Banks vs. American People - Can Wall Street Reform Be Done?

[Guest Feigan]

U.S. Senator Judd Gregg, a New Hampshire Republican, talks with Bloomberg's Lizzie O'Leary about the "Volcker rule," under which commercial banks would be prohibited from owning hedge funds and limited in how much they could trade for their own account.

 

[Guest Tea Party Patriot]

Former Federal Reserve Governor, and Robert Heller states speculative Bank proprietary trading (hedge funds) is allowing gambling with taxpayer money.

[Guest LAW]

Senate Banking Committee Chairman Chris Dodd (D-CT) held a hearing on recent proposals by the Obama Administration to rein in Wall Street Banks.

 

“The Obama administration has proposed bold steps to make the financial system less risky. We welcome those ideas,” said Dodd. “The first would prohibit banks – or financial institutions that contain banks – from owning, investing in, or sponsoring a hedge fund, a private equity fund, or any proprietary trading operation unrelated to serving its customers… I strongly support this proposal. I think it has great merit.”

 

“The second would be a cap on the market share of liabilities for the largest financial firms, which would supplement the current caps on the market share of their deposits. I think the administration is headed in the right direction with these two proposals,” Dodd continued.

 

Paul Volcker, Chairman of the President’s Economic Recovery Advisory Board and Former Chairman of the Federal Reserve, and Deputy Treasury Secretary Neal S. Wolin testified at the hearing.

 

The Committee will hold a second hearing on the proposals on Thursday. http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=de472a35-ae01-442f-a768-b374e2849d70

 

Testimony and webcast will be available after the hearing at:

http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=54b42cc0-7ecd-4c0d-88c0-65f7d2002061

 

 

Below is the Chairman’s statement as prepared for delivery:

 

“We meet today, as we have over these past number of months, in the shadow of a financial crisis that nearly toppled the American economy.”

 

“It is worth repeating again the cost of the greed and recklessness that brought us here: Over 7 million jobs in our country have been lost. The retirement plans of millions of Americans have been dashed. Trillions of dollars of household wealth and GDP are gone.”

 

“And all of us, regardless of our political party, cannot allow this to happen again.”

 

“The Obama administration has proposed bold steps to make the financial system less risky. We welcome those ideas.”

 

“The first would prohibit banks – or financial institutions that contain banks – from owning, investing in, or sponsoring a hedge fund, a private equity fund, or any proprietary trading operation unrelated to serving its customers. The President of the United States has called this the ‘Volcker rule,’ and today Chairman Paul Volcker himself will make the case for it.”

 

“I strongly support this proposal. I think it has great merit.”

 

“The second would be a cap on the market share of liabilities for the largest financial firms, which would supplement the current caps on the market share of their deposits.”

 

“I think the administration is headed in the right direction with these two proposals.”

 

“I know the timing of them - how they have been proposed at a critical time when we have been deeply engaged in this committee on reforming the financial services sector - may have raised a few eyebrows. But I think we need to get past that, if we can, and think about the merits of these ideas and how they would work if they could be put in place. And so I welcome the conversations we are going to have today and later this week on these issues.”

 

“These proposals deserve our serious consideration, and so today we will hear from Chairman Volker and Deputy Secretary Wolin, and on Thursday we will hold another hearing with business and academic experts.”

 

“These proposals were borne out of fear that a failure to act would leave us vulnerable to another crisis, and of frustration at the refusal of financial firms to rein in some of these more reckless behaviors.”

 

“I share that fear, and I share that frustration. And I strongly oppose those who argue that the boldness of these proposals is out of scale with the need for reform.”

 

“We need to take action, and we must consider scaling back the scope of activities banks may engage in while they are using deposits.”

 

“And so today I look forward to hearing how these proposals may be most effectively applied to protect consumers and our economy and also – playing the devil’s advocate - why these ideas may not work, and what risks they might pose if adopted.”

 

“Some have objected to the Volcker rule on the grounds that it might not have prevented the crisis, or that these particular limits are unwise. I think those objections are worth discussing and I am interested in giving our witnesses and our colleagues here a chance to raise these items and a chance to have a vibrant and robust debate about them.”

 

“But we must take steps to change the culture of risk-taking in our financial sector, including the management and compensation incentives that drove so much of the bad decision-making.”

 

“I applaud the administration’s commitment to scaling back risky behavior on Wall Street. I thank Mr. Volcker and Deputy Secretary Wolin for joining us today to share their thoughts and ideas on these proposals. And I look forward to working with them, and with my colleagues on this Committee, Democrats and Republicans, to develop a reform package that we could bring before the Senate for consideration.”

[Guest LAW]

STATEMENT OF PAUL A. VOLCKER BEFORE THE COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS OF THE UNITED STATES SENATE WASHINGTON, DC

 

FEBRUARY 2, 2010

 

Mr. Chairman, Members of the Banking Committee:

 

You have an important responsibility in considering and acting upon a range of issues relevant to needed reform of the financial system. That system, as you well know, broke down under pressure, posing unacceptable risks for an economy already in recession. I appreciate the opportunity today to discuss with you one key element in the reform effort that President Obama set out so forcibly a few days ago.

 

That proposal, if enacted, would restrict commercial banking organizations from certain proprietary and more speculative activities. In itself, that would be a significant measure to reduce risk. However, the first point I want to emphasize is that the proposed restrictions should be understood as a part of the broader effort for structural reform. It is particularly designed to help deal with the problem of “too big to fail” and the related moral hazard that looms so large as an aftermath of the emergency rescues of financial institutions, bank and non-bank, in the midst of crises.

 

I have attached to this statement a short essay of mine outlining that larger perspective.

 

The basic point is that there has been, and remains, a strong public interest in providing a “safety net” –in particular, deposit insurance and the provision of liquidity in emergencies – for commercial banks carrying out essential services. There is not, however, a similar rationale for public funds - taxpayer funds - protecting and supporting essentially proprietary and speculative activities. Hedge funds, private equity funds, and trading activities unrelated to customer needs and continuing banking relationships should stand on their own, without the subsidies implied by public support for depository institutions.

 

Those quintessential capital market activities have become part of the natural realm of investment banks. A number of the most prominent of those firms, each heavily engaged in trading and other proprietary activity, failed or were forced into publicly-assisted mergers under the pressure of the crisis. It also became necessary to provide public support via the Federal Reserve, The Federal Deposit Insurance Corporation, or the Treasury to the largest remaining American investment banks, both of which assumed the cloak of a banking license to facilitate the assistance. The world’s largest insurance company, caught up in a huge portfolio of credit default swaps quite apart from its basic business, was rescued only by the injection of many tens of billions of dollars of public loans and equity capital. Not so incidentally, the huge financial affiliate of one of our largest industrial companies was also extended the privilege of a banking license and granted large assistance contrary to long-standing public policy against combinations of banking and commerce.

 

What we plainly need are authority and methods to minimize the occurrence of those failures that threaten the basic fabric of financial markets. The first line of defense, along the lines of Administration proposals and the provisions in the Bill passed by the House last year, must be authority to regulate certain characteristics of systemically important non-bank financial institutions. The essential need is to guard against excessive leverage and to insist upon adequate capital and liquidity.

 

It is critically important that those institutions, its managers and its creditors, do not assume a public rescue will be forthcoming in time of pressure. To make that credible, there is a clear need for a new “resolution authority”, an approach recommended by the Administration last year and included in the House bill. The concept is widely supported internationally. The idea is that, with procedural safeguards, a designated agency be provided authority to intervene and take control of a major financial institution on the brink of failure. The mandate is to arrange an orderly liquidation or merger. In other words, euthanasia not a rescue.

 

Apart from the very limited number of such “systemically significant” non-bank institutions, there are literally thousands of hedge funds, private equity funds, and other private financial institutions actively competing in the capital markets. They are typically financed with substantial equity provided by their partners or by other sophisticated investors. They are, and should be, free to trade, to innovate, to invest – and to fail. Managements, stockholders or partners would be at risk, able to profit handsomely or to fail entirely, as appropriate in a competitive free enterprise system.

 

Now, I want to deal as specifically as I can with questions that have arisen about the President’s recent proposal.

 

First, surely a strong international consensus on the proposed approach would be appropriate, particularly across those few nations hosting large multi-national banks and active financial markets. The needed consensus remains to be tested. However, judging from what we know and read about the attitude of a number of responsible officials and commentators, I believe there are substantial grounds to anticipate success as the approach is fully understood.

 

Second, the functional definition of hedge funds and private equity funds that commercial banks would be forbidden to own or sponsor is not difficult. As with any new regulatory approach, authority provided to the appropriate supervisory agency should be carefully specified. It also needs to be broad enough to encompass efforts sure to come to circumvent the intent of the law. We do not need or want a new breed of bank-based funds that in all but name would function as hedge or equity funds.

 

Similarly, every banker I speak with knows very well what “proprietary trading” means and implies. My understanding is that only a handful of large commercial banks – maybe four or five in the United States and perhaps a couple of dozen worldwide – are now engaged in this activity in volume. In the past, they have sometimes explicitly labeled a trading affiliate or division as “proprietary”, with the connotation that the activity is, or should be, insulated from customer relations.

 

Most of those institutions and many others are engaged in meeting customer needs to buy or sell securities: stocks or bonds, derivatives, various commodities or other investments. Those activities may involve taking temporary positions. In the process, there will be temptations to speculate by aggressive, highly remunerated traders.

 

Given strong legislative direction, bank supervisors should be able to appraise the nature of those trading activities and contain excesses. An analysis of volume relative to customer relationships and of the relative volatility of gains and losses would go a long way toward informing such judgments. For instance, patterns of exceptionally large gains and losses over a period of time in the “trading book” should raise an examiner’s eyebrows. Persisting over time, the result should be not just raised eyebrows but substantially raised capital requirements.

 

Third, I want to note the strong conflicts of interest inherent in the participation of commercial banking organizations in proprietary or private investment activity. That is especially evident for banks conducting substantial investment management activities, in which they are acting explicitly or implicitly in a fiduciary capacity. When the bank itself is a “customer”, i.e., it is trading for its own account, it will almost inevitably find itself, consciously or inadvertently, acting at cross purposes to the interests of an unrelated commercial customer of a bank. “Inside” hedge funds and equity funds with outside partners may generate generous fees for the bank without the test of market pricing, and those same “inside” funds may be favored over outside competition in placing funds for clients. More generally, proprietary trading activity should not be able to profit from knowledge of customer trades.

 

I am not so naive as to think that all potential conflicts can or should be expunged from banking or other businesses. But neither am I so naïve as to think that, even with the best efforts of boards and management, so-called Chinese Walls can remain impermeable against the pressures to seek maximum profit and personal remuneration.

 

In concluding, it may be useful to remind you of the wide range of potentially profitable services that are within the province of commercial banks.

 

• First of all, basic payments services, local, national and worldwide, ranging from the now ubiquitous automatic teller machines to highly sophisticated cash balance management;

• Safe and liquid depository facilities, including especially deposits contractually payable on demand;

• Credit for individuals, governments and businesses, large and small, including credit guarantees and originating and securitizing mortgages or other credits under appropriate conditions;

• Analogous to commercial lending, underwriting of corporate and government securities, with related market making;

• Brokerage accounts for individuals and businesses, including “prime brokerage” for independent hedge and equity funds;

• Investment management and investment advisory services, including “Funds of Funds” providing customers with access to independent hedge or equity funds;

• Trust and estate planning and administration;

• Custody and safekeeping arrangements for securities and valuables.

 

Quite a list. More than enough, I submit to you, to provide the base for strong, competitive – and profitable - commercial banking organizations, able to stand on their own feet domestically and internationally in fair times and foul.

 

What we can do, what we should do, is recognize that curbing the proprietary interests of commercial banks is in the interest of fair and open competition as well as protecting the provision of essential financial services. Recurrent pressures, volatility and uncertainties are inherent in our market-oriented, profit-seeking financial system. By appropriately defining the business of commercial banks, and by providing for the complementary resolution authority to deal with an impending failure of very large capital market institutions, we can go a long way toward promoting the combination of competition, innovation, and underlying stability that we seek.

[Guest R. Scheer]

The spirit of this rule will separate the activities of commercial banks, entrusted with the deposits of ordinary folks, from the antics of the financial high rollers who are presumably dealing with wealthier and more knowledgeable investors.

[Guest masayaNYC]

I don't think many taxpayers would agree that it's in anyone but the bankers's interests to let them gamble with huge amounts of Fed-insured and/or deposit-insured leverage. Really, if you think about it, their whole argument circles right back to the same justification for TARP and the bailout in the first place--"We need to be able to use all our resources and be big in order to compete on behalf of America on the world stage; in order to do this, we need to have access to as much leverage and minimal capital requirements as possible." In other words, the only way we can compete is if you leave us alone and let us be too big to fail.

[Guest YEP]

This is going to fail because in the past 10 years the sheer number and connections o this industry has grown and wrapped it's insufferable tentacles into every political and media source out there. Were doomed.

[Guest Congressman Kucinich]

We have to challenge the banks. We cannot let the banks continue to hoard capital while businesses on Main Street are starving for investment. We cannot let the banks continue to pay huge bonuses while at the same time the American people are struggling to make ends meet. And those bonuses were financed with tax-free money and interest-free money that the banks were able to get access to.

[Guest PEW]

"Senate Banking Chairman Christopher Dodd Thursday dismissed claims that talks over revamping the nation's financial system have broken down with Banking ranking member Richard Shelby, but he acknowledged that it might not be possible to get GOP support on the bill

 

Dodd was negotiating with Shelby Thursday night over the scope of consumer protections to be included in legislation that would revamp the nation's regulatory structure, wrangling which will make or break a bipartisan compromise on a top priority for the Obama administration.

 

The two had a 'blowup' in negotiations this week on whether to give a proposed consumer protection office rule-writing authority over credit cards, home loans and other financial products, Hill and K Street sources said. Dodd wants to give it broad powers, while Shelby wants to limit its reach, they said."

 

Click to go to the National Journal website and view the entire article.

 

http://www.nationaljournal.com/congressdaily/coa_20100205_8237.php

[BlingBling]

The Democrats are in NO WAY stopping this from getting REFORM FOR THE AMERICAN PEOPLE done. Look to the other side of the aisle. Ranking Republican Richard Shelby and his Republicans minions DO NOT want real reform.

 

Case Example.

 

Sen. Christopher Dodd (D., Conn.) said in a statement released by his office that he and Sen. Richard Shelby of Alabama, the top GOP member of the Senate Banking Committee that Dodd chairs, have "reached an impasse" on legislation to change the way financial markets are regulated.

 

The banks have told Shelby to stall and weaken reform. But, the Republican propaganda machine will not tell you that.

[Guest Vertigo]

Amen. Even if Republicans liked Volker's recommendations they would vote against it. What they say means nothing to me- If Obama says yes they will say no.

[Guest ALWAYSRED]

Here is some good Republican legislation that is getting no press at all.

 

Congressman's Broun's Balanced Budget Amendment

 

For most of our nation’s history, deficits were only temporary in nature, brought on by wars or other emergencies, and the accumulated national debt was reduced once the crises passed.

 

Our nation’s debt recently passed $12 trillion, having more than doubled in less than a decade. Last year’s $700 billion bailout and the $787 billion "stimulus" bill have added record amounts to our obligations with no end in sight. The unfortunate reality is that our unsustainable debt imposes significant costs on you every day and will only continue to get worse if Congress doesn't rein in out-of-control spending.

 

We must act to constitutionally protect future generations of Americans from excessive federal debt. Today, forty-nine states have balanced budget requirements, most of which are written into their constitutions. It is time that Congress abides by the same restrictions that states have placed on themselves.

Congressman's Broun's Balanced Budget Amendment would:

 

1. Other bills require a majority, or in some cases 3/5 to raise taxes or the debt ceiling. My bill requires a 2/3 majority vote to raise revenue and allow an excess of outlays over receipts.

2. Other bills do not have spending constraints. This bill limits spending growth of the entire budget to no more than population growth plus inflation.

3. Other bills allow waivers during declaration of war OR military conflict. This bill allows only for waivers during actual Declarations of War. Such waivers, since they would only be during actual war, need only a regular majority.

4. Other bills do not account for what happens when estimates are wrong. In other words, they can cook the books by saying they’ll have more tax revenues than they will. This bill forces the NEXT fiscal year to account for any imbalance in the previous year’s estimates by placing that amount in the spending column for that year.

5. This bill requires all excess revenue at the end of a fiscal year to be returned to the American taxpayer.

[Guest Tea Party Patriot]

Elizabeth Warren derisively singles out JP Morgan’s Jamie Dimon, Wall Street’s top banker. She writes:

 

The consumer agency is a watchdog that would root out gimmicks and traps and slim down paperwork, giving families a fighting chance to hang on to some of their money. So far, Wall Street CEOs seem determined to stop any kind of watchdog. They seem to think that they can run their businesses forever without our trust. This is a bad calculation.

 

It’s a bad calculation because shareholders suffer enormously from the long-term cost of the boom-and- bust cycles that accompany a poorly regulated market. J.P. Morgan CEO Jamie Dimon recently explained this brave new world, saying that crises should be expected “every five to seven years.”

 

He is wrong.

 

http://online.wsj.com/article/SB10001424052748703630404575053514188773400.html

[BlingBling]

Who was it that repealed Glass-Steagall which protected us since the Great Depression? The Republican party with their veto proof majority. Use your minds folks. Ask any Republican if he thinks the banks should be regulated. 9 time out of 10 he will say HELL NO!!!

[Guest LPAC]

For any actually competent economist today, a global equivalent of a "Glass Steagall" reform was implicit in President Franklin Roosevelt's basing his 1944 fixed- exchange-rate Bretton Woods system. It was the contrary actions of President Harry Truman, made as concessions to Winston Churchill, and to Wall Street, after Roosevelt's death, which sent the world careening, step, by step, by step, into the direction of the presently terminal phase of decline gripping the world today.

 

The ultimate consequence of the Truman administration's concessions to London and Wall Street is, today, that all recipes known to me, for a so-called "new Bretton Woods" contrary to my efforts, have been fraudulent in effect, whether this was the intended effect, or not. Such has been today's outcome of the official suppression of President Franklin Roosevelt's anti-Keynes, Bretton Woods intention for the post-war world.

 

Today, without a kind of Glass Steagall reform, which would virtually wipe out the monetarist features of both Wall Street's and of the City of London's systems, the chances for escaping an already oncoming, planet-wide, "new dark age,"were virtually "zilch"!

 

The stunningly poor performance of the British empire's nominally Spanish, and largely Brazil-based, Banco Santander during this past week, has confronted the Euro system as a whole with a crisis for which that institution has no visible remedy in sight. After all the ifs, ands, and buts available to London's phrase-mongers have been spent, the fact persists that the present Euro system has no remedy for its presently existential crisis within the obvious present means at hand.

 

In fact, there is only one essential remedy, disband the present Euro system under its just recently installed, present rules. Return to a Europe of respectively sovereign nation-states, including immediate steps to reestablish the Deutschemark, and break up the conditionalities which were imposed upon Germany under the intentionally ruinous terms jointly dictated to Germany by the heads of state and government Margaret Thatcher, President Francois Mitterand, and a rather silly, but mean- spirited President George H.W. Bush.

 

These and related, specific measures required to rescue western and central Europe from the present failures of British domination can not be successful installation without putting all of western and central Europe under the U.S. equivalent of a Roosevelt-era designed "Glass- Steagall" reform.

 

This past week's exposure of the problematic features of much of the assets within the so-called Inter- Alpha Group, such as Banco Santander, shows clearly that those parts of the banking and related claims on which the claimed financial strength of the Euro system had depended for its authority have been of a quality either similar to, or, probably even much poorer than the 2007- 2010 U.S.A. under the mismanagement of U.S. Presidents George W. Bush, Jr. and Barack Obama. The crisis of Europe exposed by last week's developments around the Inter-Alpha Group's environment, are, by their nature, far less manageable than for a U.S.A. under its constitutional system.

 

Those facts concerning the present international financial situation taken into account, if the European continent returned to a status quo ante situation prior to the installation of the present Euro system, as by restoring the Deutschemark, a Glass-Steagall approach to reform there, would permit immediate economic and financial reforms of the credit-systems needed for launching the agro-industrial recapitalization of the economies of Germany and its continental neighbors. Otherwise, without a "Glass- Steagall" type of reform, executed in the spirit of President Franklin D. Roosevelt's approach, there is little hope that Europe generally could overcome the general form of general economic-breakdown crisis now mustering its forces for a general breakdown of the existing European system.

 

The time has come to leave former British Prime Minister Tony Blair's smelly scalp drying in the breezes surrounding the flagpole on which it hangs.

 

The economic existence of Europe is being doomed by the accelerating effect of so-called "green" policies which have been largely premised on the demonstrably failed cult of "global warming," whereas it is the parts of the world which had rejected such so-called "green policies" which are currently benefitting from vigorous investment in high- technology progress in such basic economic infrastructure as mass transportation and vigorous investment in nuclear power.

 

However, I am confident that once the citizens of European nations recognize that a shift back to modern technology of capital-intensive investment in basic economic infrastructure, industry, and agriculture is the wave of a return to the future, the "green resistance" to European survival will, like "an old soldier," "fade away."

[Guest CounterPunch]

I think it’s time to take Wall Street literally: they’ve made it abundantly clear they have an insatiable appetite for killing things: the housing market, the financial system, the economy, reform legislation, the next generation’s future.

 

Wall Street is so steeped in destruction that the symbols of death are everywhere. Wall Street calls the big newspaper ads they take out to herald the launch of their market offerings a “tombstone.” (To understand how appropriate that is, consider the billions in bond and stock offerings they raise for Big Tobacco.) What does Wall Street call the completion of a buy or sell order: an “execution.” (Think of how many derivative trades they “executed” for the now crippled, life support patients Fannie Mae, Freddie Mac and AIG; or the off balance sheet vehicles they created for Enron, WorldCom, and dozens of now bankrupt companies.)

 

Wall Street calls an order to complete a trade without any reduction in quantity a “fill or kill.” This could just as reasonably be called a “fill or cancel” order but it’s so much more fun for the thundering herd to race around a trading floor screaming “kill it, kill it!”

 

What is the benefit to Wall Street in killing things or bringing the share price of companies to near worthless? Tails they win; heads you lose. Wall Street can and does make enormous profits on bets that share prices will decline (shorting), that companies will disappear (credit default swaps), that the economy will crater (interest rate swaps). And there’s a slogan on Wall Street: the trend is your friend. When it’s clear the bull is lying in the center of the ring (think Lehman’s death and the Merrill Lynch shotgun wedding on September 15, 2008), Wall Street moves its bets to the downside.

 

No one has their jive aligned with their agenda any better than Citigroup’s traders. When they set out to inflict pain on the European bond market in 2004, they labeled the trade “Dr. Evil.” Citi also created a structured finance vehicle that greased the skids for the collapse of Italian dairy giant Parmalat, dubbed Buconero, Italian for “Black Hole.”

 

Until a President comes along with a genuine will to deal with the truly rapacious nature of Wall Street, these destructive forces will continue.

 

President Obama’s latest Wall Street reform plan to bar commercial banks from owning private equity funds or hedge funds and banning proprietary trading for the benefit of their own firm constitutes needed reform toward unrigging the markets. But the proposal neglects Wall Street’s most serious threat to the economy. It’s the commercial banks’ ownership of investment banks and brokerage firms that’s killing innovation and job growth in America. The longer we wait to deal with this issue, the more the national debt will balloon as the government is forced to indefinitely add job stimulus money and sustenance funds for the growing number of unemployed.

 

As currently structured, Wall Street investment banks have no incentive to bring viable companies to market. Wall Street makes the same huge fees for putting lipstick on a pig and dumping it on the public as they do for launching solid companies with real job growth potential. Over the past decade, trillions of dollars of investors’ life savings have been misallocated to bogus business models. Those companies are now worthless or are trading for pennies on the Pink Sheets, the graveyard for investment banks’ misfired ideas.

 

The Pink Sheets provide quotes on these stocks to broker dealers. It’s not responsible for the legitimacy of the companies and, in fact, warns investors on its web site that these “are small companies with limited operating histories or are economically distressed…Investors should avoid the OTC [over the counter] market unless they can afford a complete loss of their investment.” In many cases, this is far more disclosure than licensed brokers at the “venerable” firms told their clients when the companies first went public at fat share prices.

 

A study done by Tyler Shumway and Vincent A. Warther for the University of Michigan Business School and University of Chicago Graduate School of Business found that between 1972 through 1995, 4,188 companies were delisted by Nasdaq, the stock exchange that facilitated the boom and bust in dotcoms and tech start ups in the late 90s. After delisting, many ended up on the Pink Sheets. In March 2000, the Nasdaq index stood at 5,048. Today, a decade later, it’s still down 58 percent from its peak.

 

It's time for Congress to open its eyes to the reality that this massive decline in Nasdaq is telling us Wall Street is not bringing enough good companies to market. And the mergers Wall Street has put together, typically traded on the New York Stock Exchange, have created Frankenbanks and debt-laden conglomerates too bloated to figure out their own balance sheet let alone create new jobs. Two poster children come to mind: AOL-TimeWarner and Citibank-Travelers-Smith Barney-Salomon, a/k/a Citigroup.

 

Investment banks that arrange these initial public offerings of new companies or merge together existing ones are now located within the “too big to fail,” publicly traded commercial banks. But they used to be private partnerships and put their own money at risk when bringing a new company to market. When their own money was at risk, there was a far greater due diligence done to ensure the company would be viable. That’s gone now. There’s no incentive to be vigilant. It’s OPM: other people’s money to throw down on the casino table.

 

To fully understand the new structure of Wall Street, it helps to reflect back to August 1995 when the FDA told us that a cigarette was really a nicotine delivery system in drag and Big Tobacco was manipulating “nicotine delivery at each stage of production.” People were being hooked on something very harmful to their well being while a colluding industry lied and lobbied.

 

Insiders on Wall Street call their retail brokerage firms, now also dangerously merged with commercial banks, a “distribution” system. The investment banks create the toxic product, the brokers distribute it to the public under an enshrined carrot and stick system that is virtually identical at every major firm. That is, the internal research department puts out a buy recommendation. The brokers’ local manager holds a sales meeting and pushes the firm’s latest offerings. The brokers’ commission system dramatically favors risky products that the firm is pumping out over safer investments.

 

There is absolutely no system that rewards a broker for how well his clients’ portfolio performs. The broker’s ability to have secretarial help, the size of his or her office, gaining the title of Vice President on the business card, the annual bonus, even being taken out to lunch by the Branch Manager, is dependent solely on how much money the broker makes for the firm.

 

If you want to challenge the system as corrupt, the courthouse doors are closed to you. Wall Street enforces its own private justice system called mandatory arbitration. The public is not allowed to have a peek, after all it’s private justice, so there is no disinfecting sunshine on this cabal.

 

The only way a system this riddled with conflicts of interest and contempt toward its own customers' interests could have survived this long was by grabbing that huge depositor base of money from the commercial banks and then trading it into oblivion. The newest patsy in this grand bank heist is the taxpayer who is replenishing the empty vaults.

 

With each new $100 billion job creation program from the government, we acknowledge that Wall Street isn't creating companies that create jobs. According to the Labor Department, 9.3 million Americans could not find work as of January and millions more are involuntarily working part-time or too discouraged to look for work.

 

So if Wall Street is not properly allocating capital to viable companies, it’s not rewarding its shareholders or customers, remind me again why taxpayers are spending trillions to save it?

 

The February 15, 1999 cover of Time magazine lauded Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert Rubin, and Deputy Treasury Secretary Lawrence Summers as The Committee to Save the World. We now know this was really The Committee to Slave the World. The economic challenges the world now confronts were of their making; together, of course, with some well placed Washington and Wall Street cronies.

 

Greenspan has a B.S., M.A. and Ph.D. in Economics from New York University; Rubin has a B.A. in Economics from Harvard and a law degree from Yale. Summers has a B.S. from M.I.T. and a Ph.D. from Harvard. Despite these 7 degrees from some of the finest institutions of learning in the country, we are asked to believe that there was not one ounce of common sense that suggested to these men that repealing the depression era investor protection legislation known as the Glass-Steagall Act that prevented the combination of commercial banks with investment banks and brokerage firms would end up killing jobs, the financial system and the economy. (Were we not looking at men who profited greatly from that bad decision, we might be less skeptical.)

 

There has been this intellectual dishonesty and revisionist history suggesting no one could have seen this coming. Not only did lots of people see it coming but on June 25 and June 26, 1998 a steady stream of public-minded citizens walked through the stately doors of the Federal Reserve Bank of New York and testified that repealing the Glass-Steagall Act and allowing commercial banks to merge with Wall Street firms was a preposterously bad idea and would lead to economic ruin. Why is our President turning to Summers and Rubin for advice instead of the people who got it right?

 

President Obama has now anointed Neal Wolin to join the New Committee to Save the World along with himself and former Fed Chair Paul Volcker. Who is Neal Wolin? He was confirmed as Deputy Secretary of the Treasury on May 19, 2009.

 

In the Clinton administration, Wolin was general counsel to Lawrence Summers, a key proponent of repealing the Glass-Steagall Act. According to the New York Times, Mr. Summers earned $5.2 million in 2008 working one day a week for the hedge fund, D.E. Shaw & Company, while simultaneously advising Obama. After leaving government, Wolin worked for Hartford Financial Services Group Inc. for eight years. According to BusinessWeek, if you add up Wolin’s cash compensation, restricted stock awards, options, and other compensation, he made $3.4 million his last year at Hartford in 2008.

Robert Scheer wrote the following about Wolin at the San Francisco Chronicle on November 19, 2009:

 

“Wolin, Geithner and Summers were all proteges of Robert Rubin, who, as Clinton's treasury secretary, was the grand author of the strategy of freeing Wall Street firms from their Depression-era constraints. It was Wolin who, at Rubin's behest, became a key force in drafting the Gramm-Leach-Bliley Act, which ended the barrier between investment and commercial banks and insurance companies, thus permitting the new financial behemoths to become too big to fail. Two stunning examples of such giants that had to be rescued with public funds are Citigroup bank, where Rubin went to ‘earn’ $120 million after leaving the Clinton White House, and the Hartford Insurance Co., where Wolin landed after he left Treasury.”

 

Mr. President, it’s time to clear out the fat cats and deliver on that message of hope and change.

[Guest LAW]

Banks step up spending on lobbying to fight proposed stiffer regulations

Expenditures jumped 12% to $29.8 million last year among the eight financial firms that spent the most to influence legislation.

 

Lobbying expenditures jumped 12% from 2008 to $29.8 million last year among the eight banks and private equity firms that spent the most to influence legislation, according to data compiled from disclosure forms filed with Congress.

 

The biggest spender was JPMorgan Chase & Co., whose lobbying budget rose 12% to $6.2 million, enough for the firm to have more than 30 lobbyists working for it. Among other banks, spending on lobbying rose 27% at Wells Fargo & Co. and 16% at Morgan Stanley.

 

"I have never seen such a scrum of bank lobbyists as I have in the last year -- and I've worked on quite a few bank issues over the years," said Ed Mierzwinski, a lobbyist for the U.S. Public Interest Research Group, a coalition of state consumer organizations. "It seems like everybody is out of work except for bank lobbyists."

 

Much of the increase in spending on lobbying in 2009 came in the final three months of the year as Congress voted on financial reform bills. Many Washington observers say industry lobbying has been even more intense this year, as President Obama has proposed a new tax on big banks, caps on their size, and curbs on their investment in often lucrative but risky hedge funds and private equity funds.

 

Read full story at LA Times

[Guest Ancient_Warrior]

When will we ever be able to understand that we, Americans, humans, are but pawns in a much larger game? It's all nothing more than a huge, exciting political game run by financial elites. I'm not breaking any new ground here. This idea has been kicked around for generations now. But, now it seems so painfully obvious, the corruption and greed at all levels of government, the corruption and greed that has captured our capitalistic system, our corporations.

 

Bubbles, bubbles and more bubbles...

 

It has become obvious to me that the government of the United States is currently terrified that the bursting of yet more bubbles is imminent. We went through the housing bubble, we are going through the credit bubble still. Add to these a health care bubble, an energy bubble and commodities are still bubbling away as well.

[Guest Truthout]

We need to fundamentally change the way Wall Street does business so that it invests in the job-creating productive economy instead of engaging in the casino-style risk-taking that led to the largest taxpayer bailout in U.S. history. Financial institutions that are "too-big-to-fail" need to be broken up so they no longer pose a threat to the entire economy. And we need to establish a national usury law to stop banks from ripping off the middle class by charging outrageous interest rates and exorbitant fees on credit cards.

[Guest Joe Chenelly]

Foreclosure experts at say the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009, which went into effect this week, is slashing into an already beleaguered housing market.

 

Michael Urbanski, CEO of USHUD.com and Heavy Hammer Inc., says credit card companies, in anticipation of this law becoming effective, have taken dramatically harsh steps over the past nine months. Skyrocketed interest rates, newly created fees and chopped credit lines are reducing millions of American consumers' ability to obtain a mortgage. Without mortgage-eligible buyers, there is little chance for a recovery from the housing market crisis.

 

"As well intended as the CARD Act may have been, it is proving to be yet another nail in the coffin for the housing industry," Urbanski said. "When an interest payment increases from eight to 16 percent, the minimum monthly payment is effectively doubled for the card holder with devastating consequences for future mortgage eligibility."

 

Minimum monthly credit card payments are weighed with increasing importance by lenders. Indiscriminately increasing these payments further erodes the home buying and refinancing population, drastically reducing the possibilities of a housing recovery, Urbanski said.

 

President Obama signed the CARD Act into law last May to deliver protections long sought by consumer advocates, but the law did not go into effect until Monday. While certain rules were clarified by the Federal Reserve, credit card companies used the delay to minimize losses at their customers' expense, Urbanski said. Critics of the legislation correctly forecasted increasing rates, fees and other measures by lenders in advance of Monday's deadline.

[Guest Luke]

More wisdom on this issue from the wizard himself. Here is a relevant snippet to ponder from Warren Buffet's 2009 annual report.

 

It has not been shareholders who have botched the operations of some of our country’s largest financial institutions. Yet they have borne the burden, with 90% or more of the value of their holdings wiped out in most cases of failure. Collectively, they have lost more than $500 billion in just the four largest financial fiascos of the last two years. To say these owners have been “bailed-out” is to make a mockery of the term.

 

The CEOs and directors of the failed companies, however, have largely gone unscathed. Their fortunes may have been diminished by the disasters they oversaw, but they still live in grand style. It is the behavior of these CEOs and directors that needs to be changed: If their institutions and the country are harmed by their recklessness, they should pay a heavy price – one not reimbursable by the companies they’ve damaged nor by insurance. CEOs and, in many cases, directors have long benefitted from oversized financial carrots; some meaningful sticks now need to be part of their employment picture as well.

[Guest Fedup]

Total loans and leases declined by $128.8 billion (1.7 percent) during the quarter. This is the sixth consecutive quarter in which the industry's loan balances declined. Loans to commercial and industrial (C&I) borrowers declined by $54.5 billion (4.3 percent) and real estate construction and development loans declined by $41.5 billion (8.4 percent).

 

Referring to more stringent lending standards and lower real estate values, Chairman Bair said, "Resolving these credit market dislocations will take time. We encourage institutions to lend using a balanced approach as outlined in the recent interagency policy statements. Institutions should neither over-rely on models to identify and manage concentration risk nor automatically refuse credit to sound borrowers because of those borrowers' particular industry or geographic location."

 

Total assets of insured institutions declined by $137.2 billion (1.0 percent). Banks' investments in mortgage-backed securities increased by $44.8 billion (3.3 percent) and U.S. Treasury securities rose by $15.9 billion (18.3 percent).

[Guest FDIC]

Reserves Exceed Three Percent of Total Loans

 

Reserves for loan and lease losses increased by only $7.0 billion (3.2 percent) in the fourth quarter, as institutions added $8.1 billion more in loss provisions to their reserves than they took out in net charge-offs. The average coverage ratio of reserves to noncurrent loans and leases fell from 60.1 percent to 58.1 percent, ending the year at the lowest level since midyear 1991. In contrast, the industry’s ratio of reserves to total loans and leases rose from 2.97 percent to 3.12 percent during the quarter, and is now at its highest level since the creation of the FDIC.

[Guest Amos]

Feb.25, 2010 - On CNBCs Squawk Box, Sens. Bob Corker (R-TN) and Mark Warner (D-VA), members of the Senate Banking Committee, express optimism regarding the status of financial regulatory reform negotiations.

[Guest wkillpatri]

America is a very class-oriented society. Fortune 500 companies are white and male. They (assuming you mean top management) all attended an "Ivy League" school. If you didn't attend one of those schools, are a woman, or anything other than a straight, white male, accept you will be in the second tier."

 

Regarding class structure, most would agree it’s based on money. The most current figures available show that 1% of Americans control 43% of the nation's financial wealth. But there’s more:

 

The top 20% of Americans own 93% of all financial assets; the remaining 7% of assets are divided among 80% of the population. This imbalance didn't come about because only 20% of Americans worked hard while 80% waited for government handouts. Such lopsided distribution results from long-term government actions and policies favoring a small fraction of We The People. For more mind-blowing stats, check out:

 

http://sociology.ucsc.edu/whorulesamerica/power/wealth.html