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Politics : Politics for Pros- moderated -- Ignore unavailable to you. Want to Upgrade?

To: LindyBill who wrote (344806)	1/21/2010 6:14:52 PM
From: nrg_crisis	Read Replies (1) \| Respond to of 793896

President Obama has outlined a new banking proposal: >> The White House wants commercial banks that take deposits from customers to be barred from investing on behalf of the bank itself — what's known as proprietary trading — and said the administration will seek new limits on the size and concentration of financial institutions.<<< The first, and core, concept of the proposal is the re-segregation of commercial banking from proprietary trading (or roughly what used to be called commercial banking from investment banking). This is an excellent proposal. If you want to have a safe, secure banking system for small depositors, but don't want to make risky investing illegal (which would be very damaging to the economy), the obvious solution is to not allow any one company to both take guaranteed deposits and also make speculative investments. This was the solution developed and implemented in the New Deal. We need a modernized version of this basic construct, and as far as I can see, this is what President Obama has proposed. Right. The New Deal solution was the Glass-Steagall Act en.wikipedia.org which made investment banking and commercial (deposit-based) banking separate enterprises - the same firm couldn't do both. Glass-Steagall was repealed in 1999. I am firmly of the opinion that the financial mess of the past few years was enabled by the repeal of Glass-Steagall. Obama's announcement today went partway back toward Glass-Steagall, but not very far. He proposed that commercial banking institutions not be allowed to have their own hedge funds or private-investment arms. But that still leaves a lot of room for commercial banks to run investment divisions and get themselves in trouble in the same way again. I would think that the current environment with voter anger toward fat Wall Street bonuses would be an opportune time to re-institute Glass-Steagall. Why not just do that? And, btw, Obama's tone toward banks that he predicted during his announcement "will fight" him was waaaaaaaay tougher and more resolute than anything I've seen or heard from him toward, say, Iran or Venezuela or Hamas. Guess he still thinks he's 'speaking truth to power'. Puh-leeze. Nick

To: LindyBill who wrote (344806)	1/21/2010 6:37:47 PM
From: LindyBill	2 Recommendations Respond to of 793896

More Like a Bogus Journey [Stephen Spruiell] Jim, I have to disagree with some of what you say in your post. While I agree that it might be a good idea to put new restrictions on the investment banks now that they've converted themselves into bank holding companies for the purposes of accessing cheap money from the Fed, I disagree when you list as a major cause of the current crisis commercial banks gambling with insured deposits. Bear Stearns, Fannie, Freddie, Lehman, AIG — none of these firms got in trouble making large bets with insured deposits. They got in trouble making large bets with too much borrowed money and too little capital to back them up. Of all the approaches to financial regulatory reform that are floating around — bans on exotic derivatives, limits on firm size, stricter capital requirements, smarter compensation structures, the creation of a "resolution authority" for systemically large firms — the "return to Glass-Steagall" approach makes the least sense to me, because the repeal of Glass-Steagall didn't blow up the financial system, and may have helped contain the fallout. As other commentators have noted, Bank of America would not have been able to acquire Merrill Lynch under the old rules. Even more irksome is the administration's continued refusal to acknowledge the role policymakers played in inflating the housing bubble. In the president's speech today, he placed the blame squarely on the "banks and financial institutions" which "took huge, reckless risks in pursuit of quick profits and massive bonuses." He even had the gall to praise the leadership of Barney "Roll the Dice" Frank and Chris "Friend of Angelo" Dodd in crafting the new reforms. By the way, I'd like to take a moment, in the midst of all this bonus talk, to note that the current CEOs of Fannie Mae and Freddie Mac are expected to take home around $6 million apiece for 2009 in all-cash, no-stock compensation packages. These firms will not pay the "Financial Crisis Responsibility Fee," despite the large role they played in the crisis. And the administration, while calling for new limits on bank debt, is simultaneously dismantling limits on GSE debt, lifting the caps on their government credit lines and slowing the mandatory unwinding of their portfolios. Like you, I would feel more comfortable taking a position on the administration's bank-reform plan after seeing more details. But what I've seen so far is not very excellent at all. The Corner on National Review Online (21 January 2010) corner.nationalreview.com