, and simply ask them what they will accept as regulation again.

Because that's all that's going to happen. Whatever the corporate overlords are willing to let happen. Anything else is off the table, taken off by the people's alleged representatives.

BDBlue's picture
Submitted by BDBlue on

Instead of breaking up institutions that are too big to fail, it accepts them. Joshua Rosner (links omitted in blockquotes):

The House draft bill written by Rep. Barney Frank (D – MA) – along with several former Fed attorneys and Treasury staff and consultants — ignores fundamental reality: You don’t employ a bomb squad to sit around and wait for a bomb to explode, you engage them to dismantle it as soon as they find one.

Unfortunately, this bill is one more act of sleight of hand by a congress that, to the detriment of the public, fails to see that banks are there to serve the public good and can be regulated with such a goal. An honest bill would recognize that any institution that is “Too Big to Fail” should be given economic ‘incentives’ (through prohibitively high capital levels and insurance assessments) to shrink or sell off business units. The notion that we do not have the right to break up anti-competitive and oligo-polistic businesses flies in the face of antitrust laws and ignores the valuable lessons in growth demonstrated by Teddy Roosevelt’s trust-busting. Those legislators who are truly seeking to protect the public interest and to be worthy of re-election, should demand that legislation spell out, in plain English, that the entire capital structure of a TBTF institution be wiped out, and its holding company held responsible as a source of strength, before taxpayers are exposed to a single dollar of loss.

What's more,

his Trojan horse of a bill will recognize and codify the view that we must accept and agree to live in a world where there are institutions that are TBTF. We have chosen to head in the opposite direction from the responsible approach suggested by both Bank of England Governor Mervyn King, who wants to break up TBTF institutions, and other European regulators who are likely to oversee the breakup of TBTF institutions, ING and Lloyds.

Each of the elements of this historic and flawed approach was carefully negotiated in close coordination with the most interested parties – that is, the bankers and their friends. Mock hearings will be this week and the complete bill will be marked up mid-week next week. When the hearings begin, the public should demand to know how many of these “experts” have ever taken money as consultants or employees of the “Too Big To Fail” (TBTF) banks or the Federal Reserve System. You can play along with the game show at home by watching the testifying “experts” closely. Try to keep score of how many of them identified the collapse of our credit markets in 2006 or 2007. You can go on to the bonus round and score which of these “experts” expressed a view or highlighted the risk that the Fed’s “emergency powers” would create a moral hazard and be used to bail out our banks. Importantly, Senator Chris Dodd put these powers into legislation in the dark of night in 1991 at the request of Goldman Sachs and other large beneficiaries of government support in this crisis.

Read all of Rosner's critique. The entire House bill appears designed to ensure that the world of our financial elite essentially remains undisturbed, unregulated, and unchallenged by the masses.