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Busted Banks Rebuff Regulation

Posted By Barry Ritholtz On June 1, 2009 @ 10:30 am In Bailout Nation,Bailouts,Credit,Regulation | Comments Disabled

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.

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Previously:
Idiots Fiddle While Rome Burns [1] (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 [2]
GRETCHEN MORGENSON and DON VAN NATTA Jr.
NYT, May 31, 2009

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


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2009/06/busted-banks-rebuff-regulation/

URLs in this post:

[1] Idiots Fiddle While Rome Burns: http://www.ritholtz.com/blog/2008/07/idiots-fiddle-while-rome-burns/

[2] Even in Crisis, Banks Dig In for Fight Against Rules: http://www.nytimes.com/2009/06/01/business/01lobby.html

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