Basel III: banks have another 9 years to raise capital ratios to 4% below what Lehman Brothers had on the day it went bust!
This fact, and the celebrations in markets worldwide, tells you everything you need to know about so-called financial reform…
Gorilla says: “The next bubble has already started!”
Laurence Kotlikoff, professor of economics at Boston University, on the new “financial reform” legislation: “This law is like being invited to dinner and served pictures of food”.
Gorilla interprets: “When faced with a choice between accountability and illusion, our leaders will choose illusion every time!”
The financial reform bill is stalled, thanks entirely to the Know Nothing Party…
So, a compromise will be reached, and a nothing bill will be passed.
The point of financial reform is to be seen to be tough on Wall Street, without actually correcting any of the practices that led to the mess we’re in.
There’s nothing here of substance about bank size, derivative transparency, or genuine consumer protection, but at least Americans are now aware that only one political party is serious about protecting Wall Street’s interests.
Gorilla says: “The shitty never sleep!”
Simon Johnson has made the case for some time that breaking up the big banks is the best way for America to get control over Wall Street.
And who can disagree?
Well, pretty much everyone who matters in our political leadership. There’s no stomach whatever for really taking on the big banks, either through forced downsizing or, as Paul Krugman would have it, tougher regulation aimed at making financial services more like the boring, profitable, plain vanilla sector it was from 1945-1980.
What we’ll get is a bit more regulation, a bit more “resolution authority” to wind up big domestic banks that get in trouble, and, as Johnson points out, absolutely nothing on the far more important issue of reining in cross-border banking. The banks will continue along their merry way until the next big bubble bursts.
Nobody in Congress likes what Wall Street has done, but everyone in Congress likes Wall Street money. So what matters in an election year is to be seen to be doing something, but not too much.
That’s why the Know Nothings, having realized a bit too late that there’s no political advantage to be had from defending the banksters, will go along with some sort of bill, and the President, thrilled at last to have some bipartisanship, will make sure the bill is watered down sufficiently as to be meaningless.
Gorilla says: “Wall Street is selling CDOs on the spoons we still haven’t hidden!”
When Republicans are saying that Senator Chris Dodd’s financial reform bill is “85-90%” of the way there, you know it’s not a serious bill and it’s certainly not a serious reform.
The independent consumer financial protection agency is toast, the Fed’s been given powers it already has, and there’s no requirement that regulators be held responsible the next time a bubble bursts. It’s all about not offending Wall Street, so Congress will stay bought and paid for.
Gorilla thinks: “And that’s how you produce a meatless sausage!”
The financial reform bill is dead in the water, and it’s just as well.
The problem isn’t that the system lacks regulation, the problem is that the regulators didn’t do their jobs properly.
There’s no evidence they’ll do any better next time, and no willingness on the part of Wall Street’s captive legislators to take the banks on.
So, we can all start waiting around for the next bubble to burst: dollar carry trade, Chinese real estate, currency default swaps, or whatever it is our valiant regulators continue to ignore.
Gorilla says: “The rich man has already passed through the eye of the needle into deregulated heaven!”
