Legislation currently under consideration in the Senate would not have prevented the crisis we just had. As such, it is unlikely to prevent a future crisis.

Sign the letter below and join leading financiers, market experts, and former regulators from both political parties in demanding that Senators restore the integrity of our financial markets and lay the foundation for our economic recovery.

You can sign the letter by clicking anywhere below:

>

Category: Bailouts, 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.

25 Responses to “An Open Letter to Senators Reid and McConnell”

  1. DeDude says:

    6. Establish a timeline for the resolution of Fannie Mae and Freddie Mac????

    What the heck are those idiots talking about. Without F&F the housing market would have collapsed and the economy have been dropped right into Great Depression II.

  2. Tobias Funke says:

    When I first saw the picture I thought that it was from a website promoting a collaborative effort between those two…I quickly realized that could not be the case.

  3. giddyup says:

    1. Eliminates a perpetual system of government sponsored corporate bailouts financed by the government or private industry.

    Shouldn’t this be ‘make them smaller’, by definition ‘to big to fail’ means there is systemic risk, yes? If we just ‘let them fail’ we all die when the domino effect rolls over us all.

  4. RW says:

    What giddyup said: If both government and industry financed “bailouts” are forbidden then who pays for resolution of systemically critical financial institutions? You’re damn sure not going to pull another Lehman.

    Lumping together the requirement of a derivatives exchange and a central clearinghouse doesn’t make much sense either: The two are not essentially related to each other and there is only one of them that is critical: A central clearing requirement, possibly w/an end-user exemption (ht EoC at http://tinyurl.com/y7ln56x )

  5. flipspiceland says:

    I can’t sign it because the second word in the address is a lie. Mitch McCONnell is a yet another finance industry whore.

    There isn’t an honorable atom in the men and wimmin in government. If it were in quotes, meaning sarcasm ‘on’, then I ‘d sign it.

    Otherwise this just encourages them to don their royal garments and pretend to listen to the people while they make their deals in a back room to raise their own compensation thru one bribe after another.

  6. Patrick Neid says:

    Several of the points make perfect sense. Chance of passage, zero. Without the ability to delegate favors no party in the majority would ever pass such a bill.

  7. msaroff says:

    I think that you are sorely mistaken if you believe that Mitch McConnell has the slightest interest in governing or policy.

    It’s all about political gamesmanship for him, and to hell with everything else.

  8. Jonathan says:

    “The Honorable Harry Reid”, what a joke.

  9. VennData says:

    Jonathan’s angry.

  10. willid3 says:

    how will a market keep the next financial meltdown from happening? it doesn’t care if the whole thing were to collapse, as the result of market participants gaming it? as we have seen, there is no protection in a market that is made of humans.

  11. constantnormal says:

    The only way that Reid and McConnell could help “repair the foundation” is if they were to be entombed within it — Hoffa-style.

  12. cognos says:

    NO REGULATION will “prevent future crises”.

    The regulators had plenty of power. They lacked will. They lacked competence.

    Duh!

  13. willid3 says:

    while i suspect the Dodd bill won’t prevent it, but nothing will that Wall Street will allow to pass (short of a public uprising).

    and almost all ways those pushing a ‘market’ solution to a problem are the ones who created it, or were enriched creating a mess, that they want to create again.

  14. reddcharlie says:

    Oxymoron alert:
    “Eliminates a perpetual system of government sponsored corporate bailouts financed by the government or private industry”

    A government bailout of an industry, by definition, cannot be financed by the industry itself.

    If you want to parse words and claim that “sponsored” does not equal “financed” then you are essentially calling for the end of the FDIC, which is strange, as up to now I thought you were a big fan of the FDIC and Sheila Blair.

  15. reddcharlie says:

    And oh, yeah, markets are great but you still gotta have rules. And if the umpires don’t do their job you throw them out and give some new ones a chance (which is what happened in ’06 and ’08 ).

    Markets aren’t a panacea. You want a uber-free market where every bank is free to fail? Great! that’s just what we had in 1930. It won’t work now any more than it worked then.

  16. Robespierre says:

    The only thing that will prevent the “next one” is minimum mandatory sentences and full confiscation of all their possessions (including the ones passed to trusts and heirs) and dedicated a % of those $$ confiscated as commissions for SEC and FBI personnel who finds wrong doing in whatever rules we create. Don’t the banks say that bonuses attract the brightest and smartest? Well I want the same in law enforcement.

  17. Donald says:

    Reid’s approval rating is at 8%. I don’t think he cares enough read anything but a check with lots of zeros.

  18. RW says:

    Echoing Robespierre (and Warren Buffett at http://tinyurl.com/ydscpfx), chief executives now profit as if they were partners rather than employees and should therefore bear the same kind of personal responsibility for failure that partners do; independently of what limited liability means for all other corporate employees, leadership should be personally wiped out in the event of failure.

    Institutional and systemic reforms are clearly necessary but if chief executives can continue to walk away with their wealth intact after leading a corporation into failure then there is simply no reason to believe their looting will stop.

  19. Dennis the menace says:

    Not one of the more informative comment streams I’ve ever read on the Big Picture

  20. Every now and again I wonder if Mankiw doesn’t have the right idea, getting rid of them altogether

  21. [...] by Charles II on April 20, 2010 (Via Barry Ritholtz) I don’t usually sign petitions, but one that I decided to sign onto was on financial reform. [...]

  22. reddcharlie says:

    Don’t be such a sorehead. Anyway, you’re a big guy, you can take a bit of negative flack.

    RW and Robespierre are on the right track. As I have read, “Incentives matter.” And that includes negative ones (like jail time and greater liability for CEO’s) as well as positive ones (see Brad Delong on “Silicon Valley Compensation Schemes” http://delong.typepad.com/sdj/2009/03/needed-for-aig-and-the-tarp-silicon-valley-compensation-schemes.html)

    All this is to say that if CEO’s and top execs can pay themselves exorbitant salaries while running the company into the ground, they will do so, and all the market integrity in the world won’t stop them. So you need something in there about real punishment for bad boys.

    But you want a point by point commentary? okay, here goes:

    1) See my comment above. As stated, the first point sounds like an oxymoronic bone thrown to Republicans. Letting banks fail willy-nilly is not an option, we learned that in the Great Depression. FDIC type resolution for shadow banks is a great option, and beats the heck out of TARP style panicky bailouts, but it does require that we create some sort of FDIC-like institutional fund now. And yeah, it needs real teeth and a real leader like Sheila Blair. Of course, shadow banks don’t have depositors, but they do have counter-parties and bondholders.

    The Dodd bill, as best I can understand, calls for an FDIC-like fund that can quickly wind down a failed institution, put the management and shareholders on the curb while paying off creditors and thus minimizing the systemic damage. It’s not a bailout, it’s resolution. Without a resolution process, banks and bank-like institutions know they hold a gun to our collective heads if they don’t get a bailout. Bad as TARP was, it sure beat another Great Depression. But resolution would be better, much better.

    2) Yes, leverage is the poison, isn’t it? But the problem didn’t start with traditional banks. It started in the shadows. What percentage reserve to mandate isn’t the issue. What’s the issue is that it gets applied to everyone seeking the forbidden fruit of super leverage. Transparency helps, but what we really need is to apply the same set of rules to anything that acts like a bank (borrow short lend long) no matter what we call it.

    3) Yep, report all liabilities, and stock options should be recorded as an expense when granted, etc, but this is all Sarbanes-Oxley. That went into effect in 2002, and didn’t seem to help at all in 2008. More would be better, but don’t expect it to really get at the heart of the matter.

    4) AMEN!

    5) amen! (I think, but I really don’t understand it…sounds like a technical detail belonging under point 4)

    6) Sure, but like, whatever. And kill Acorn too while your at it. Oh, wait, they’re already dead. Guess we can all sleep easier now that those commie pinko whatevers aren’t you know, registering Mickey Mouse to vote. I mean, my gosh, just think of it. One day they might not’ve just registered Mickey to vote, they might’ve gotten him elected! Or, the horror, they might have gotten a black man elected president!!!! oh noes!!!!

    Sorry for the snark, but aren’t you the one who wrote that blaming CRA and the GSE’s is deliberately misunderstanding the problem? http://www.ritholtz.com/blog/2008/10/misunderstanding-credit-and-housing-crises-blaming-the-cra-gses

    Look, the GSE’s had their share of blame, but they were two institutions among many, and late to the party at that. The only reason that any ink is spilled on their behalf is due to that “G” for “Government Sponsored” which means the TeaBaggers can have an excuse to blame big bad gubbmint. And at the end of the day, everybody wound up being government sponsored… so… how about a timeline for resolution of sh1ttybank and AIG huh? Why is that not in your list?

    At this point, anybody who wastes my time blaming CRA or the GSE’s gives me reason to doubt their sincerity, and or their sanity.

    7) They’re not already! Lordy, yes, Ratings agencies need to obey the law, yes, I wholeheartedly agree. But more to the point, as I wrote above, Incentives matter. As you have written yourself, end the pay to play. No more payloa to S&P, Moody’s and Fitch.

    8) Sure, but really just a superficial change.

    Finally, what’s missing from your list is consumer protections. Don’t laugh. The end consumer needs their set of regs and protections too. I’ll punt to Krugman on this one (http://www.nytimes.com/2010/04/12/opinion/12krugman.html)

  23. GetReal1 says:

    To get something like this passed, will we have to start our own fund to convince (a.k.a. bribe) the senators ourselves? What a sad state this country is coming to.

    Odd rant:
    I’m 35, and I want to thank my parent’s/grandparent’s generation for screwing my generation over and over, we are going to have to pay for your mistakes, your welfare, your deficits, and your government waste. Oh, thanks for screwing over my children also. They would thank you themselves but they are too young to know better. Your generation wanted everything and took it no matter what the cost. Your generation hasn’t given a crap about the children nor this country. Freaking ME ME ME people, for once put the children first. If you can’t, is your life really worth living? I live and sacrifice for my children, when they are happy I am happy, who gives a crap about anything else.

  24. dsawy says:

    As for the banking proposals, if we enacted all of it, the bank fraudsters could still drive a truck through it.

    There need to be specific, concrete terms in the law that specify not only putting all liabilities on the balance sheet, but also that they’re marked to market. No exceptions. If they don’t look good on the balance sheet because there’s too thin a market, well, DUH… doesn’t that tell you something right there?

    As for “resolution” of Fannie/Freddie. Let’s assume for the moment that the government is going to be in the RMBS secondary market for some time to come. I think that’s a pretty reasonable assumption, BTW, as much as I’d prefer otherwise.

    Let’s take the stronger of the two, shoot the other one in the head and combine them both into just one. Freddie was created to give Fannie “competition” when LBJ put Fannie off the US budget in the 60′s and turned it into a quasi-private enterprise. If Fannie is truly and wholly a government enterprise (as it is now), there’s no reason for Freddie to exist.

    As for the credit ratings agencies: Yea, right. That’s a hoot. If they were subject to the same laws, guess what? Freddie/Fannie paper would have been downgraded a lot sooner, A whole lot of muni debt would be packing worse ratings right now, and sovereign debt might be likewise. The government is a beneficiary of the rating agency games up until now, with political hacks able to issue more debt for their vote-buying schemes at too low a risk premium.

  25. DeDude says:

    “The regulators had plenty of power. They lacked will. They lacked competence.”

    So I guess we need to ban GOPsters from becoming president. You cannot let someone who don’t believe in government, run the government. You don’t hire someone to do a job if they don’t believe the job can be done. Besides that the fact is that the regulators did not have the authority to dissolve the TBTF institutions. As a result the choice was between a bailout, or letting the economy collapse. We need the third option that this legislation will give us – the take-over and orderly dismantling of large institutions. And we need a lot more of the regulators “options/powers” to be mandatory, so even a GOPster president and his henchmen cannot fail to take regulatory actions.

    Market solutions to the problems created by the market is an oxymoron. Like any other human activity the activities in the market needs to be regulated and policed. We have to ban robbing people with a gun because otherwise everybody would be subjected to armed robbery all the time. We also have to ban robbing people with a pen for the same reason.