Front page of the NY Times goes over the shameful behavior of banks — one of the primary causes of the entire crisis — using bailout money to pay lobbyists to maintain the regulatory status quo.

Its yet another reason for why they should have been put into bankruptcy once they became insolvent.

So far, the Obama administration approach to bailouts has been to keep running Bush Economic term III. They have been far too kind (genteel even) showering taxpayer monies  on the incompetents and fools who drove their firms over the abyss. Indeed, its all but impossible to see where the largesse of the Bush bailout policies ends and the Obama bailout policies begins.

If today were November 2012, I would not vote for this team. As far as the banking sector is concerned, this gang is no different than the knaves and dolts who came before. It is more of the same irresponsible, expensive and reckless  policy that preceded them.

That anyone is even debating pulling Derivatives out of the shadow banking system and putting them into a regulated derivatives exchange — transparent, reserved for, counter-party guaranteed, exchange supervised –  is embarrassing for our nation, its corporate and political leaders.

Oh, well, back to business as usual . . .

Excerpt:

Today, just as the bankers anticipated, a battle over derivatives has been joined, in what promises to be a replay of a confrontation in Washington that Wall Street won a decade ago. Since then, derivatives trading has become one of the most profitable businesses for the nation’s big banks.

The looming fight over regulation is the beginning of a broader debate over the future of the financial industry. At the center of the argument: What is the right amount of regulation?

Those who favor more regulation say it would offer early warning signals when companies take on too much risk and would help avert catastrophic surprises like the huge derivatives losses at the giant insurer the American International Group, which has so far received more than $170 billion in taxpayer commitments. The banks say too much regulation will stifle financial innovation and economic growth.

The debate about where derivatives will trade speaks to core concerns about the products: transparency and disclosure.

There are two distinct camps in this argument. One camp, which includes legislative leaders, is pushing for trading on an open exchange — much like stocks — where value and structure are visible and easily determined. Another camp, led by the banks, prefers that some of the products be traded in privately managed clearinghouses, with less disclosure.

The Obama administration agrees that more regulation is needed. A proposal unveiled recently by Treasury Secretary Timothy F. Geithner won plaudits for trying to make derivatives trading less freewheeling and more accountable — a plan that hinges in part on using clearinghouses for the trades.

Critics in both the financial world and Congress say relying on clearinghouses would be problematic. They also say Mr. Geithner’s plan contains a major loophole, because little disclosure would be required for more complicated derivatives, like the type of customized, credit-default swaps that helped bring down A.I.G. A.I.G. sold insurance related to mortgage securities, essentially making a big bet that those mortgages would not default.

Go read the full piece.

>

Previously:
Idiots Fiddle While Rome Burns (July 16th, 2008)

http://www.ritholtz.com/blog/2008/07/idiots-fiddle-while-rome-burns/

Source:
Even in Crisis, Banks Dig In for Fight Against Rules
GRETCHEN MORGENSON and DON VAN NATTA Jr.
NYT, May 31, 2009

http://www.nytimes.com/2009/06/01/business/01lobby.html

Category: Bailout Nation, Bailouts, Credit, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

44 Responses to “Busted Banks Rebuff Regulation”

  1. Mannwich says:

    The O administration knows full well who’s in charge. The banks run the show in the U.S. and around the world and they know it. The hold the cord and can pull it at any time.

  2. Stuart says:

    “That anyone is even debating pulling Derivatives out of the shadow banking system and putting them into a regulated derivatives exchange is embarrassing for our nation, its corporate and political leaders.”

    BR for President!!

  3. willid3 says:

    i can’t imagine that wall street will actually get their way. but then i am to optimistic that nobody is that dumb

  4. Onlooker from Troy says:

    Yep, it’s a new group of idiots but they’re still fiddling while the place friggen burns under the surface. (reference your post of last year)

    The bankers are going to need their money to build fortresses to live in to keep out the masses one day when it all goes to hell (again, but worse). We can only hope for pitch-fork-ed mobs. Nothing will change until our politicians are more afraid of the people than of the bankers.

  5. km4 says:

    China Pushes Hard
    http://snipurl.com/j7d33

    Is Mr. Geithner trying to persuade China to reflate a new version of our financial bubble?

    Of course he is because financial engineering and consumer spending ( 70% of GDP ) are key drivers for the debt laden ‘bubble’ US economy.

    And Obama and his Wall St bought and paid for economic team have put all their chips on the Banking Oligarchs !

    This will not end well….

  6. AmenRa says:

    This is where the big money is made. I believe JPM currently controls the trading of derivatives (they have the largest notational amount). To lose that would put a very large dent in their profits.

  7. Mike in Nola says:

    It’s certainly change I never believed in. Looks like no one ever read the campaign finance reports.

    Hussman has a good post today on what awaits if things don’t change:

    http://hussmanfunds.com/wmc/wmc090601.htm

    I thought his observation on academics was correct. It was amazing how petty a bunch of Ph.D.’s in a small time math dept. could be.

  8. call me ahab says:

    “So far, the Obama administration approach to bailouts has been to keep running Bush Economic term III. ”

    true- and to what end- another loser running the show

  9. franklin411 says:

    @Stuart
    If BR won the Presidency, that would be only 1/4 of the battle. He would still need to win the House of Representatives, the Senate, and the Supreme Court to be assured of seeing his agenda enacted.

    @Barry
    I’m sorry, but your response seems out of whack. You blame the President for…what…not being a dictator? I agree with you that the financial industry exercises far too much clout in DC, but that is the reality of a representative democracy. Nothing gets done without 51 votes in the Senate, and more recently, without 60 votes. That is simply political reality, and I applaud the President for recognizing that incremental change is better than no change at all.

    What many people fail to realize is that the Democratic Party is a big tent. We have liberals like Barbara Boxer (D-CA) and right-wingers like Ben Nelson (Democrat-Republican-NE). I would say there are about 50 reliable Democrats in the Senate, and the remaining members are only nominally Democrats. More accurately, Senators such as Ben Nelson are Republican liberals who would have been Republicans 30 years ago, but who have no home there now. This is political reality, and I lament it. But the people to blame and the people to lean on are those 10-15 unreliable Democrats in the Senate, not the President.

    Also, it hasn’t been made clear what alternatives there are/were to the current course, or more accurately, what the *real cost* of the proposed alternatives would have been. It’s easy to just say “let em go bankrupt.” What would that have really cost, though? Has it been studied?

  10. Mike in Nola says:

    Hey F411: I’ve been a dem much longer than you’ve been alive. The trouble is, this ain’t Dem policy; it’s crony capitalism.

    The PPIP, or whatever the order of the P’s in it, is does not require congressional approval. It’s the Fed, Treasury and FDIC doing an end run around a congress that it knows will not approve more bailouts.

  11. franklin411 says:

    @Mike
    I’m not necessarily disagreeing with you, but Barry is wrong to look at the situation and completely ignore the role of the Senate in shaping what is possible.

    Anyway, I’m proud to say that I called both of my Senators and asked them to vote for the cramdown legislation. Both did. I even called that rat Ben Nelson, even though he’s not my Senator. If Barry wants to do an expose on what crony capitalism really looks like, he should do an expose on Ben Nelson!

  12. leftback says:

    The banks think they have won. Perhaps they have, but this is not the last battle.

    Ben22 was right, looks like a run to the SPX 965-1000 range is certainly possible here. Very quiet on the site today, in the past that has been a sign that we are close to a short-term top. Lots of chasing and panic buying now.

  13. I thought it would take a lot longer than six months for people to lose faith in the new great leader. I was guessing between the 1st and 2nd year. Even the pedestal gets tipped faster in internet time.

    We always knew though that O was bought before he walked through the door. You can’t get that high up without permission. I told you early in the year there is no way that 250 or so brainiacs are going to be able to stand the onslaught of 10,000 professional lobbyists who have had it their way for decades. This isn’t about brainpower. This is about sheer brute force

    Fortunately we are actually hearing about it instead of the truth being spiked by the MSM. Maybe if people can out scream the lobbyists something will get done. Then there is China.

    And here is something else that should cheer you up:

    Federal Reserve puzzled by yield curve steepening

    http://tinyurl.com/l9q43d

    I sure am glad they have the luxury of being able to learn on the job like this

  14. leftback says:

    While we are on the subject of truth, can anyone explain to me how incomes managed to “surge” this morning, even as unemployment marches inexorably past 9%…??

  15. Onlooker from Troy says:

    LB

    Panic buying for sure. Funny line I saw elsewhere – 1-800-GET-ME IN

    VIX tapered off a bit but it’s still up with the market. At this point I’m rooting for it to go straight up as fast as possible so we can get a blow off top. I know that the bulls just laugh at those who are cautious here. But they really don’t understand just what kind of market dislocations we’re seeing here and the implications of it for our economy.

    At some point I think that even Bernanke and crew will be worried about what kind of monster they’ve helped create.

  16. call me ahab says:

    lftbk-

    here is one explanation-

    “The income data was skewed by the stimulus, where unemployment insurance was accelerated and extended. If you take that out it doesn’t look as good as it seems,” said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.

  17. Mannwich says:

    @leftback: Raises for bankers, perhaps? Just kidding, but you’re right, this doesn’t seem possible. I don’t know too many people who are getting pay raises in this environment.

  18. Mike in Nola says:

    Lefty: “Unfortunately, the income gain was largely due to increased government social benefit payments, including unemployment insurance.”

    This is from Bloomberg, who actually provides some analysis with the reports:
    http://www.bloomberg.com/markets/ecalendar/index.html

  19. Onlooker from Troy says:

    LB

    http://www.calculatedriskblog.com/2009/06/consumption-down-saving-rate-increases.html
    “The pattern of changes in income reflect, in part, the pattern of reduced personal current taxes and increased government social benefit payments associated with the American Recovery and Reinvestment Act of 2009.”

    Just more deficit spending and shifting of debt from the private balance sheets to the Federal govt balance sheet. We’re spending future generations’ money. But that’s the plan, of course. Wonderful Keynsian economics gone wild.

  20. Jdamon33 says:

    If Obama let’s the banks off the hook without fixing the issues that got us into this mess, I will consider him a complete and utter failure. To not take advantage of a situation where you have all but saved every last major bank in the US through taxpayer funds would be tatimount to the US conceeding the war to Japan after bombing Hiroshima and Nagasaki.

    I hope BHO has more integrity and gumption than that.

  21. Mr Objective says:

    mid-900′s are huge for the S&P. The bull market stalled there in ’97, the ’98 and 9/11 crashes stopped there and all of the rallies in ’02 stopped there.

    This morning, I added short S&P, Euro, and sterling positions to my short silver position from Friday.

    I agree with LB on the board being quiet. It’s a good sign.

    I don’t think the rally is ending. It’s just that to me the odds finally well favor a mini-pullback.

  22. km4 says:

    The Beginning of the End of Business As We Know It
    http://bit.ly/CP48y

    “…What we are seeing is a collapse of *crony* Capitalism…which is very different from free market Capitalism.”

    Hard work doesn’t matter. Doing or being better doesn’t matter. What does? Connections, deep pockets, inside info, and — most perverse — a lack of ethics. The less ethics matter to you, the more you’ll bid, for example, to run the government’s books.

    It’s a shame that our President — who’s actually pretty bright — has turned out to be the economic equivalent of Dubya, at the time we needed economic competence the most.

    Business as we knew it is fast coming to an end. Here’s what the Obamaconomy looks like. The government champions funds. Funds champion corporations. Corporations champion markets and industries. No one champions people (because they don’t count).

  23. call me ahab says:

    Jdamon33 Says:

    “I will consider him a complete and utter failure.”

    he is a complete and utter failure- what can he do at this point- he’s made his decision- I saw the writing on the wall when he chose Geithner as Treasury Secretary-

    the bankers got what they wanted

  24. dead hobo says:

    It’s not going to happen. If the Federal Reserve, which is legally bound to fight inflation, won’t even acknowledge asset bubbles or first or second round effects from commodity bubbles, then no meaningful regulation is possible. It will take the utter and complete collapse of the economy for any meaningful change to be realistically considered. And it will be corrupted by the banks, you can be sure. This will be in about two years.

  25. hopeImwrong says:

    SRS getting killed. New lows. I can’t imaging being short through this. When will the last short QUIT?

  26. call me ahab says:

    hopeimwrong-

    the problem is the market makers are not pursuing short positions- my feeling is there is a verbal agreement to not short- thus- the market continues its ascent unabated- no retrace- just up-

    nothing more realistic than that

  27. Jdamon33 says:

    Leftback, I know it hasn’t gone well for you, but are you considering doubling down on your SRS? Manwich, you holding through this short squeeze as well? I’m really considering buying some SDS at these levels, but catching a falling knife is no fun (I know as I’ve done it countless times over the years trying to be “smarter” than everyone else).

    Who else wishes they had the conviction of Steve Barry right about now? QID has been getting pounded day after day after day…..

  28. matt says:

    A government that relies on its primary dealers as conduits for financing a budget deficit will always act in their interests.

  29. Groty says:

    This is a difficult issue. I’m all for regulated exchanges, and they will help, but people will get around it.

    For example, standardized options are derivatives that trade on regulated exchanges and clear centrally, but that doesn’t prevent parties from entering into customized options that don’t trade so they obviously don’t clear centrally. Futures contracts are standardized, but are you willing to tell someone as large as Cargil they can only contract on the CME? Where to draw the line?

    Freedom to contact is the foundation of the system. Telling parties they can’t contract will have a chilling effect on commerce and finance.

  30. I-Man says:

    @ Ahab:

    “the bankers got what they wanted”

    And they paid for it too… now, who was it that gave the most money to BO?

    http://www.opensecrets.org/pres08/contrib.php?cycle=2008&cid=N00009638

  31. Mannwich says:

    @jdamon33: No, see comment from earlier thread. I’m mostly cash now, along with GDX, DIG, DRYS, and some emerging market plays. I took my ball and went home.

  32. @leftback http://www.ritholtz.com/blog/2009/06/busted-banks-rebuff-regulation/comment-page-1/#comment-178233

    While we are on the subject of truth, can anyone explain to me how incomes managed to “surge” this morning, even as unemployment marches inexorably past 9%…??

    It is a simple reason in union shops. Due to seniority, they have to lay off the cheap seats guys first so the folks with the lowest seniority and pay tend to get axed first. I don’t know if buyouts are factored into income measurements but that could also contribute to the boosting of incomes.

    Another factor, and I’ll remind you I’m digging this out of the trivia closet in my head here, is that the least valuable employees should be the first ones to go. They would also presumably be the lower paid ones. After all, if they don’t know where the copier paper is hidden what are they being paid for?

    I have heard that productivity is also affected by this as well. Since you are usually laying off the newest people and thus the least trained and productive, a company’s productivity can go up in a tough economy in the midst of layoffs.

    rip at will folks :)

  33. bubba says:

    Jdamon33 said:

    “Who else wishes they had the conviction of Steve Barry right about now? QID has been getting pounded day after day after day…..”

    methinks when steve barry throws in the towel will pretty much be it for this bear rally.

  34. Pat G. says:

    “Busted Banks Rebuff Regulation”

    Well of course they do. So do welfare, unemployment and Social Security recipients. However, the latter is forced to conform or they don’t get assistance. Wouldn’t it be great if this country had just one set of laws or rules for everyone? Keep dreaming.. Money talks and BS walks. That’s what will end up leading to the fall of the U.S. and democracry as we know it.

  35. leftback says:

    LB isn’t given to panic or emotion. Some you win, some you lose, but another squeeze does not a bull market make.

  36. Christopher says:

    Up is down.
    Black is white.

    GM is up 14% today.
    LOLOL

    So what happens when the FDIC goes broke??
    http://www.businessinsider.com/chart-of-the-day-deposit-insurance-fund-balance-2009-6

    PS
    30/30/30/10 – QID/SDS/TBT/GLD

    I’m still betting that reality will win in the end.

    But it does all remind me of a song.
    :)
    http://www.youtube.com/watch?v=5uEeKAXkiAE

  37. [...] Ritholtz at the Big Picture is fed up with the banking bailout: Front page of the NY Times goes over the shameful behavior of banks — one of the primary causes [...]

  38. seneca says:

    Politicians giving taxpayers’ money to corporations who then use the money to pay lobbyists to sway the politicians is not exactly an unknown practice inside the Beltway. Everyone is in favor of recycling, no?

  39. Wes Schott says:

    …total bs

    why would all aspects of the deal not be transparent?

    because, someone is pulling a fast one

  40. [...] I lamented that “So far, the Obama administration approach to bailouts has been to keep running Bush [...]

  41. [...] blood from the host until it (the host) expires. Barry Ritholtz of The Big Picture, says in an article yesterday morning:It’s yet another reason for why they should have been put into bankruptcy once [...]