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dodd-frank - a fricking disaster it's parents won't admit to
DrMarty | May 13, 2012 at 04:54 amby
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Calls for immediate re-introduction of Glass Steagall are filling the press in the wake of JP Morgan's announced $2+ billion losses in derivative bets in London, which proves to all but the blind that absolutely nothing has changed since the 2007-8 crash of the Casino Mondial known as the western banking system.
Although a few die-hards claim that the Volcker Rule (part of Dodd-Frank, which has never been implemented and would not be for at least two years even if they could figure out how to implement it), most of the analysis ridicules Dodd-Frank and the Volcker Rule as less than worthless.
In addition to Robert Reich and Elliot Spitzer, today's wires include the following (emphasis added):
* Sen. Maria Cantwell (D-WA), who introduced a Glass Steagall bill in the US Senate in 2010, but has repeatedly stalled on re-introducing it under Obama, vowed to restore Glass Steagall at a rally in Washington on Thursday.
* FOX NEWS: Peter Morici calls for a "modified" Glass Steagall: THE SIMPLEST SOLUTION IS TO ONCE AGAIN SEPARATE COMMERCIAL AND INVESTMENT BANKING, AS WAS REQUIRED BY THE GLASS STEAGALL ACT, with some modest exceptions.... Commercial banks would continue to be regulated and government insured by the FDIC, and investment banks would be free to trade and take risks with their stockholders capital. If the latter failed from foolish trades their investors would lose their capital, but the taxpayer would not be on the hook.
* Henry Blodget at Business Insider, calls for Glass Steagall and describes the restructuring of commercial banks:
Congress needs to:
-- Radically increase bank capital requirements, so even massive bets can't threaten the system
-- ONCE AGAIN, SEPARATE "BANKING" FROM WALL STREET GAMBLING. GLASS STEAGALL WORKED VERY WELL FOR 70 YEARS - LET'S BRING IT BACK.
-- LAY OUT A PLAN, IN ADVANCE, TO MANAGE THE FAILURE OF EVEN THE LARGEST FINANCIAL INSTITUTIONS BY STEPPING IN, SEIZING THE BANK, FIRING MANAGEMENT, ZEROING OUT SHAREHOLDERS, HAIRCUTTING BONDHOLDERS, AND THEN INJECTING NEW SENIOR CAPITAL (FULLY PROTECTED) AND RE-FLOATING OR SELLING OFF THE FIRM.
This will allow the entity to keep operating, and it will stick the losses where they belong - with the idiots who bought the bank's stock or loaned it money. Meanwhile, the systemic threat will be eliminated.
That's the answer.
And now that JP Morgan has proven that even "the best" banks haven't the faintest idea what they're doing (or don't care), it's time for Congress to finally make it happen.
That nothing changed after the financial crisis is outrageous. BUT IF NOTHING HAPPENS NOW, OUR ENTIRE GOVERNMENT SHOULD RESIGN IN SHAME.
* Washington Times -- Terry Ponick:
AT THIS POINT, THE EASY, SIMPLE SOLUTION IS TO JUNK DODD-FRANK AND THE AS YET-UNWRITTEN VOLCKER RULE AND REACTIVATE THE GOOD OLD GLASS-STEAGALL ACT... Glass-Steagall's main virtue was that it worked. The big bankers were actually the ones responsible for getting us into trouble in 1929, and Glass-Steagall defensed against that by taking the big banks out of everything but the actual business of banking. Why - after their 1920s track record - Washington decided to let them back in again is beyond the ken of this writer. Save that enough politicians on both sides of the aisle were bought off that the demise of Glass-Steagall was assured.... [Wall Street banks] and the politicians in their pockets in Washington have, in only four years, once again allowed the products and behaviors that caused the 2008-09 Crash to happen....
Big banks no longer have the interests of their customers at heart. Washington no longer has the interests of its constituents at heart. WE ARE NO LONGER THE CONSTITUENTS OF THE U.S. GOVERNMENT. WE ARE ITS VASSALS AND SERVANTS. WE ARE RULED BY THE GOVERNMENT AT THE BANKING MISCREANTS WHO LARGELY CONTROL IT.
* Gary Anderson, Strategic Default Books, adds London to the target list:
GLASS-STEAGALL SHOULD BE ACCOMPANIED WITH RULES FORBIDDING OUR BANKS TO TRADE IN THE UK SQUARE MILE. The financial system has lost a lot of money there. The bets are unlimited as you can re-hypothecate collateral over and over there. That is not permitted on Wall Street. The Square Mile is unregulated and the Parliament of the UK has no power over this financial center, the closest thing to a New World Order that we have. Even the Queen of England bows to the mayor of the Square Mile when going within the walls of this original settlement of the City of London.
"And perhaps something should be done to change the rules of the Square Mile itself, and make it less risky if banks do trade there. But who will change the rules if no one is empowered to do so?
* Washington Post -- Allan Sloan:
I'm all in favor of reining in banks that hold federally insured deposits. I opposed repealing Glass-Steagall, ... But Congress, in its wisdom, repealed Glass-Steagall.
THE VOLCKER RULE... IS AN EXAMPLE OF THE PROBLEM INVOLVED IN REGULATING GIANT COMPANIES IN A COMPLEX WORLD.... Implementing it is proving to be incredibly difficult, as realists, including me, predicted would happen. Once bank lawyers finish finding loopholes in the detailed provisions, whatever they prove to be, the rule will probably have little meaningful impact.
"So bash Morgan all you like for its trading losses, and feel free to snicker at the spectacle of Jamie Dimon losing his swagger and having to eat crow. But don't confuse Morgans mess-up with the supposed need for the Volcker Rule.
The Volcker Rule would have symbolic impact, by appearing to rein in Wall Street. But it will prove to be more useful as a full-employment act for loophole specialists than for reining in the banks."
* David Kotok, chairman and chief investment officer of Cumberland Advisors:
It's pretty clear that WHEN THE US REMOVED THE GLASS-STEAGALL ACT YEARS AGO, IT OPENED A PANDORA'S BOX, WHICH HAS BEEN OPEN FOR DECADES AND WE NOW HAVE THE RESULTS. The results are ugly and continue to be so. The attempts to fix it whether they are in Dodd Frank, which is questionable as to what it fixes, or the Volcker rule, or other proposals, are now a subject of great debate".
* Charles Calomiris, the Henry Kaufman professor of financial institutions at the Columbia University Graduate School of Business:
THE VOLCKER RULE IS ALTOGETHER A BAD IDEA. Financial crises open the door to a lot of different ideas, some of which can be bad. The Volcker rule is one of those. It has no empirical basis and has no connection to the crisis. We needed real regulatory reform and what we got was a politicised mess.