Our story so far:

Banks and investment houses spent the last 30 years pouring money into congressional elections, influencing regulations and oversight of their industry. They managed to exempt derivatives from any and all oversight, increase leverage from 12-to-1 to unlimited, repeal Glass-Steagall limits that kept Wall Street and Main Street Banks separated, create a new “Lend-to-securitize unregulated banks.

The most recent decade saw the rise on the Shadow banking system — it existed outside of any supervision or government regulations.

The end result of this: A Financial collapse, frozen credit, and the worst recession since the Great Depression.

Fast forward to the mid-term elections:

While most of the electorate is focused on Tax Cuts, deficit spending, the Tea Party, and who might have practiced witchcraft, my biggest concern is none of the above. The threat to long term economic health will be the attempted roll back of the re-regulation of the financial markets.

Milquetoast as Financial reform was, I fully expect a run at overturning the recent FIn Reg reforms. As hard as it is to believe, 1980s era deregulation-speak is already coming out of the not-yet elected, bank backed candidates and their deep pocketed corporate sponsors.

Consider this most recent bit of governmental genuflecting:

“The most powerful executives in the banking industry didn’t go to the government. The government came to them.

Ben S. Bernanke, the chairman of the Federal Reserve; Timothy F. Geithner, the Treasury secretary; and regulators like Mary L. Schapiro of the Securities and Exchange Commission and Gary Gensler of the Commodity Futures Trading Commission made their way last month to a room called the Nest at the Willard InterContinental Hotel in Washington. There, the members of a group called the Financial Services Forum awaited them.

The event with the forum, which is composed of chief executives, underscored how influential banks, brokerage firms and insurance companies remain in Washington, despite all the critical campaign rhetoric from the White House, Capitol Hill and other quarters. And Tuesday’s midterm elections are likely to leave them in an even stronger position, blunting the most serious overhaul of financial regulations since the Great Depression.

The widely expected prospect of a Republican takeover of the House of Representatives and possibly the Senate would be warmly welcomed by the banks, who want a break from the regulatory push of the last two years. Divided government makes it harder to pass new legislation and brings with it other benefits for the banks, like reducing the chances of an increase in corporate taxes.”

This is no accident — great gobs of money has been funneled to candidates willing to act as the bitches for the banks in DC:

“The example of Wall Street’s attempts to resist financial regulation—and the help provided by the Chamber—is an illustrative one. The Chamber pounced early on Congress to dissuade it from passing the Consumer Financial Protection Agency Act. Donohue’s troops mounted grassroots and media onslaughts around the country, dispatching local chamber officials and business members to lobby local lawmakers, and running local advertisements directly targeting them. In Montana, the Chamber aired an ad targeting Senator Jon Tester that showed a man lying awake in bed in the middle of the night, staring at the alarm clock, while a voiceover intoned, “Call Senator Tester. Tell him to stop the CFPA, because small businesses can’t afford more economic pain.” The Chamber put millions into this sort of advertising.”

As much as the Chamber of Commerce claims to represent business, it is actually “beholden to a cadre of multinationals whose interests are often inimical to those of small business. In 2008, a third of its revenues came from just nineteen companies.

Thus, regardless of the outcome of this election, sunlight and pressure must be maintained on those who would once again, allow the biggest banks to have their way with us . . .

>

Sources:
Financial Leaders Expect Shift of Power After Elections
NELSON D. SCHWARTZ
NYT, November 1, 2010 
http://www.nytimes.com/2010/11/02/business/economy/02wall.html

Show Him the Money
James Verini
Washington Monthly, July/August 2010
http://www.washingtonmonthly.com/features/2010/1007.verini.html

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.

30 Responses to “Post-Election Risk: Less Limits and Oversight of Banks”

  1. ByteMe says:

    Bill Maher is right.

    He said that the voters are like battered spouses who leave and then two years later say “Oh, Baby, I know you beat me, stole all my money and left me homeless, but I want you back so bad it hurts!”

    The voters are the ones with a pathetic lack of a spine. Not the politicians. We are their enablers by being too busy to be vocal and letting the corporatists take charge and then voting for the most corrupt when they bring out their “bread and circuses”.

  2. Petey Wheatstraw says:

    “and who might have practiced witchcraft”
    _________________

    The true witchcraft in our system goes by the name Voodoo Economics.

  3. [...] post-election risk is an easing up on the shadow banking system.  (TBP) [...]

  4. VennData says:

    The GOP will talk about ending restrictions on the strengthening “community banks” and how this will ‘help small business” and “great for the family farm.” That was what allowing community bank Lehman Brothers to lever up at 40 to one was all about, small business and family farms.

    …that is why we MUST allow banks to jack up the interest rate on credit cards without notifying you on prior balances. What a crazy left wing idea from Obama and his Socialist friends. …as you can see it’s been horrible for Mastercard earnings today. LOL.

    Oh and wait, once the GOP has control of Congress how all the businesses now “feel confident” about hiring and “feel great” about the future. Watch. I’m just letting you know in advance.

  5. philipat says:

    Yes, very valid and reasonable concerns which had been on my mind also.

    Nothing changes, life goes on and the system remains broken. It’s a real concern. The Corporatocracy prevails.

    What to do? Pitchforks?

  6. dss says:

    “governmental genuflecting”

    My new favorite analogy.

  7. wally says:

    Enforcement is an executive function, so control of Congress has nothing to do with it. If Congress is split, there will be no changes to legislation and even if it is not, things would be vetoed. So enforcement depends on the strength and will of the executive.
    Unfortunately, the best summary of the current executive is one I saw somewhere on the net: “He fakes left; he fakes right… he drops the ball!”

  8. AHodge says:

    I agree w this
    the Chamber of Commerce is the worst
    i watch them on TV trying not to sound like total whack jobs
    beyond the Financial Services Forum, the Chamber ran and major funded the Fair Value Coalition
    whos reason for being is to gut fair value accounting.

    BUT the damage and inaction already mostly done. How much more broke can finance get? Who was that you said just attended that lobbyists wet dream at the Willard?

  9. GuinnessFan says:

    Yes, I’d agree that the financial services industry will be allowed to get away with the biggest fraud ever perpetrated while a disgruntled public wonders what happened.

    Sadly, this country has become the world’s greatest experiment in dumbocracy.

  10. AHodge says:

    you are right of course on the banking consumer protections
    its the only thing passed worth the Rs gutting.
    and they will ensure that all the (lame but a start) to-do list in Dodd frank gets gutted.

  11. dad29 says:

    FWIW, the Greater Milwaukee Chamber has the same ‘demographic;’ a very few large employers (hospitals among them) dominating the Chamber’s Board and consequently, its positions.

  12. ella says:

    The Chamber understands that predatory capitalism under the guise of free markets and shadow banking creates massive wealth for them, as they remove income from us. Anything that interferes with their accumulation of wealth must be fought tooth and nail. No regulation is their mandate and they are smart enough to fight for their own self interest. Labeling regulation as big government and a government takeover is in part the key to their success. Couple that with their ability to keep taxes low for their class and the ability to spread money to campaigns, lobbying and contributions and you have a pure winner for their class. And the rest of us, well why should the suckers have any protection, or rights?

    Once the GOP and the GOP tea party win, let the good times roll. And watch the rhetoric, low taxes and small government. Then carefully look behind the rhetoric and see who benefits and who loses. Just like GWB, the rest of us will what is left of our wealth as their policies once again allow the transfer of wealth from us to them. Watch as the economy for us shrinks while goods and services cost more and our jobs are lost to off shoring and in shoring of visa and illegal workers. Sweet, the great GOP Class War racks up another win for them and another loss for us. Make no mistake they are winning.

  13. Pool Shark says:

    Oh, give me a break Barry…

    Where has Eric Holder been the last two years? Oh, that’s right, he’s been too busy suing Arizona over immigration reform to bother issuing indictments against the banksters and fraudsters.

    As Wally pointed out, enforcement is an executive function, and the Obama administration has been asleep at the switch…

    ~~~

    BR: Your response to my complaint that even milquetoast Re-regulation is that the Attorney General sued Arizona? WTF are you talking about?

  14. What could it possibly matter, from a Big Picture view of things, what some silly financial regulation says? Regulation, toothless or severe, can hardly change the underlying market dynamic that the banks are zombies, eating the brains of governmental lackeys to stay afloat. Regulatory change, if it comes, won’t change that reality.

    And can we please quit hammering on the amount of money spent one way or another? I believe that most commentators have their cause and effect relationship between money and campaign victory bass ackwards. Money pouring into a campaign, unless it is the candidate’s own money (Meg Whitman comes to mind) is more an effect of a winning idea or politician than a cause. Obama sucked up millions in both small and large donations because people and organizations liked him and wished him to be president. The money was the effect of his popularity, not the cause of it. Meg Whitman may end up spending nearly $200 million of her own money to win California’s governorship, but polls have her and former Governor moonbeam in a dead heat.

  15. beaufou says:

    Aren’t you just glad you get to choose who will represent 4% of the people?
    Might as well get rid of this waste of money they call election day, the winner should be the guy who can get the most campaign contributions.

  16. Expat says:

    Blankfein say: ” All your electoral base are belong to us.”

  17. digistar says:

    Barry,

    You are right. The foxes are running our hen house.

    I used to think that a big mess, like the “Great Recession”, so obviously caused by stupid, greedy and outright illegal behavior of our ‘elites’, would wake up the sleeping Nation and cause a great purging of the filth from our system.

    But, on reflection, I thought invading Iraq on false pretenses was equally stupid, greedy and outright illegal behavior of our ‘elites’. That didn’t awaken the Nation. At least, not nearly enough of it.

    Now, its pretty clear that the Nation can not be awakened. The ‘elites’ have rigged the system well enough to withstand any imaginable damage they cause.

    Still, I admire your efforts. Lead on. The few of us who are awake appreciate and are heartened by your example.

  18. NickAthens says:

    I don’t know how to propose to execute this, but we need to find a way to incentivise “entrepreneurialism” at the expense of “capitalism”. The tax code should reward risk, success, job creation and sales growth and disincentivise “preying on the public”.

  19. ashpelham2 says:

    Mr. Ritholtz, thank you for this commentary. It’s something that I’ve not heard touched on anywhere else. Of course, I work for a bank, who loves to talk about community involvement, and how they didn’t take bailout money, but still insists that I, as an employee, vote for politicians who will push the banking agenda.

    What was that whole topic about voting against my best interests yesterday :D?

    I think the discussion needs to switch from what we know to be true (the whole bit about banks pumping money into candidates that will let them have their way with us). Instead, let’s make the discussion about how American public can make educated decisions to not let it happen. Refusing to pay exhorbitant interest rates for credit and such, maybe a nation-wide mortgage payment holiday, organized by the people, to show Wall Street that without us, they don’t get to have those big, big buildings and all the hookers and blow they can afford.

    We still get to vote in this country. But the real vote is with our dollars.

  20. beaufou says:

    NickAthens,
    I think the entrepreneur should reward employees and improve products before even thinking about investors, in a reasonable system rewarding “entrepreneurialism”, you wouldn’t need investors anyway, loans should be readily available at the same rates bankers get, why the middle man? so he can craft a few more derivatives.

  21. krice2001 says:

    Benny Profane’s link was interesting…
    “The American left is a phantom. It is conjured up by the right wing to tag Barack Obama as a socialist and used by the liberal class to justify its complacency and lethargy. It diverts attention from corporate power. It perpetuates the myth of a democratic system that is influenced by the votes of citizens, political platforms and the work of legislators. It keeps the world neatly divided into a left and a right.”

    While I have my political preferences based more on social issues, it’s increasingly clear to me how much both parties and the country are beholden to the money that funds campaigns. I don’t believe that the money follows the winning idea(s). I believe the winning ideas are more often set up by the money.

    I’m concered about the coming gridlock that some are excited about. Still seems to me that to get out of the hole we’re in requires some cooperation to get anything done. Does anyone think they’ll be more of that, now?

  22. krice2001 says:

    “The American left is a phantom. It is conjured up by the right wing to tag Barack Obama as a s*cialist and used by the liberal class to justify its complacency and lethargy. It diverts attention from corporate power. It perpetuates the myth of a democratic system that is influenced by the votes of citizens, political platforms and the work of legislators. It keeps the world neatly divided into a left and a right.”

    I have my poltical preferences based more on social issues, but it’s increasingly clear that both parties and the country are beholden to the money that funds campaigns and campaign adds. I don’t believe that the “winning” idea(s) draw the money, I believe the money lays the foundation for what the winning ideas will be.

    What concerns me the most is this upcoming gridlock that’s anticipated by some to be such a great thing. Seems to have a prayer to get out of the hole we’re in will require some cooperation. Does anyone believe we’ll have more it, now?

  23. [...] Ritholtz makes the point over at The Big Picture: Banks and investment houses spent the last 30 years pouring money into congressional elections, [...]

  24. franklin411 says:

    @Pool Shark
    Enforcement requires administrators, and the GOP has blocked just about every single Obama appointee to every single leadership position. Some were permanently blocked, others for months or even a year, only to receive overwhelming support once they did come for a vote.

    Why?

    Simple. Paralyze the administration. It’s virtually impossible for a general to run an army without captains, lieutenants and sergeants.

    Of course, the GOP bet that you wouldn’t notice that they’ve maintained an unprecedented war on the executive branch for the last 2 years. Wagering on the ignorance and short attention span of the average American has historically been the smart bet.

  25. ashpelham2 says:

    That’s how they got the white house for 8 years recently. Well, that, and stealing the election the first time around. The GOP has figured out how to appeal to the senses of the main voting block in this country. They have this part worked out. However, I accuse the Dems of being hell-bent on pushing party-theology in the short time they’ve had to make an impact. Instead of addressing the mess, they’ve wanted to charge ahead with their own “pet” projects. I can’t believe I just referred to National healthcare as a pet project.

  26. boston says:

    Fewer Limits, Less Oversight.

    (I know, I know, it’s the internet, but still.)

  27. Seth says:

    The Red Votes Are Coming! The Red Votes Are Coming!

    The R-team slogan should be “All Power to The Corporate Boards!”

    (For those who have forgotten anything they once knew about Soviet Communism, one of the key slogans of their 1917 revolution was ‘All Power to the Soviets!” — soviets being workers councils.)

  28. Stranded_in_CA says:

    Once again we show the world that we have the best government that big money can buy. Heck we make Mexico’s government or even Karzai’s of Afghanistan look quaint both in brazeness of bribery and the sheer amount of cash from Wall Street stuffed into the hands of those greasy pols in D.C.

    Perhaps it’s time we started our own PAC – the Peoples Political Action Committee if you will. Every American citizen donates $10 a year to it to properly bribe all Congressmen so as to keep them working for us as instead of the Blankfeins and Mozillos.

  29. toddie.g says:

    Welcome to America – a nation of Gumps. An endless procession of terrible politicians bought by corporations, and voted out in favor of the new corporate bought tea-drinking pols, roundly championed by the Gumps.

    Looks like the 2 year countdown to Sarah Palin is on. Looks like it’s a 2 year countdown to look for better places to live than the USA>