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Financial reform in 2010

 
 
Reply Thu 22 Apr, 2010 10:02 am
Looks like the Dems are going to get some sort of Financial Regulation bill pushed through. Figured we ought to have a thread to discuss the merits of it, and what people think needs to be done in order to properly ensure that we aren't subject to system-endangering risks based on the bets of a few big banks.

I'll let Captain O kick it off with a transcript of his speech today on this subject:

Quote:

http://scrapetv.com/News/News%20Pages/Politics/images-2/barack-obama-1.jpg

It’s good to be back in the Great Hall at Cooper Union, where generations of leaders and citizens have come to defend their ideas and contest their differences. It’s also good being back in Lower Manhattan, a few blocks from Wall Street, the heart of our nation’s financial sector.

Since I last spoke here two years ago, our country has been through a terrible trial. More than 8 million people have lost their jobs. Countless small businesses have had to shut their doors. Trillions of dollars in savings has been lost, forcing seniors to put off retirement, young people to postpone college, and entrepreneurs to give up on the dream of starting a company. And as a nation we were forced to take unprecedented steps to rescue the financial system and the broader economy.

As a result of the decisions we made " some which were unpopular " we are seeing hopeful signs. Little more than one year ago, we were losing an average of 750,000 jobs each month. Today, America is adding jobs again. One year ago, the economy was shrinking rapidly. Today, the economy is growing. In fact, we’ve seen the fastest turnaround in growth in nearly three decades.

But we have more work to do. Until this progress is felt not just on Wall Street but Main Street we cannot be satisfied. Until the millions of our neighbors who are looking for work can find jobs, and wages are growing at a meaningful pace, we may be able to claim a recovery " but we will not have recovered. And even as we seek to revive this economy, it is incumbent on us to rebuild it stronger than before. That means addressing some of the underlying problems that led to this turmoil and devastation in the first place.

One of the most significant contributors to this recession was a financial crisis as dire as any we’ve known in generations. And that crisis was born of a failure of responsibility " from Wall Street to Washington " that brought down many of the world’s largest financial firms and nearly dragged our economy into a second Great Depression.

It was that failure of responsibility that I spoke about when I came to New York more than two years ago " before the worst of the crisis had unfolded. I take no satisfaction in noting that my comments have largely been borne out by the events that followed. But I repeat what I said then because it is essential that we learn the lessons of this crisis, so we don’t doom ourselves to repeat it. And make no mistake, that is exactly what will happen if we allow this moment to pass " an outcome that is unacceptable to me and to the American people.

As I said two years ago on this stage, I believe in the power of the free market. I believe in a strong financial sector that helps people to raise capital and get loans and invest their savings. But a free market was never meant to be a free license to take whatever you can get, however you can get it. That is what happened too often in the years leading up to the crisis. Some on Wall Street forgot that behind every dollar traded or leveraged, there is family looking to buy a house, pay for an education, open a business, or save for retirement. What happens here has real consequences across our country.

I have also spoken before about the need to build a new foundation for economic growth in the 21st century. And, given the importance of the financial sector, Wall Street reform is an absolutely essential part of that foundation. Without it, our house will continue to sit on shifting sands, leaving our families, businesses and the global economy vulnerable to future crises. That is why I feel so strongly that we need to enact a set of updated, commonsense rules to ensure accountability on Wall Street and to protect consumers in our financial system.

A comprehensive plan to achieve these reforms has passed the House of Representatives. A Senate version is currently being debated, drawing on the ideas of Democrats and Republicans. Both bills represent significant improvement on the flawed rules we have in place today, despite the furious efforts of industry lobbyists to shape them to their special interests. I am sure that many of those lobbyists work for some of you. But I am here today because I want to urge you to join us, instead of fighting us in this effort. I am here because I believe that these reforms are, in the end, not only in the best interest of our country, but in the best interest of our financial sector. And I am here to explain what reform will look like, and why it matters.

First, the bill being considered in the Senate would create what we did not have before: a way to protect the financial system, the broader economy, and American taxpayers in the event that a large financial firm begins to fail. If an ordinary local bank approaches insolvency, we have a process through the FDIC that insures depositors and maintains confidence in the banking system. And it works. Customers and taxpayers are protected and the owners and management lose their equity. But we don’t have any kind of process designed to contain the failure of a Lehman Brothers or any of the largest and most interconnected financial firms in our country.

That’s why, when this crisis began, crucial decisions about what would happen to some of the world’s biggest companies " companies employing tens of thousands of people and holding hundreds of billions of dollars in assets " had to take place in hurried discussions in the middle of the night. That’s why, to save the entire economy from an even worse catastrophe, we had to deploy taxpayer dollars. And although much of that money has now been paid back " and my administration has proposed a fee to be paid by large financial firms to recover the rest " the American people should never have been put in that position in the first place.

It is for this reason that we need a system to shut these firms down with the least amount of collateral damage to innocent people and businesses. And from the start, I’ve insisted that the financial industry " and not taxpayers " shoulder the costs in the event that a large financial company should falter. The goal is to make certain that taxpayers are never again on the hook because a firm is deemed “too big to fail.”

Now, there is a legitimate debate taking place about how best to ensure taxpayers are held harmless in this process. But what is not legitimate is to suggest that we’re enabling or encouraging future taxpayer bailouts, as some have claimed. That may make for a good sound bite, but it’s not factually accurate. In fact, the system as it stands is what led to a series of massive, costly taxpayer bailouts. Only with reform can we avoid a similar outcome in the future. A vote for reform is a vote to put a stop to taxpayer-funded bailouts. That’s the truth.

And these changes have the added benefit of creating incentives within the industry to ensure that no one company can ever threaten to bring down the whole economy. To that end, the bill would also enact what’s known as the Volcker Rule: which places some limits on the size of banks and the kinds of risks that banking institutions can take. This will not only safeguard our system against crises; this will also make our system stronger and more competitive by instilling confidence here at home and across the globe. Markets depend on that confidence. Part of what led to the turmoil of the past two years was that, in the absence of clear rules and sound practices, people did not trust that our system was one in which it was safe to invest or lend. As we’ve seen, that harms all of us. By enacting these reforms, we’ll help ensure that our financial system " and our economy " continues to be the envy of the world.

Second, reform would bring new transparency to many financial markets. As you know, part of what led to this crisis was firms like AIG and others making huge and risky bets " using derivatives and other complicated financial instruments " in ways that defied accountability, or even common sense. In fact, many practices were so opaque and complex that few within these companies " let alone those charged with oversight " were fully aware of the massive wagers being made. That’s what led Warren Buffett to describe derivatives that were bought and sold with little oversight as “financial weapons of mass destruction.” And that’s why reform will rein in excess and help ensure that these kinds of transactions take place in the light of day.

There has been a great deal of concern about these changes. So I want to reiterate: there is a legitimate role for these financial instruments in our economy. They help allay risk and spur investment. And there are a great many companies that use these instruments to that end " managing exposure to fluctuating prices, currencies, and markets. A business might hedge against rising oil prices, for example, by buying a financial product to secure stable fuel costs. That’s how markets are supposed to work. The problem is, these markets operated in the shadows of our economy, invisible to regulators and to the public. Reckless practices were rampant. Risks accrued until they threatened our entire financial system.

That’s why these reforms are designed to respect legitimate activities but prevent reckless risk taking. And that’s why we want to ensure that financial products like standardized derivatives are traded in the open, in full view of businesses, investors, and those charged with oversight. I was encouraged to see a Republican Senator join with Democrats this week in moving forward on this issue. For without action, we’ll continue to see what amounts to highly-leveraged, loosely-monitored gambling in our financial system, putting taxpayers and the economy in jeopardy. And the only people who ought to fear this kind of oversight and transparency are those whose conduct will fail its scrutiny.

Third, this plan would enact the strongest consumer financial protections ever. This is absolutely necessary. Because this financial crisis wasn’t just the result of decisions made in the executive suites on Wall Street; it was also the result of decisions made around kitchen tables across America, by folks taking on mortgages and credit cards and auto loans. And while it’s true that many Americans took on financial obligations they knew " or should have known " they could not afford, millions of others were, frankly, duped. They were misled by deceptive terms and conditions, buried deep in the fine print.

And while a few companies made out like bandits by exploiting their customers, our entire economy suffered. Millions of people have lost homes " and tens of millions more have lost value in their homes. Just about every sector of our economy has felt the pain, whether you’re paving driveways in Arizona or selling houses in Ohio, doing home repairs in California or using your home equity to start a small business in Florida.

That’s why we need to give consumers more protection and power in our financial system. This is not about stifling competition or innovation. Just the opposite: with a dedicated agency setting ground rules and looking out for ordinary people in our financial system, we’ll empower consumers with clear and concise information when making financial decisions. Instead of competing to offer confusing products, companies will compete the old-fashioned way: by offering better products. That will mean more choices for consumers, more opportunities for businesses, and more stability in our financial system. And unless your business model depends on bilking people, there is little to fear from these new rules.

Finally, these Wall Street reforms will give shareholders new power in the financial system. They’ll get a say on pay: a voice with respect to the salaries and bonuses awarded to top executives. And the SEC will have the authority to give shareholders more say in corporate elections, so that investors and pension holders have a stronger role in determining who manages the companies in which they’ve placed their savings.

Now, Americans don’t begrudge anybody for success when that success is earned. But when we read in the past about enormous executive bonuses at firms even as they were relying on assistance from taxpayers, it offended our fundamental values.

Not only that, some of the salaries and bonuses we’ve seen created perverse incentives to take reckless risks that contributed to the crisis. It’s what helped lead to a relentless focus on a company’s next quarter, to the detriment of its next year or decade. And it led to a situation in which folks with the most to lose " stock and pension holders " had the least to say in the process. That has to change.

I’ll close by saying this. I have laid out a set of Wall Street reforms. These are reforms that would put an end to taxpayer bailouts; that would bring complex financial dealings out of the shadows; that would protect consumers; and that would give shareholders more power in the financial system. But we also need reform in Washington. And the debate over these changes is a perfect example.

We’ve seen battalions of financial industry lobbyists descending on Capitol Hill, as firms spend millions to influence the outcome of this debate. We’ve seen misleading arguments and attacks designed not to improve the bill but to weaken or kill it. And we’ve seen a bipartisan process buckle under the weight of these withering forces, even as we have produced a proposal that is by all accounts a common-sense, reasonable, non-ideological approach to target the root problems that led to the turmoil in our financial sector.

But I believe we can and must put this kind of cynical politics aside. That’s why I am here today. We will not always see eye to eye. We will not always agree. But that does not mean we have to choose between two extremes. We do not have to choose between markets unfettered by even modest protections against crisis, and markets stymied by onerous rules that suppress enterprise and innovation. That’s a false choice. And we need no more proof than the crisis we’ve just been through.

There has always been a tension between the desire to allow markets to function without interference " and the absolute necessity of rules to prevent markets from falling out of balance. But managing that tension, one we’ve debated since our founding, is what has allowed our country to keep up with a changing world. For in taking up this debate, in figuring out how to apply our well-worn principles with each new age, we ensure that we do not tip too far one way or the other " that our democracy remains as dynamic as the economy itself. Yes, the debate can be contentious. It can be heated. But in the end it serves to make our country stronger. It has allowed us to adapt and thrive.

I read a report recently that I think fairly illustrates this point. It’s from Time Magazine. And I quote: “Through the great banking houses of Manhattan last week ran wild-eyed alarm. Big bankers stared at one another in anger and astonishment. A bill just passed … would rivet upon their institutions what they considered a monstrous system… Such a system, they felt, would not only rob them of their pride of profession but would reduce all U.S. banking to its lowest level.” That appeared in Time Magazine " in June of 1933. The system that caused so much concern and consternation? The Federal Deposit Insurance Corporation " the FDIC " an institution that has successfully secured the deposits of generations of Americans.

In the end, our system only works " our markets are only free " when there are basic safeguards that prevent abuse, that check excess, that ensure that it is more profitable to play by the rules than to game the system. And that is what these reforms are designed to achieve: no more, no less. Because that is how we will ensure that our economy works for consumers, that it works for investors, that it works for financial institutions " that it works for all of us.

This is the central lesson not only of this crisis but of our history. It’s what I said when I spoke here two years ago. Ultimately, there is no dividing line between Main Street and Wall Street. We rise or we fall together as one nation. So I urge you to join me " to join those who are seeking to pass these commonsense reforms. And I urge you to do so not only because it is in the interests of your industry, but because it is in the interests of our country.

Thank you. God bless you. And may God bless the United States of America.


http://yglesias.thinkprogress.org/archives/2010/04/obama-on-financial-regulation.php

Cycloptichorn
 
H2O MAN
 
  -1  
Reply Thu 22 Apr, 2010 10:07 am
@Cycloptichorn,
Captain O-****!

Ok, I know it may be a snooze-fest but it's important. I'm learning about all of this nonsense right along with you. So before we turn to the latest in Washington on financial reform, let's do a little Boortz Finance 101.

Today's lesson is about derivatives. You've been seeing this word a lot lately. In fact, I'll tell you the latest story on derivatives in just a minute. But think of a derivative as a bet on the future price of something. For instance, the current price of a bushel of corn is $3. You bet your friend $1 that the price of corn in one year (the future price of corn) will be less than the current price of $3 a bushel. One year later, the price of corn has dropped and your friend pays you $1. You have gained money based on your correct bet on the future price of a commodity. On the other hand, if a bushel of corn ends up being more expensive, you have to pay your friend the $1.

So on to the latest from Washington. The Republicans have been holding a pretty tough front against the Democrats ... until yesterday. Republican Senator Chuck Grassley joined the Democrats to approve a billin the Agriculture Committee on the transparency of derivative trading. This bill would require that derivative contracts be traded on a public exchange. It would also require a third party to guarantee the payment of such derivatives if the traders went Tango Uniform. Big banks and Wall Street firms would also be required to separate their derivatives trading business into a separate company.

Whew. Are we having fun yet??

Another bill that will supposedly be introduced next week in the form of two separate amendments is The Safe Banking Act of 2010. This is essentially the "too big to fail" bill. It would mandate caps on leverage and size of financial institutions, forcing the breakup of mega-banks. The caps would limit the total assets of any financial institution to 3% of GDP and 2% of GDP for banks. To give you an idea of how drastic a cut we are talking, the six largest banks in the US currently have holding that equal 63% of GDP

By
Neal Boortz
@ April 22, 2010 8:49 AM
Cycloptichorn
 
  4  
Reply Thu 22 Apr, 2010 10:13 am
@H2O MAN,
I normally never respond to you, because you are an idiot and one of A2K's most notorious trolls. But I'm feeling charitable today, so I thought I'd ask - what exactly is the problem with this legislation? Boortz doesn't even seem to be against it. Can you outline your objections to it?

I'm willing to bet that you A) don't know anything about the bill at all and B) wouldn't be able to articulate it in your own words even if you did.

Cycloptichorn
H2O MAN
 
  -2  
Reply Thu 22 Apr, 2010 10:32 am
@Cycloptichorn,

I'm willing to bet that you can't come up with a logical response and that is the reason you almost never respond to me.

Your close minded support of all things liberal makes you an Obamabot of epic proportions.

http://ndn1.newsweek.com/media/48/Obama-Kenya-IN01-wide-horizontal.jpg

0 Replies
 
H2O MAN
 
  -2  
Reply Thu 22 Apr, 2010 10:39 am


Obama Expresses Openness to New Value-Added Tax ... V.A.T.

"a massive tax increase that will cripple families on fixed income and only further push back America's economic recovery."
0 Replies
 
H2O MAN
 
  -3  
Reply Thu 22 Apr, 2010 10:48 am


Barack Obama has made it very clear that he considers capitalism and free enterprise to be "the enemy".

The financial reform plan Captain O-**** is attempting to shove down our throats targets the enemy.
hawkeye10
 
  2  
Reply Thu 22 Apr, 2010 11:52 am
@Cycloptichorn,
Quote:
Looks like the Dems are going to get some sort of Financial Regulation bill pushed through
they were always going to pass something, the question is will they enact the needed reform. Before this week I said the prospect were bloody unlikely, now I would say that it is slightly possible. The top compensated hedge fund manager took home $4 billion last year, the lowest man took $1 million, until we do something about the huge amount of wealth the money men skim off the top of working America nothing will be fixed.
Cycloptichorn
 
  1  
Reply Thu 22 Apr, 2010 11:55 am
@hawkeye10,
hawkeye10 wrote:

Quote:
Looks like the Dems are going to get some sort of Financial Regulation bill pushed through
they were always going to pass something, the question is will they enact the needed reform. Before this week I said the prospect were bloody unlikely, now I would say that it is slightly possible. The top compensated hedge fund manager took home $4 billion last year, the lowest man took $1 million, until we do something about the huge amount of wealth the money men skim off the top of working America nothing will be fixed.


I agree with this position, but it's important to note that Executive compensation is an issue which is very difficult to tackle in our modern climate - not to mention legally thorny. However, oversight of the Derivatives market is a huge step in the right direction, as is limiting the size of the firms themselves.

Cycloptichorn
0 Replies
 
H2O MAN
 
  -3  
Reply Thu 22 Apr, 2010 11:57 am


Until we do something about the huge amount of wealth the Government skims off the top of all working Americans nothing will be fixed.

Until we do something about the obscene spending habits our Government indulges in nothing will be fixed.
0 Replies
 
talk72000
 
  1  
Reply Thu 22 Apr, 2010 11:59 am
@H2O MAN,
Waterboy, you are all wet as usual. The separation is important as derivatives are high leverage mechanisms with a lot of risk and also deceptions by a bank. Goldman Saks lied aout their risky derivatives by 'certifying' them as safe and got insurance - inthis case mortgage-based certificates. That was the scam. They passed the scam on to the insurance company which unknowingly accepted the certificates and provided insurance. When the "certificates" turned out to be worthless the tax payers had to bail out the "too big to fail" insurance company such as AIG.
H2O MAN
 
  -1  
Reply Thu 22 Apr, 2010 02:06 pm
@talk72000,
talkboy, you have no idea what PrezBO is attempting to do here.
talk72000
 
  1  
Reply Thu 22 Apr, 2010 02:50 pm
@H2O MAN,
Waterboy, only tiny bubbles comeout of your response.
H2O MAN
 
  -1  
Reply Thu 22 Apr, 2010 04:16 pm
@talk72000,
Talkboy , you have a strange infatuation with all things Don Ho.
talk72000
 
  1  
Reply Thu 22 Apr, 2010 04:22 pm
@H2O MAN,
You have a fascination with having tax payers bail out AIG and other insurance firms scammed by unscrupuous bank officials.
hawkeye10
 
  1  
Reply Thu 22 Apr, 2010 10:37 pm
Quote:
Well, I wish he hadn’t said that " and not just because he really needs, as a political matter, to take a populist stance, to put some public distance between himself and the bankers. The fact is that Mr. Obama should be trying to do what’s right for the country " full stop. If doing so hurts the bankers, that’s O.K.

More than that, reform actually should hurt the bankers. A growing body of analysis suggests that an oversized financial industry is hurting the broader economy. Shrinking that oversized industry won’t make Wall Street happy, but what’s bad for Wall Street would be good for America.
http://www.nytimes.com/2010/04/23/opinion/23krugman.html?hp
Does Obama have the stomach to do an FDR? To reform Wallstreet even as they throw a fit??

I highly doubt it.
0 Replies
 
H2O MAN
 
  -2  
Reply Fri 23 Apr, 2010 05:30 am
@talk72000,
You have me confused with Obama
talk72000
 
  0  
Reply Fri 23 Apr, 2010 03:42 pm
@H2O MAN,
You are confused. You can only handle softies and soft water.
0 Replies
 
Cycloptichorn
 
  1  
Reply Wed 28 Apr, 2010 05:51 pm
The Republicans have been holding up debate on the Financial Regulation bill, but have now given in with a whimper.

Quote:
04.28.10 -- 6:24PM // RECOMMEND RECOMMEND (8)
Just A Whimper

Sen. Mitch McConnell (R-KY)

The Republicans have folded in the Senate. Throughout the afternoon, every indication was that the GOP's filibuster effort had crumbled and that several, perhaps many, Republican senators would cross over and vote to bring financial reform to the floor for debate. We were expecting a vote at this hour. But the Senate is dispensing with a vote entirely, and will bring the bill to the floor by unanimous consent (meaning everyone agrees and there's no need to even vote on it).

That doesn't mean the fight is over. There will be another 60 votes needed now to cut off debate and actually vote on the bill. That is another opportunity for the GOP to delay and posture. But that is appearing less likely as time goes by. What we anticipate is several days of Senate debate, with a long series of votes on various amendments to the bill, followed by a cloture vote that a handful or more of Republicans join Democrats on, then a final vote passing the bill along roughly the same margins, maybe late next week, probably the week after.

--David Kurtz


http://www.talkingpointsmemo.com/archives/2010/04/just_a_whimper.php?ref=fpblg

Cycloptichorn
0 Replies
 
 

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