We are posting this article for one of our faithful readers who loves the banks and everything about them--wrong! This will be red meat to him and it should be to us all.
Not very often do we agree with our Senator from Michigan, Carl Levin, however on this one, we do. The banks obviously are being irresponsible and their history has shown this to be true. When Chase can lose billions on derivatives after they got billions from the taxpayers, this is a problem.
The real issue is not the derivatives, but the measures that have been taken to protect the banks from failure. If they make stupid plays, they should be allowed to go out of business, period. No bailouts, let the chips fall where they may. If they know that Uncle Sugar will NOT be there to pick up the pieces, maybe we can get some common sense back in the board rooms of these monoliths.
However, if we are going to bail them out every time they get in trouble, they should not be able to do anything more risky than a mortgage. Forget the foreign derivatives and swaps, if they want our money, go back to banking and forget the "fancy" stuff.
Any change in Dodd-Frank should have a poison pill attached to it which would say that the bank will be allowed to go out of business should its exposure to derivatives (foreign and domestic) and other goofy financial products gets them into trouble. The only bailout should be for basic banking (checking and savings accounts, well underwritten mortgages, well underwritten personal and business loans, safe deposit boxes and the like) any thing else exposes the bank to a death sentence.
Agree or disagree, the United States cannot afford to bail out companies which get in trouble due to mismanagement and greed.
Conservative Tom
Wall Street Wins Under Swap-Rule Changes Moving in House
MARCH 21, 2013
By Bloomberg News Service
U.S. House lawmakers advanced legislation that would ease Dodd-Frank Act derivatives rules and give banks greater ability to trade swaps overseas.
The House Agriculture Committee voted today to move seven measures, including one to allow trading of almost all types of derivatives by units of banks that hold government-insured deposits -- such as JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) A separate bill would restrict U.S. regulators’ ability to apply rules to overseas transactions.
The measures, which would need approval from the House and Senate before heading to President Barack Obama, are part of an effort to amend or limit the regulatory overhaul the president signed into law less than three years ago. Dodd-Frank requires the Commodity Futures Trading Commission and Securities and Exchange Commission to create swap-market rules after largely unregulated trades helped fuel the 2008 credit crisis.
The bills are “common-sense tweaks,” Representative Frank Lucas, the Oklahoma Republican who leads the agriculture panel, said at the meeting. “They are intended to restore the balance that I believe can exist between sound regulation and a healthy economy.”
The lawmakers are working to undo Dodd-Frank provisions even as the CFTC and other regulators are trying to complete the overhaul. The House panel’s moves were assailed by Senator Carl Levin, the Michigan Democrat who last week released a report and held a hearing on a derivatives bet that cost JPMorgan more than $6.2 billion in 2012.
‘Watering Down’
“Last year, some members of Congress supported watering down Dodd-Frank derivative safeguards, but abandoned those efforts after the world learned that JPMorgan Chase had lost billions of dollars on derivative trades,” Levin said in a statement. “It is incredible that less than a week after new JPMorgan Whale hearings detailed how the bank’s London office piled up risk, hid losses, and dodged regulatory oversight, that some House members are again supporting the weakening of derivative safeguards.”
One measure, approved on a 31-14 vote, calls for altering a requirement that banks with access to deposit insurance and the Federal Reserve’s discount window move some derivatives trades to affiliates that have their own capital. Commodity, equity and structured swaps tied to some asset-backed securities would be allowed in banks under the legislation.
“You’re putting the taxpayers on the hook,” said Representative Collin Peterson of Minnesota, the panel’s top Democrat, at the hearing. “This could come back to haunt you.”
Opposed Changes
Americans for Financial Reform, a coalition including the AFL-CIO labor federation as well as other unions and consumer groups, has opposed changes to the so-called push-out rule.
A second bill would require the CFTC and SEC to complete joint rules defining when swaps rules apply to cross-border transactions. The full rulemaking process requires agencies to conduct analysis of costs and benefits; federal courts have overturned rules based on inadequate economic assessments.
The CFTC’s proposed guidance, which lacks an economic analysis, has spurred opposition from JPMorgan, Goldman Sachs Group Inc. (GS) and other U.S. banks, which say they will be hurt compared with foreign-based rivals.
“What this bill is is an attempt to derail the guidance and tie down the ability of the CFTC to do anything,” Marcus Stanley, policy director for Americans for Financial Reform, said in a telephone interview.
Joint Determination
Representative David Scott, a Georgia Democrat, said the measure allows the two agencies to jointly determine if rules should apply to certain countries. He said Dodd-Frank’s other requirements for bank registration and higher collateral and clearing standards limit the “re-importation of risk” from other countries.
Additional legislation approved today exempts commercial and manufacturing so-called end users from having to post collateral to support trades. A separate bill advanced prevents trades between company units from being considered swaps and subject to clearing and other Dodd-Frank regulations.
Thanks for the red meat! I agree with the poison pill for these banks, but the problem is that, when they go down, they take a lot of us down with them! Better to avoid the disaster in the first place. The Republicans in the House are taking Dodd-Frank the wrong direction. The CFTC needs to get off their butts and bring the Wall Street derivative traders under control before we get to their next round of bank self-destruction. If there is anything we have learned, as Greenspan belatedly confessed, financial markets are not self-regulating -- quite the contrary.
ReplyDeleteThe error in your thinking is that you think that government can out regulate those who will avoid the regulations. Regulations always are behind the actors and they never catch up.
ReplyDeleteAll you have to look at is regulations relating to cell phones, texting and privacy. Laws are always playing catch up.
It is better to accept that there will be some collateral damage as a result of the first bank that is not saved, but it will be a strong shot across the bow of the rest of the industry.
They were under control for 50 years from the Great Depression to 1980. It is no coincidence that all these banking disasters happened after deregulation began. They CAN be brought under control again. They know it. That is why they spend hundreds of millions lobbying Congress and financing Republican candidates in elections to block regulation. They have been working very hard to prevent CFTC from enacting capital requirements and other rules post Dodd-Frank. Elect Rand Paul and watch what he does to the Federal Reserve. He is their worst nightmare. You missed your chance to vote for Ron, but Rand is coming in 2016. Did you notice that he won the CPAC straw poll? The "establishment" will launch a war against him in the 2016 presidential primary. This is the only way to stop Wall Street.
ReplyDelete--David
P,S, I agree they will always try to work around regulations. It is an ongoing process of adapting to their moves, much like the struggles between cyber security and hackers. But the fact that hackers will find ways to defeat your security is not a reason to surrender to them. Same goes for Wall Street. Nobody said this is going to be easy.
"So, yes, people have learned their lessons, the real lessons of the financial crisis. JPMorgan repeated the same misdeeds that other banks successfully pulled off at the height of the financial crisis: mismarking portfolios of assets and misleading the public. This was condoned by regulators. Regulators and prosecutors have been averting their eyes for years from rotted bank assets and rotted bank morals; why would JPMorgan expect any different reaction in this case?"
ReplyDeletehttp://dealbook.nytimes.com/2013/03/19/jpmorgan-chase-inquiry-reveals-status-quo-after-financial-crisis/?WT.mc_id=BU-D-I-NYT-MOD-MOD-M297C-ROS-0313-L2&WT.mc_ev=click&WT.mc_c=211781
Amen! And, yes, old Sam Levin is a real American hero. He nailed their skins to the wall in that hearing. I watched the whole thing on C-SPAN.
--David (OWS)