Want to Save Our Economy from Almighty Greed? Here's 10 Targets That Stand in the way
Greetings! I’m Nico Trimoff, manager of transcription and accessibility services at www.sterlingcreations.ca.
Today, I have great things to share with you; all how you can help to save our economy from greed. I invite you now to read on.
Enjoy your day.
Want to Save Our Economy from Almighty Greed? Here’s 10 Targets That Stand
in the Way
Let’s face it, financial regulation is boring and complicated. But if the
economic crisis taught us anything, it’s that bringing Wall Street under
control is one of the most critical domestic policies facing the country
right now.
Here’s what you need to know, and who you need to watch, as Congress readies
its banking overhaul.
1. A New Consumer Financial Protection Agency. Subprime mortgages. Abusive
and arbitrary rate hikes on your credit card. Payday loans. If you’re
wondering who lets banks get away with this crap, there are more people at
it than you think. There are no less than four federal regulators
responsible for overseeing consumer protection in finance, and all of them
are terrible.
Regulators currently are responsible not only for keeping consumers safe
from predation but for ensuring the “safety and soundness” of banks — that
is, keeping banks from failing.
Not surprisingly, sometimes what’s best for bank balance sheets doesn’t
exactly jive with the interests of consumers. If banks can fend off failure
by gouging you on your credit card, they’re going to do it, and regulators
aren’t going to lift a finger to stop them.
What’s worse, regulators actually compete to prove to banks how lax they can
be at enforcing consumer protections. Each agency is funded by taxes it
levies on banks it regulates, and banks can choose who they want to regulate
them. If one agency is too tough, the bank can switch regulators. The result
is a race-to-the bottom in regulatory standards where the interests of
consumers are ignored.
The obvious solution is to give these consumer-protection responsibilities
to a single regulator with no such conflicts and with the power to enforce
uniform standards across the entire industry. That’s what President Barack
Obama proposed in June, and it was by far the most significant reform on his
Wall Street agenda.
Unfortunately, the bank lobby has seriously watered down the bill in
Congress. One of the chief advocates for the CFPA, Rep. Brad Miller, D-N.C.,
sponsored an amendment exempting 8,000 of the nation’s 8,200 banks from the
CFPA’s oversight.
And it’s getting worse — the powers of the agency are being diminished with
every committee. The latest one subjected the CFPA director to input from
other commissioners and regulators from the same agencies that failed to
prevent the current crisis.
These destructive amendments can be stripped out on the House floor, but
only if Speaker Nancy Pelosi, D-Calif., has the political will to make it
happen.
2. Too big to fail. Here’s an idea: Let’s give a handful of firms on Wall
Street so much economic power that if they ever fail, the entire economy
will collapse with them. Sound good? Of course not. But sadly, that’s what
Wall Street looks like today, and the problem has actually gotten worse
since the financial crisis began because troubled firms have been eaten up
in a flurry of mergers with stronger behemoths to stave off catastrophe.
The solution? Break up the banks to a size where failure does not destroy
the economy, and ban banks from participating in the capital markets casino.
Similarly, companies that engage in speculative, risky securities trading
would be banned from doing the boring, economically essential banking
activities such as accepting deposits and making loans.
With the two types of banking separated, we have a useful banking sector to
support the economy even if the Wild West finance hits the skids.
Obama and his inner circle of advisers have no interest in breaking up the
banks or ending too-big-to-fail. Their plan to deal with “too big to fail”
would codify the government’s ability to bailout big firms with an unlimited
amount of loans, guarantees and asset purchases.
In other words, Obama wants to make the Troubled Asset Relief Program a
permanent government policy. If that sounds crazy, it is.
3. Derivatives. When people say “derivatives,” they mean the crazy financial
weapons of mass destruction that brought down AIG. But they also mean
hundreds of trillions of dollars of other crazy shit.
If a Wall Street magician can conjure up any contract or security “derived”
from the value of something real — oil prices, mortgages, corporate debt,
or literally anything else — it’s called a derivative.
As a derivative, it doesn’t have to be regulated the way other Wall Street
securities are. Shockingly, after Congress passed landmark legislation in
2000 banning the regulation of key derivatives, the market absolutely
exploded, with 95 percent of it concentrated at five too-big-to-fail banks.
Derivatives are one of the key ways banks make themselves too big to fail.
Since derivatives can tie a bank to almost anything, from the financial
health of other companies to the value of the dollar, firms that buy and
sell derivatives can encapsulate themselves in a massive, interconnected web
of risk that regulators have trouble deciphering.
If a major derivatives dealer like JPMorgan Chase or Morgan Stanley were to
fail, it’s almost impossible to determine what else would go down with them.
The best way to deal with the derivatives mess is to require that they be
traded on an exchange, just like ordinary stocks. Exchange trading lets
everybody know what everyone else is up to, and it requires a disinterested
third party to sign off on the transaction. E.g., if a hedge fund wants to
use derivatives to make a crazy bet on subprime mortgages with AIG, and the
exchange knows AIG doesn’t have the money to cover the bet, the exchange
won’t let the trade go through.
Unfortunately, Obama didn’t push hard for this. Instead, he wants all
“standardized” derivatives to trade through a central clearinghouse —
basically an exchange without any public transparency. And any d
erivative
that could be classified as “customized” — estimated to be about one-fifth
of the derivatives market — would be exempt even from this level of market
discipline.
What’s worse, Congress has watered down even the weak tea Obama offered.
Unless the derivatives bill is seriously overhauled on the House floor, the
biggest derivatives players won’t even have to clear their “standardized”
derivatives trades through any disinterested third party as long as a trade
is conducted with a hedge fund or a private-equity firm.
4. Leverage. Ever gambled with somebody else’s money? Pretty fun stuff. If
your bets pay off, you get to keep the winnings. If your bets don’t turn out
so hot, you can stick your friend with the bill. That’s the basic concept
behind leverage, and it’s how Wall Street is able to make a killing off
minor movements in the values of stocks and other securities.
Say I’ve got $10, and I want to bet on a stock. Turns out, it’s a good bet,
and the stock jumps 10 percent. I just made $1. Whoo-hoo. But say I borrowed
$500 before I made the same bet, and the stock made the same 10 percent
gain. I just made $51. That’s a profit of over five times on my initial $10.
Now we’re talking real money.
But what if my stock loses 10 percent? I’m out $51. The trouble is, I’ve
only got $10 — everything else I borrowed. I just lost more than five times
the money I actually had, and I don’t have enough to pay back my $500 loan.
If I were a corporation, I would be outrageously bankrupt.
That’s what Wall Street just did.
The way to fix this is to require companies to have lots of cold, hard cash
on hand to keep them from destroying themselves if their bets don’t pay off.
This cash is called “stock” or “equity.” Obama, Congress and the Federal
Reserve have all been tight-lipped about how seriously they want to rein in
leverage, but at the height of the crisis, banks like Citigroup were
leveraged at more than 50 to 1: for every $50 in borrowed money Citi bet
with, it had just $1 of its own money on hand.
Saying what the right leverage ratio is can be tricky, but 10-to-1 is the
traditional range of safety.
5. Executive compensation. You’re pissed off about the $26 billion Goldman
Sachs plans to pay in bonuses this year, and you’re right to be. Not only is
this an obscene gesture in the face of 10 percent unemployment and an
affront to the very taxpayers who saved every single job at Goldman Sachs
last year, it actively harms the economy.
Ridiculous paychecks tied to short-term profits strongly encourage
executives to behave recklessly: If the risk pays off, they make a lot of
money for their shareholders. The average chief financial officer spends
three years on the job. If they don’t get rich quick, they don’t get rich.
If the risk backfires, hey, they already made their millions. Think they’re
shedding any tears for their poor shareholders from their second houses in
the Hamptons?
6. Elizabeth Warren. She’s been following predatory lending for decades, and
she knows every side of the issue you could think of. She knows what’s
driving foreclosures, what’s causing bank failures and can critique complex
accounting rules with the precision of a seasoned financial analyst.
As chairwoman of the TARP Oversight Committee, she has taken Treasury
Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke to task
for keeping bailout decisions secret. Best of all, she’s an unapologetic
consumer advocate who wants the banking system to work for the entire
economy, not just Wall Street executives.
Her media appearances have built her significant political clout, and
policymakers listen when she brings up concerns.
7. House Financial Services Committee. This is where most of the financial
reform legislation starts, and it’s where the most egregious Wall Street
sell-outs have already taken place. The Republicans, of course, are
shameless shills for the bank lobby, as are many conservative Democrats on
the panel, such as Rep. Melissa Bean of Illinois. Even committed
progressives like Committee Chairman Rep. Barney Frank of Massachusetts, and
Rep. Brad Miller of North Carolina have been willing to sacrifice major
reforms when cutting deals with the banking industry.
8. Pelosi. The speaker of the House knows how to get legislation passed.
Everything that Bean and Frank screw up can be unscrewed on the House floor
if Pelosi is willing to twist arms to do it. She rounded up the Democratic
votes to pass the bailout in 2008, and she can get the votes to rein in Wall
Street if she wants to.
The good news: She has made it clear that she views at least the CFPA as a
top legislative priority.
9. Sen. Chris Dodd, D-Conn. No figure in Congress is more complicated than
the senator from Connecticut. He brought you both credit card reform and the
AIG bonuses. He is currently going to bat for you on abusive overdraft fees,
but routinely shills for predatory payday lenders.
As chairman of the Senate Banking Committee, he has as much sway over
financial regulations as anyone on Capitol Hill. He has been stalling for a
long time — Obama dropped his regulatory reform plan in June, and Dodd has
yet to hold a single hearing to move a single proposal from the
administration.
Dodd was skewered in Michael Moore’s recent film, and his approval ratings
have been in dangerous territory since the AIG bonus outrage broke in March.
He’s up for re-election in 2010. Connecticut voters would be wise to make
him earn it.
10. Obama. The president ran as an economic progressive, promising a robust
Wall Street overhaul, but he has offered a tepid set of reforms that only a
banker could love.
He has eschewed investigations of what the FBI believes to be an “epidemic”
of fraud in the banking industry and failed to take significant action to
avert the foreclosure crisis.
He appears willing to slap a “serious reform” label on whatever drivel
Congress can pass. But Obama does have some sane economic instincts: His
stimulus package has helped stop the economic bleeding, and his plan to
create the CFPA is urgently needed.
A change of tone, or a new set of priorities from the White House, could
radically alter the political playing field for the better.
Zach Carter writes a weekly blog on the economy for the Media Consortium.
His work ha
s appeared in the American Prospect, the Atlanta
Journal-Constitution and on CNBC.
If you would like to learn more about us and the services we offer, then please visit
www.sterlingcreations.caIf you would like to keep abreast of some of the most important happenings affecting your lives today, then please visit
http://www.sterlingcreations.com/businessdesk.htm. There you will get the latest news roundups on such topics as:
Stress, anxiety, and depression. News for retirees, seniors, and aging baby boomers. Security tips for home computer users. Home business opportunities, Internet business opportunities, small business opportunities, business opportunities in Asia. You will also learn how to obtain tremendous personal and financial satisfaction by selling your knowledge and experience.
]]>
Related
thanks for sharing,
visit us for loans insurance tips