Thursday, January 21, 2010

To Systemically Dangerous Banks: No More Hostages

In my last post I talked about FDR's 1936 speech in which he threw down the gauntlet and challenged the bankers with a clear, defining word picture: "We had to struggle with the old enemies of peace--business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.
"They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob."

In our last post we talked about the need for President Obama to step up to his vision of change and stop avoiding the consequences of real financial regulatory reform.  We have repeatedly, through the Radio Show and this blog, conveyed the calls by economists, such as Joseph Stiglitz and Paul Volcker, for the regulation of systemically dangerous financial institutions (banks, hedge funds, insurance companies, as well as any other member of the shadow banking system), the need for a modern Glass-Steagall bill (Senators Cantwell and McCain have introduced a bill) to remove business activities which are in obvious conflict of interest, the need to transparently monitor and record the transactions of derivatives trading, the need to create a Consumer Financial Protection Agency, and the need to require fiduciary responsibility since sales people cannot exercise fiduciary duty (which is conflict free).  

We have documented how financial reform has been gutted by banking lobbyists, the CFPA neutered if not aborted, and otherwise filled with so many holes and exemptions as to constitute a coup d'etat by the financial industry.  Derivatives are still not traded on an open market and the only consideration is what derivatives, if any, should be defined as requiring transparent market trading in which the trades are recorded and we have an idea of the extent of synthetic exposure exists globally (it still appears to be over $600 trillion but no one really knows for sure).

Paul Volcker was isolated by Larry Summers and Tim Geithner and he defied them and went on a European speaking tour which got wide coverage outside of the United States but was often portrayed within the United States by main stream media as a pathetic "who is listening?".  Today, Paul Volcker stood with President Obama and President Obama said, after the official statement, "Never again will the American taxpayer be held hostage by a bank that is too big to fail."

His proposal would limit scope by preventing a bank from engaging in trading and investment for their own profit and limit size to an unspecified market share of liabilities and deposits.  Just as we disclosed in our last post that his bank tax of 15 basis points was tax deductible to the corporations, the background briefing today after the official statement, indicated the bank size would be limited "as is".

There needs to be a very specific definition of "systemically dangerous", because it is not all about size.  While the big banks are obvious, the shadow banking community which directly participated in the weaving of this financial crisis are dangerous by their very hidden anonymity and business in the unregulated shadows of global finance.

President Obama has tried to placate and please the financial industry on the advice of others and now the American people are speaking out that they have had enough and they want the systemically dangerous regulated, they want target government programs creating jobs now, and they want the politicians who find lobbyists more important than constituents to have the opportunity to find a new career path which is less parasitic.

Given the failure of other current financial reforms, we need well defined specifics and the public leadership to push those specifics in defiance of organized financial money mobs.  

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