Where's the controversy in this bill?

I love the notion of a bank-funded bailout reserve. And the requirement that banks hold x% of the derivatives they create.


Call me cynical, but I think the reason why I've not read of any specific Republican complaints is because there are no specific Republican complaints.

4/26/2010 8:56:40 PM

Hey, if the GOP wants to keep making front page news during election season like this, be my guest.

And there doesn't need to be controversial, they'll just make up reasons, like we shouldn't do more than one thing at once is a good reason to avoid addressing climate change:

http://politicalticker.blogs.cnn.com/2010/04/24/graham-move-imperils-obama-push-for-immigration-reform-climate-change/?fbid=CeukDESvFZn

Quote :

""(CNN) – In a stunning move that could throw a major roadblock in front of two of President Obama's biggest legislative initiatives, Sen. Lindsey Graham abruptly declared Saturday he's abandoning talks on climate change legislation because he believes Democratic efforts to bring up a separate immigration reform package is undermining the legislative process.""

Or they can go the "now is not the time route" which requires no substantial objection to immigration reform other than being pro-obstruction:
http://politicalticker.blogs.cnn.com/2010/04/25/gop-lawmakers-seek-to-halt-immigration-reform-push/?fbid=CeukDESvFZn

Quote :

"Two key Republican lawmakers joined a growing GOP effort Sunday to halt the push for immigration reform, arguing the time is not right to take on the massive and complex issue."

McCain said he'd be pro-DADT repeal when the top leadership in the military said now is the time.
General Colin Powell who served under Bush, Secretary of Defense Robert Gates who served under President Bush and President Obama, Admiral Michael Mullen the highest ranking officer in the United States armed forces, and General David Petraeus who obviously knows a little something about the current conflicts, and the Commander-in-Chief all agree that DADT needs to be repealed. McCain is still going the "now is not the time route." In fact some DADT repeal sit-in protesters were arrested at his office today for sitting outside his office waiting to speak him.

For Wall Street reform, addressing climate change, immigration reform, and DADT repeal, now is not the time... while threatening filibusters on court appointments. Now is not the time to give the Dems any more wins as we enter election season.

4/26/2010 9:23:19 PM

Quote :

"I love the notion of a bank-funded bailout reserve. And the requirement that banks hold x% of the derivatives they create."

Terrible ideas. The solution to bailouts is to stop the bailouts. Pushing the costs of bailouts upon all the banks that were sensible and didn't need bailouts only exaggerates the perverse incentives. Banks will compete to take ever greater risks with ever more leverage, all in the service of shareholder interest. The only semblance of restraint comes from the idea that bailouts will not be available outside of looming recessions. A bailout reserve would remove even that threat.

The quest for complete stability has something to do with the failure to achieve stability.

4/27/2010 12:22:02 AM

Quote :

"if the GOP wants to keep making front page news during election season like this, be my guest."

There are a lot of voters out here who want to stop the Obama Big Go'vt Train. I am cheering on the GOP in their efforts to block Obama's agenda.
Reform generally means "improving" something. Obama isn't improving things with his agenda, he is simply trying to control them...as do all tyrannies.

4/27/2010 1:13:39 AM

one legit complaint i have heard (though not all that much) is that there's an exemption for fannie and freddie.

dems claim that they want to do that in a separate bill.

this is the sort of thing that republicans could harp on if they let the bill come to the floor.

but i think they know that this issue is a winner for the dems in the long run. so they'd rather make the dems look powerless as long as possible and filibuster the motion to bring the bill to the floor.

^yet you just said this:

Quote :

"Taxpayers shouldn't be bailing out any business."

that is the status quo. something needs to pass to get that goal accomplished. nothing will happen if they filibuster the bill even going to the floor.

[Edited on April 27, 2010 at 1:17 AM. Reason : .]

4/27/2010 1:16:16 AM

Quote :

"just as drug companies and insurers used Republicans to kill the public option before using Democrats to mandate insurance and subsidize drugs, big banks are using Republicans to kill a bank tax while using Democrats to erect barriers to entry, to institutionalize bailouts, and to restore confidence in Wall Street. Lobbyists working on the issue report that the big banks aren't fighting against the Consumer Financial Protection Agency anymore. It's not a big deal to them -- it will probably cost them only the salary and benefits of one more lobbyist or lawyer. Citigroup might hire another Barney Frank staffer. Goldman already has Greg Craig. Pretty soon, the left will be complaining about how Wall Street has "captured" the CFPA. But regulatory agencies aren't kidnapped -- they are born in the custody of the businesses they regulate. This is the nature of the game. And it's a game rigged in Goldman's favor, regardless of Obama's trash talk."

http://www.washingtonexaminer.com/politics/Goldman-Sachs-wants-regulation_-not-laissez-faire-91639489.html#ixzz0ljz4XgLk

4/27/2010 10:13:49 AM

Quote :

"I love the notion of a bank-funded self-funded bailout personal reserve. And the requirement that banks people hold x% of the derivatives liabilities/debt they create."

There, fixed that for you.

Quote :

"The solution to bailouts is to stop the bailouts. Pushing the costs of bailouts upon all the banks that were sensible and didn't need bailouts only exaggerates the perverse incentives. Banks will compete to take ever greater risks with ever more leverage, all in the service of shareholder interest. The only semblance of restraint comes from the idea that bailouts will not be available outside of looming recessions. A bailout reserve would remove even that threat. The quest for complete stability has something to do with the failure to achieve stability. "

The people that got screwed in this economic melt down were the ones that were doing the right thing to begin with. Rewards were only given for failure.

4/27/2010 10:24:09 AM

Quote :

"that is the status quo. something needs to pass to get that goal accomplished. nothing will happen if they filibuster the bill even going to the floor."

come back with a stronger bill, and then you can complain if it gets shot down. There should be no chance of bailouts period. Individual banks should be responsible for themselves, and not the failings of other banks. Nor should the taxpayer be responsible for failed banks or any other failed business for that matter.

Credit unions seem to be doing just fine without government bailouts, and they manage to provide better service. But thats the market response to bad banks and the fed cant have that, so they made sure their friends in the big banks survived in order to try to keep the little guys out. Swithing the bailout fund from the taxpayer to the banks only makes the good banks responsible for the bad banks. Again, that just shits all over the taxpayer and keeps the government's big bank friends afloat.

Requiring banks to hold reserves for their own individual funds and separating investment and savings banks are not terrible horrible things, but making anyone but an individual bank responsible for its own fuck ups is totally wrong.

4/27/2010 10:31:52 AM

Quote :

"but making anyone but an individual bank responsible for its own fuck ups is totally wrong."

But is this even possible?

1. Let the too-big-to-fail banks fail, and they take down the economy with them
2. Use public money to bail out the banks
3. Use bank money to bail out the banks

Those seem to be the only options, and #3 sounds far superior.


And it's not as if this bill even calls for outright bailouts, regardless of who's funding it. The "bailout" is more like an unwinding/ soft bankruptcy... thing, from what I've read.

4/27/2010 10:51:57 AM

#1 should be the goal. If you shrink the banks down to a reasonable size through reasonable legislation (mostly around what they're required to hold as reserves) then the impact of a failed bank is minor. The shareholders eat it, but any valuable assets will be picked off by better banks. In addition, the guarantee that there will be no external bailout ever will make banks much less likely to take on risk. By saying "oh, well, if you go down we'll bail you out" or "oh, well, if you go down these other banks will bail you out" does nothing to discourage risk taking.

4/27/2010 10:57:59 AM

Paul Ryan is aguing against this bill bc it encourages wreckless behavior. Basically if you are "to big to fail", you are backed with taxpayer money at that point. Thus you are less risky to investors/lenders and then have access to cheaper credit. So the incentive is to become "to big to fail".

I agree with Loneshark completely. But I do like the idea of banks having to hold a percentage of thier own derivatives. But I fail to see where that will protect taxpayers. Maybe one of you could explain that to me.

4/27/2010 10:59:02 AM

Explain the shrinkage via reserve requirements thing, please?

Because when I think of breaking up too-big-to-fail banks, I think if the gov't chopping up banks that meet an arbitrary capital cut-off.

4/27/2010 11:13:41 AM

Prior to the 1850s, bailouts were the norm. The bank of England was required by law to bailout large firms. As a result, every decade or so, the same people would show up for a bailout with ever larger losses. Then, for whatever reason, the English Government changed its mind, legislation was passed outlawing future bailouts. Within the decade these same financial actors showed up yet again for a bailout, but none was forthcoming, costing their creditors dearly. They never went into business again, and while recessions still occurred, the financial system of England was no longer the chief cause. For 120 years, bailouts were unheard of. Banks didn't even bother asking for them. Bad banks harmed only themselves and their creditors. As such, for all that time, creditors kept a watchful eye on those they loaned money to. Bad actors were put to death early by creditors cutting off the supply of credit, early enough for losses to be absorbed by shareholders. But not while bailouts are legal.

Well, here we are, having forgot our history, eager to play the game again. Eager to suffer decade after decade of ever larger leverage induced collapses, until we yet again learn our lesson.

4/27/2010 11:21:07 AM

Requiring that banks have the reserves to payout everything owed to customers will mean that they'll take on less risk and/or be required to shrink the size of investments they do with customer money in order to meet the requirements

Ex: in the past, I give my money to a bank, they invest that money in a pack of subprime mortgages (thats insured by the same or another bank). Turns out the pack of mortgages is worthless, the insurer cant pay out insurance, the bank i gave my money to goes under, and im left holding the bill

Preferably, it would go something like this in the future. I give my money to a bank, they're required to keep my money available, so they invest it in something safer than a pack of sub prime mortgages. Or lets say they do invest it in subprimes, then the amount of the payout for insurance on that package is held in reserve by the insurer. So when everyone realizes the package was worthless, the insurer eats it for taking on too much risk, but they still payout the full insurance amount to my bank. My bank may eat it on part of the investment, but my money is still there.

Saying "Banks over x inches tall may not ride" or whatever arbitrary capital size limit doesn't actually touch the risk side of things. A bunch of small, but risky banks would not be as good as larger but much less risky banks. By limiting risk, you limit the apparant size of the bank and protect customers at the same time.

4/27/2010 11:28:40 AM

How do you expect to limit the amount of risk banks take?

4/27/2010 11:44:51 AM

By requiring that they hold the reserves to payback their obligations and removing all possibility of bailouts. I mean i just posted it.

In the insurance example, if an insurer knows theres no possibility of bailout and that they must keep on hand reserves to payout all insurance claims, they will 1. insure fewer things because they have limited reserves and 2. insure less risky things because they dont want to risk their limited reserves when they know there wont be any bailouts.

4/27/2010 11:49:45 AM

^^ How the banks manage to serve the demand for safety from their creditors is their business. The nice thing about this whole ordeal is we don't need to pass any fancy laws beyond outlawing bailouts. The creditors will handle it from there. Either by demanding insurance, only lending to sound institutions, or only lending money they can stand to lose.

4/27/2010 11:56:05 AM

Q: What steps can we take to save the world?
A: THE MARKET!!!

4/27/2010 11:58:23 AM

^ you're right, we should just continue the government's solution of rewarding failures

4/27/2010 12:01:21 PM

The fractional reserve banking system is what needs to change, along with our central bank wiring money to who knows where. You won't see many politicians pushing for that legislation, though.

4/27/2010 12:23:52 PM

5^
You can't completely eliminate risk. Banks can't make money (or loan money) if they need to keep 100% of every customer's assets on hand for payout. Same with insurers.

4/27/2010 1:00:21 PM

Fractional banking needs to stay. The percentage just needs to change and should be more fluid. Bailouts need to be outlawed.

4/27/2010 1:14:30 PM

http://www.alternet.org/economy/146428/speculating_banks_still_rule__ten_ways_dems_and_dodd_are_failing_on_financial_reform

Quote :

" As we wind up for another dramatic bipartisan squabble over all the crap Wall Street flung at us, things are getting back to normal – for the wealthy. The top 25 hedge fund managers made a record $25.3 billion dollars in 2009. And despite all those dramatic congressional hearings, average compensation of Wall Street bankers rose by 27 percent in 2009. Meanwhile, banks are hiding their debt with the same old balance sheet magic they've been deploying for years and posting record new trading revenues—putting the economy at risk while creating no perceptible economic benefits. On the other side of humanity, more sobering numbers include a record 2.8 million properties in foreclosure for 2009, a 21 percent increase over 2008's astonishingly high figure, with another 4.5 million foreclosures projected for 2010. Federal mortgage modification plans have not stemmed this tide, because lenders aren't required to particiapte; and lenders, in the words of Herman Melville's Bartleby, "would prefer not to" renegotiate a mortgage for which they'd then have to book a loss. As foreclosures continued to climb, so did bankruptcies, rising 35 percent in 2009 over 2008 levels. Banks -- shockingly -- banks aren't helping. They posted their lowest lending rates since 1942; despite all the subsidies and cheap money they received from, well, us, including exceedingly low Federal Reserve loan rates (zero to 0.25 percent interest)."

4/27/2010 1:16:55 PM

Can somebody break it down to me how the FDIC would supposedly cover everyone's money if some of the big banks failed?

Aren't there trillions of dollars in checking and savings accounts, under the $250k limit, in the country?

Whereas the FDIC has what, a couple hundred billion to supposedly cover the loss of...trillions of dollars?

[Edited on April 27, 2010 at 1:26 PM. Reason : keywords: "if some of the big banks failed"]

4/27/2010 1:26:30 PM

Quote :

"5^ You can't completely eliminate risk. Banks can't make money (or loan money) if they need to keep 100% of every customer's assets on hand for payout. Same with insurers."

banks would hold on hand in reserve, the ammount invested by the customer less the insurance payout. There is still room for the bank to make money and there is still some risk to the bank, but there is no risk to the customer (in this case a standard savings/checking customer). In the case of a customer investing in something like stocks or bonds, then all bets are off.

This actually turns out real well for the insurance companies, because if banks start demanding insurance on less risky derivitives, then the insurance companies are by default taking on less risk and stand to lose less money over the long term.

We aren't removing all risk, but we're discouraging extremely risky practices.

4/27/2010 1:29:47 PM

^^ in that situation, there would just be a bailout ala 2008.

4/27/2010 1:47:54 PM

Quote :

"Terrible ideas. The solution to bailouts is to stop the bailouts. Pushing the costs of bailouts upon all the banks that were sensible and didn't need bailouts only exaggerates the perverse incentives. Banks will compete to take ever greater risks with ever more leverage, all in the service of shareholder interest. The only semblance of restraint comes from the idea that bailouts will not be available outside of looming recessions. A bailout reserve would remove even that threat. "

Generally agreed, although on the flipside, it MAY be able to be constructed in such a way that it would be a net gain:

If the banks essentially bought their own financial insurance policy, they could reasonably take on more risk, and therefore reap greater reward. They would have to get bailed out much more routinely, but it wouldn't be a big deal.

_____________________________________________________________________________

These Goldman Sachs hearings are bullshit, though...it's just a bunch of political posturing on a one-sided whipping-boy approach. They are utterly opposed to actually considering subtleties, nuances, and details--they want "yes/no" answers to things that cannot possibly be boiled down to such a simple response. They seem to just want to point fingers and rail against the evil Wall Streeters.

On top of that, they're just acting like dicks, and the Goldman Sachs guys are sitting there and taking it. I know they can't just say "Get fucked, I'm done talking to you until you want to be cool and professional and act in accordance with your position as a U.S. Senator. I'll be goddamned if I'm going to sit here and be yelled at."

I wish the Sachs guys would be much more defiant. I'm not looking for a bunch of softball questioning, but this is just piss poor. The Senators have this attitude that they're going to take these Goldman Sachs guys to finance school, but the problem is that the Sachs guys long ago forget more than the Senators will ever know on the subject. Unfortunately, it's not a debate or forum for settling facts to make things better--it's a public beating to make people feel better / drum up political support for Democratic objectives.

[Edited on April 27, 2010 at 2:16 PM. Reason : ]

[Edited on April 27, 2010 at 2:26 PM. Reason : ]

[Edited on April 27, 2010 at 2:29 PM. Reason : ]

4/27/2010 2:13:09 PM

Tree, its just one of many empty, unfunded, promises to make you feel better. (I think its mostly there to prevent runs on banks, which will crash things)

4/27/2010 2:26:59 PM

^^ So do you think Goldman Sachs did anything fraudulent?


obviously its still early, and the hearings may or may not bring more to light. I agree that a good bit of it is probably posturing and trying to appear tough on the banks.

4/27/2010 2:34:55 PM

I don't know, and this isn't the way to find out OR make a constructive way forward.

[Edited on April 27, 2010 at 2:48 PM. Reason : holy fuck, if they've asked 100 questions, they've only allowed them to answer about 2 of them]

[Edited on April 27, 2010 at 2:49 PM. Reason : cutting them off and putting words in their mouths irritates the shit out of me]

4/27/2010 2:46:51 PM

All Obama has to say is that he is going to change regulation so that it's somewhere between Bush and Reagan.

4/27/2010 7:29:54 PM

because bush and reagan have such good records regarding bank regulation.

also heard a good this american life from a couple weeks ago where they talked about magnetar. this firm basically funded the most risky parts of CDOs -- thus making them more likely to happen (and often influencing investment managers to make the CDOs MORE risky). They then shorted the CDOs more than they had invested to begin with and made billions.

the propublica article about it:
http://www.propublica.org/feature/all-the-magnetar-trade-how-one-hedge-fund-helped-keep-the-housing-bubble





[Edited on April 27, 2010 at 7:36 PM. Reason : .]

[Edited on April 27, 2010 at 7:37 PM. Reason : .]

4/27/2010 7:33:18 PM

Quick poll: how many of you would support legislation that would make it illegal to buy insurance (via a CDS or some other product) on a product you don't own? I know that was only a contributing factor to the crisis, but the fact that that was and still is legal blows my mind.

4/27/2010 7:37:09 PM

sign me up!

^also see the story i posted for info on how that may have been a bigger part of this than you thought before. they posit that magnetar propped up a CDO market that was looking like it was in decline in 2005 through 2006 into 2007 and the crash -- making the crash far more severe.

[Edited on April 27, 2010 at 7:40 PM. Reason : .]

4/27/2010 7:39:13 PM

Yeah, the Planet Money peeps did a big thing on This American Life about the Pro Publica piece last week. You should check it out if you haven't already.

4/27/2010 7:44:39 PM

Quote :

"These Goldman Sachs hearings are bullshit, though...it's just a bunch of political posturing on a one-sided whipping-boy approach. They are utterly opposed to actually considering subtleties, nuances, and details--they want "yes/no" answers to things that cannot possibly be boiled down to such a simple response. They seem to just want to point fingers and rail against the evil Wall Streeters. "

I’m sure Godlman Sachs is happy to oblige too considering the massive bailout the gov. did for them (under Bush…).

4/27/2010 9:05:02 PM

Quote :

"The solution to bailouts is to stop the bailouts."

Quote :

"(under Bush…)"

You act as if there is any real difference (beyond posturing) between the two parties when it comes to anything involving money.

4/27/2010 9:50:44 PM

Bring back the Glass–Steagall Act

4/27/2010 10:34:37 PM

Quote :

""(under Bush…)" You act as if there is any real difference (beyond posturing) between the two parties when it comes to anything involving money. "

let's see. . . which party isn't even willing to bring the matter for debate?

4/27/2010 10:49:54 PM

Posturing. Seems like reality doesn't match with the public narrative:

Quote :

"President Obama tried Monday to portray the Senate’s vote on financial regulation as a simple, black and white case of Republicans blocking needed progress on Wall Street reform. But not many lawmakers – even those who voted to move forward Monday and those who want to vote for the bill – were buying the argument. And in fact, one Democrat joined with Republicans to vote against the motion to move to debate. The White House shot out a statement from Obama soon after Senate Majority Leader Harry Reid, Nevada Democrat, failed to attract the 60 votes necessary to move forward with debate of the bill. The bill fell short by a count of 57-to-41. “I am deeply disappointed that Senate Republicans voted in a block against allowing a public debate on Wall Street reform to begin,” Obama’s statement said. But key lawmakers stepped on his message, indicating what informed observers have known and most senators have said all along: Republicans and Democrats are both in favor of reform and are working hard to resolve remaining differences, which are complicated and may take some time to work out."

http://dailycaller.com/2010/04/27/obama-offers-simple-narrative-of-gop-obstruction-but-key-lawmakers-tell-another-story/#ixzz0mOWFku00


The floor of the two houses is for making speeches, the real debate takes place outside of the chamber doors.

4/28/2010 7:45:54 AM

From the correspondences of Fabricio "Fab" Tourre, VP of Goldman Sachs:

Quote :

"More and more leverage in the system, the entire system is about to crumble any moment…the only potential survivor the fabulous Fab (as Mitch would kindly call me, even though there is nothing fabulous abt me…) standing in the middle of all these complex, highly levered, exotic trades he created without necessarily understanding all the implications of those monstruosities !!!"

Quote :

"When I think that I had some input into the creation of this product (which by the way is a product of pure intellectual masturbation, the type of thing which you invent telling yourself: "Well, what if we created a "thing", which has no purpose, which is absolutely conceptual and highly theoretical and which nobody knows how to price?") it sickens the heart to see it shot down in mid-flight...It's a little like Frankenstein turning against his own inventor "

Quote :

"Just made it to the country of your favorite clients [Belgians]!!! I'm managed to sell a few abacus bonds [Abacus was one of Goldman Sachs's Collateralised Debt Obligations, tied to the performance of sub-prime mortgage-backed securities] to widows and orphans that I ran into at the airport..."

http://news.bbc.co.uk/2/hi/business/8646487.stm

4/28/2010 12:20:24 PM

Republicans drop filibuster!

these guys are getting killed, i think the whole point was to score some points after getting their asses handed to them over healthcare but they just made it infinitely worse

4/28/2010 10:18:34 PM

The finance bill is weak sauce, but not in the ways the repubs are saying.

It's dumb to block the feds from bailing out the banks. If the banks screw up and go bankrupt, that is OUR money. That's how banks work. If banks lose money, the people lose money. That is BAD.

What needs to happen is to ramp up monitoring of the bankers and personally punish them for cheating the systems, or shorting assets that they are still trying to sell other people.

Protect peoples' money, but eliminate golden parachutes.

4/28/2010 10:22:16 PM

4/29/2010 1:01:56 AM

moron, stop trolling. you know damn well banks already have a bailout agency known as the FDIC.

As to your idea of monitoring, what good does government monitoring do when it was the government pushing them to engage in the bad behavior in question? At no point did monitoring fail, no one who bothered looking didn't know bankers were leveraging heavily into mortgages.

4/29/2010 1:53:21 AM

Quote :

", but eliminate golden parachutes."

Speaking of, and completely off topic, I recently received some papers about the latest shareholder initiatives being proposed by AIG shareholders. Turns out one of the new proposals is to require that executives and board members who are compensated with stock and stock options in the company be required to hold those positions for a minimum of 2 years, even after the leave the company. The idea being to find a way to ensure the executives share in any misery they cause the company by taking extreme short term gains for huge risks. Oddly enough, the board of directors seems to think shareholders should vote against this initiative, I wonder why.

4/29/2010 7:46:34 AM

President Obama: "I want to be clear, we’re not trying to push financial reform because we begrudge success that's fairly earned. I mean, I do think at a certain point you've made enough money."

"Fairly earned"? does he mean legally earned or earned with some sort of "social justice" tied to it?

And when did it become the President's job to decide when you've made enough money?

4/30/2010 12:20:17 AM

he has an opinion. he's allowed to have an opinion. he signs the bills that he wants from the congress.

4/30/2010 12:29:44 AM

Quote :

"On a related note, EU officials are complaining about the downgrades coming from the credit rating agencies; at this stage of the game that is a stunning and instructive development. A lot of regulators simply do not want "honest" credit rating agencies and never will want that."

4/30/2010 1:13:14 AM

Quote :

"you know damn well banks already have a bailout agency known as the FDIC."

Not for stocks, bonds, money markets, annuities, securities, etc.

5/1/2010 12:13:44 PM