Senator Kaufman: Reform That Will Prevent The Next Financial Crisis
Your weekend reading assignment is this terrific long form piece by Senator Ted Kaufman, titled Wall Street Reform That Will Prevent The Next Financial Crisis.
I do not know anything about him other than to say that he understands the recent crisis and is proposing reasonable fixes.
The Senator wants to restore Glass-Steagall, and repeal the Commodity Futures Modernization Act of 2000. He supports the Volcker rule and is against TBTF. He favors cutting the behemoth banks down to size, and wants to give a “too big to fail” resolution authority to a single entity.
That’s a good start as anything else floating around D.C. . . .
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Source:
Wall Street Reform That Will Prevent The Next Financial Crisis
Senator Ted Kaufman
March 11, 2010
http://kaufman.senate.gov/press/floor_statements/statement/?id=aca5b91a-6e51-4d6b-a367-414ad9641500
WALL STREET REFORM THAT WILL PREVENT THE NEXT FINANCIAL CRISIS (PDF 163.7 KB)
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March 12th, 2010 at 4:33 pm
Lotsa Senators and their reprobate brothers in the house “Favor” lots of reforms that will avoid the dismantling of the middle class.
They just don’t as a group, do anything to stop it.
Politics is all about APPERARING to do something.
March 12th, 2010 at 5:01 pm
Hey BR what do you think of Alan Graysons new bill HR4789.
http://market-ticker.denninger.net/archives/2075-Alan-Grayson-Tossed-Out-A-Hardball.html
March 12th, 2010 at 5:14 pm
So I read 3 pages. He doesnt get it.
1) This crisis was driven by a HOUSING BUBBLE and BURST
2) Again, this crisis was driven by a housing bubble… real estate speculation on all sides — regular citizen, professional developers, financial companies large and small, and enable by govt policies and regulators. Please try to fix that!
3) See #1
While I dont disagree with a broad, slow move back to Glass-Steagall, it had NOTHING to do with 2008.
For example — Bear, Lehman, Fannie, Freddie, AIG — ALL had nothing to do with the repeal of Glass-Steagall.
I could go on, and on. But how does a piece that doesnt mention HOUSING?!? “Get it”?
Actually, I just searched for “housing” and “real estate”. Neither is mentioned 1x. Ha!
March 12th, 2010 at 5:26 pm
There will always be another financial crisis as long as the economy is a capitalist one, at least. How could any reform prevent this?
rc
March 12th, 2010 at 5:45 pm
Senator Ted Kaufman was one of the leading congressional critics of the SEC and proponents for reinstating the uptick rule as well as adding even more restrictive measures on legitimate (i.e., non-naked) short selling. From his office, his press release detailing legislation he introduced approximately one year ago:
http://kaufman.senate.gov/press/press_releases/release/?id=4d7aeae2-1ea1-42da-acf1-b3cb2f1aa230
While a number of his thoughts on financial are well grounded, others suggest the conclusion that “he understands the recent crisis and is proposing reasonable fixes” is probably a bit of an overstatement.
March 12th, 2010 at 6:09 pm
I think an excellent way to help prevent a repeat is to send a lot of people to JAIL! Let’s face it there was massive fraud gong on. It is time to punish these people!
March 12th, 2010 at 6:36 pm
Admittedly, there were lots of problems with the banks and the amount of leverage in the system, but tell me he used all these words about the crisis and did not mention “Fannie and Freddie”. You gotta be kidding me.
March 12th, 2010 at 7:06 pm
@ rootless_cosmopolitan
Answer: Actually adhering to the principles of Capitalism instead of keeping dead industries alive on subsidies by the people and printing money, an economic system that bears about as much resemblance to Captialism as a politician does to an honest whore.
You do know what Capitalism, don’t you?
March 12th, 2010 at 7:20 pm
@cognos
Housing was simply the latest and most damaging target of the banksters. The last straw if u will.
The financial system has not been allocating capital effectively within the broader economy for the last 20 years.
March 12th, 2010 at 7:58 pm
How sad it is that after we vote a Senator or Congressman into office to represent us, we then have to join PACs to keep them from completely ignoring us and selling us and our country down the river.
NRA, FAIR, AARP, etc., etc. You would think Senators and Congressmen would be happy taking huge bribes from lobbyists and try not to destroy the entire economy and the Bill of Rights as well.
I expect the 10th Amendment movement at the State level to really take hold. Short of a Constitutional Convention, there is no other way to stop the maniacs in DC from destroying what remains of our country.
March 12th, 2010 at 9:21 pm
@flipspiceland:
“You do know what Capitalism, don’t you?”
I am talking about the really existing capitalism, based on the separation between ownership of the means of production and the ones who apply the means of production, where the goods/services are produced for a market and which is politically organized through an international state system with governments, that was born in Europe in the 16th century and has historically developed and was spread all over the world since then, with its inherent laws of economy.
What capitalism are you talking about? About some “free-market capitalisms” whose ideal functioning is allegedly prevented by the wrongdoing of evil governments, that has never existed and will never exist in reality, only in some libertarian fantasy?
rc
March 12th, 2010 at 9:47 pm
@cognos 5:14 pm
Here is the connection between Glass-Steagall and housing:
Under Glass-Steagall, the banks that issued mortgage loans could not securitize them and slice & dice them into CMOs, CDOs, SIVs, etc. There was a wall between securitization and mortgage lending. With the repeal of Glass-Steagall, you had Bear Stearns, Lehman, Goldman, etc, etc getting into the business of hiding risk and selling the disguised product to everyone, everywhere. When the leverage limits on the investment banks was lifted in 2003, they could pyramid this crap to the moon. And did. But the fact is that without the repeal of Glass-Steagall, the very existence of CMOs could not have happened, because mortgages and the securities business were kept separate.
March 12th, 2010 at 10:00 pm
Unless Senator Kaufman manages to amass a substantial body of support in the senate, this is going to amount to nothing, and could well be nothing more than smart politics — supporting populist causes that stand the chance of the proverbial snowball in hell of ever becoming enacted legislation.
I simply cannot see the reforms he proposes ever coming to pass without a magnitude 10 earthquake striking those in BOTH parties who are running for re-election in the fall. This could happen in parts — first, with a substantial fraction of incumbents failing to secure their party’s slot in the primaries this spring, and second, with those incumbents who DO compete in the fall 2010 election being defeated in large numbers. Then and ONLY then, Senator Kaufman might begin to gather significant support.
Remember the lesson of Barrack Obama — another pol who campaigned on rational-sounding stuff, and upon getting elected, stuck to the path of his predecessor, as just another acolyte of crony capitalism and ever-bigger government.
March 12th, 2010 at 10:03 pm
so thankful-
cognos said he could ” go on, and on”
but he didn’t-
a ” Miracle”
March 12th, 2010 at 10:14 pm
I’ll make a partial withdrawal of my suspicions about Senator Kaufman. He was appointed to fill out the remainder of Joe Biden’s term until a special election is held in 2010 to fill that vacancy — and he has stated that he will not be a candidate in that election. So he has no political ambitions here, and no reason to curry favor with the public in this manner.
However, without a bunch a really, REALLY scared senators getting in line behind him, this notion will never fly against the massed money of the financial lobbyists.
March 12th, 2010 at 11:22 pm
@cognos: Yeah dude. Correct.
So how did oil get to $147 a barrel?
Capitalism? Free market?
Another bubble?
Well yeah. You’re either on the inside looking for your billions or a paid shill.
Either way it doesn’t wash here.
You’re painting crap to the wrong blog site.
There are too many people on this site looking for honesty and integrity.
March 13th, 2010 at 12:28 am
We are already having the “Next” financial crisis.
SP500 is over 1150 and Dow 10600 without any meaningful reform.
It’s already too late for a reform.
March 13th, 2010 at 12:56 am
@rootless_cosmopolitan: I second your retort to flipspiceland.
I would only add to your description of actual capitalism–involving “. . . separation between ownership of the means of production and the ones who apply the means of production . . .”–the observation, made so long ago by Berle and Means, that corporate capitalism today also involves a separation of control (wielded by corporate management) from ownership (the vestigial capitalists known as shareholders). The recent financial crisis was nothing if not an object lesson in the downside of the “managerial revolution.” Jack Bogle has spent a good chunk of his career quixotically trying to turn the clock back to a better time for shareholders.
Free market dogmatists take as an article of their faith the position that capitalism can do no wrong. When the evils of capitalism are pointed out to them they reply, That’s Not True Capitalism.
The logic is absurd, but wildly popular. I’ve heard religious bigots defend their denomination in the same manner.
March 13th, 2010 at 1:01 am
Hell yes, anything that makes tarring and feathering banksters easier I am for!
March 13th, 2010 at 7:15 am
Maybe we need to get rid of all gobinment regulations and instead have laws that makes it illegal to rob people whether you use a gun or a pen to rob them. Maybe we need laws that make it a death penalty crime to destroy financial institutions and plunge the economy into a recession (lets get tough on financial crime). Maybe we need financial “traffic” laws to ensure that the flow of money is not completely chaotic but follows certain rules. I mean gobinment regulations is something that takes away my freedoms, laws is something that keep all those other bastards in line and punish them if they try to hurt me ;-)
March 13th, 2010 at 8:10 am
@DeDude … eh, what’s the difference between a “law” and a “regulation”? Please ‘splain that to me.
To distinguish between the two sounds a little like the oft-mentioned plea of senior citizens:
“No government health care! And for sure don’t touch my Medicare!”
The goal should be for BETTER regulation, not the elimination of it. Just like government. BETTER government would imply (at least to me) a smaller, more effective government that manages to do its job of (loosely) regulating society without dominating it, and squeezing private creativity+enterprise out the door.
Sadly, both Republicrat and Demonican parties insist the the best goobermint is the biggest goobermint (and of course, from their perspective, as free-loading carpetbaggers, it would be).
March 13th, 2010 at 8:39 am
“eh, what’s the difference between a “law” and a “regulation”? Please ’splain that to me.”
I don’t know. Ask Glen Beck and all the other right wing idiots on the sending and receiving end of Fox. For some reason they think the constitution will be destroyed and the cammunist will come and eat us, if we get more gobinment regulation. Yet they do not hesitate when it comes to just lining criminals and terrorist up against a wall and shooting them. So why don’t we build consensus by rephrasing the issues (if they can use that approach why should we be such smartypants that we can’t stup down to that level). Lets all be Americans and line those financial terrorists up against a wall and shoot them, and stop cuddling those financial criminals who don’t want to work and just want to rob hardworking americans. We need some real tuff laws to keep those lazy bastards under control ;-)
March 13th, 2010 at 9:02 am
What the Wall Street banksters and their tools (Fox, Cato, Gobsters, blue dog “democrats”, etc.) have done, is to understand that you have to talk to the emotions not the brains of the idiot masses. Liberals say to themselves that this is “pretty simple to understand”, “I just have to explain it”. Well sorry pall if the receiving end has an IQ of 86 and just hacked down a 6-pack it may be beyond his comprehension. It’s all about using the right words to trigger the right emotions and be part of the tribe, not part of that annoying brainiac tribe that everybody hates because they makes everybody feel so inadequate. Use common sense (i.e. emotions), not fancy brainiac arguments and facts.
March 13th, 2010 at 9:40 am
[...] it’s still a good bill.) Meanwhile, here’s one commonsense take on reform (hat tip, Big Picture) from Delaware Senator Ted Kaufman. He wants to essentially reinstate Glass-Steagall, regulate [...]
March 13th, 2010 at 10:02 am
@ rootless — agree 100%. booms and busts (and even crises) are normal parts of capitalism. it will happen again, and thats ok.
@ constantnormal — 100% INCORRECT. Nothing in “Glass Steagall” prevents the mortgage finance business as run by Bear/Lehman with securitization, derivatives, tranches, etc. It was being run in 92, 94, 96 BEFORE the repeal of Glass-Steagall. All it does is separate the activities of ibanking/trading from the normal large deposit banks. This had little to do with mortgage finance and even less to do with the crisis.
March 13th, 2010 at 10:20 am
@rc
So call it something else. Why denigrate a system that hasn’t even been attempted?
March 13th, 2010 at 3:21 pm
@flipspiceland:
“So call it something else. Why denigrate a system that hasn’t even been attempted?”
Why should I call the really existing capitalism by a different name? I call it how it has been called in theoretical essays, politics, and ideology both by its supporters and its critics for a few hundred years now. And I don’t denigrate your utopia when I talk about the real capitalism, although I haven’t heard any convincing arguments why the libertarian utopia would work, and why it wouldn’t show the same phenomenons as the really existing capitalism, like the boom/bust-cycle, or growing income and wealth discrepancies between the upper and lower strata of society. I don’t even ask how you imagine to get from the currently existing society to this utopia. The libertarian utopia would still be founded on an economy that is driven by investing and producing for profit and capitalist competition, i.e., its internal dynamics would still be government by the same inherent laws of economy that generate the instabilities and internal conflicts of the really existing capitalism. Actually, the capitalism that was analyzed by Marx in “The Capital” is a quite good approximation of the libertarian “true” capitalism, since Marx didn’t take government control, intervention, regulation for his logical synthesis into account. So this analysis is most valid for a capitalism without a government actively intervening in the economy. The theoretical challenge is rather how government intervention in modern capitalism modifies the analysis and the results from this analysis.
rc
March 14th, 2010 at 5:36 am
1) The allocation of money or Capital by free people making free choices with the most widely accepted medium of exchange and
2)Treating others as you would like to be treated.
All the other rules pale in significance.
March 14th, 2010 at 11:59 am
A big, possibly fatal, flaw in this analysis is the lack of attention to the international scope of the problem. Has everyone forgotten how, when it all started hitting the fan, we all started watching weird foreign metrics such as libor?
In the unlikely event we do see major reforms along the lines proposed begin to enter serious discussion with realistic prospects for implementation, the financial industry will vociferously point out that their offshore competitors will simply fill the gap created by domestic US rules, and they’ll be right. The eurodollar market (huge), for example, developed at least in part as a way of getting around US domestic policy (seizure of Soviet funds, reg Q caps, reserve requirements, etc.).
The epicenter of the crisis wasn’t New York alone, it was London interacting with New York interacting with Zurich interacting with Tokyo interacting with Hong Kong interacting with Beijing, etc. Any fix will need to be international in scope for it to have any hope of actually addressing the problem.
March 14th, 2010 at 1:49 pm
@ToNYC:
Whose rules are those? Where are they valid or be applied? For what and where are these rules relevant/significant?
rc