I like this short list of fixes from Sheila Bair:

1. Break up the “too big to fail” banks
Giant institutions and untested “living wills” is make financial system unstable. When the Fed is artificially keeping lending rates at near zero, that’s a flaw.

Solution: Make ‘em smaller

2. Publicly commit to end bailouts
Market must punish the boneheads.” We should learn from post-2008 bailouts is we should never allow ourselves to be in that position again. Wall Street cannot have an indefinite option to “put” its losses to the Treasury and to taxpayers.

Solution: Make penalties for asking for and getting bailouts egregious — wipe out shareholders, fire management.

3. Cap leverage at large financial institutions
Bank capital levels maybe isn’t a mainstream issue, but it should be;” Limit banks’ abilities to take on risk via leverage or derivatives or whatever the latest “idiotic new innovation” Wall Street becomes infatuated with.

Solution: Go back to firm 10 to 1 leverage rules.

4. End speculation in the credit derivatives market
If arsonists can’t buy fire insurance on someone else’s house, why allow speculation using credit derivatives?  Credit default swaps with no vested interested are the same thing.

Solution: Require CDS buyers to demonstrate a specific interest. Even better regulate CDS as insurance products.

5. End the revolving door between regulators and banks
Separating regulators from the regulated is crucial. Ending regulatory capture is key.

Solution: Require longer periods of time between industry and regulator service.

Good stuff . . .

 

Source:
Sheila Bair: 5 Steps Obama or Romney Must Take to Fix Wall Street
SUZANNE MCGEE
The Fiscal Times, October 15, 2012
http://www.thefiscaltimes.com/Columns/2012/10/15/5-Steps-Obama-or-Romney-Must-Take-to-Fix-Wall-Street.aspx

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.

19 Responses to “Bair: 5 Steps to Fix Wall Street”

  1. A says:

    Perhaps Point 6: sever the ties between congress and its owners – the Wall Street Banks.

  2. Roanman says:

    Sheila says,

    “Publicly commit to end bailouts “Market must punish the boneheads.” We should learn from post-2008 bailouts is we should never allow ourselves to be in that position again. Wall Street cannot have an indefinite option to “put” its losses to the Treasury and to taxpayers.

    Solution: Make penalties for asking for and getting bailouts egregious — wipe out shareholders, fire management.”

    Those penalties are already in place via bankcruptcy. This is a pure 100% All American Nothing Burger from Sheila as any “Public committment to end bailouts” would have to come from the entity that’s been doing the bailing … the government. In light of recent history, would any thoughtful person give a rat’s patootie what the government might “commit to” on this issue?

    Certainly nobody who got caught holding GM bonds ….. or can read.

  3. NoKidding says:

    Point 5 would create problems. The worst regulator may be a banker shill, but the best regulator is a banker outcast. Ban the bankers from upper tiers of regulatory boddies, but the foot soldiers need experience inside the box.

  4. theexpertisin says:

    A Says:

    I agree, 90%. Add the executive branch ties to Wall Street Banks and I agree 100%.

  5. Molesworth says:

    Sheila Bair for Secty of Treasury

  6. pintelho says:

    wipe out the bond holders as well as the share holders…why should only the lowest guy on the totem pole get f’ed.

  7. Robert M says:

    On 4.
    Declare force majeur on CDS. Suspend trading by any American institution. Prohibit paying off on any issues by American institutions period; announce a four quarter payback of the premiums.

  8. softdev says:

    1. “too big to fail” is “too big to exist”

    2. Make penalties for asking for and getting bailouts egregious -> Make penalties for asking for and getting bailouts appropriate. [egregious -> appropriate]…we are only asking for what is reasonable and good for the health of the system.

    6. Put the breaks on high frequency computer bot trading.
    If stocks can trade at prices that are so crazy that they call a “do over” and break trades…markets are broken. Therefore:
    - add a transfer tax to make up for the cost and damage of high frequency computer bot trading and to support the commons
    - slow down the computer bots so that they do not create crazy trade prices
    - end flash trading (computerized front running)
    - require bids and offers be held for a minimum amount of time (reduce bad faith trading tactics)
    - end “do over” trades. If your computer bot sells a $40 stocks selling for a penny…too bad…a deal is a deal.
    - end sub-penny trades as they are harmful to real buyers and sellers who are central to allocating capital amongst productive uses in the real economy.

    7. Restore the rule of law

  9. cswake says:

    #1 – she seems to omit the fact that it was the Fed which pushed TBTF

    #2 – that solution is not to end bailouts, but rather a modified policy of permanent bailouts with punishment for management and equity holders. If I had to game it, I would just push management to issue debt with higher rates and rest easy knowing the principal and the payments were guaranteed by Uncle Sam. Implicit with that deal would be a “signing bonus” for joining my board after the bailout.

    Even better is the fact that she doesn’t address the Fed, which has demonstrated it is willing to go around the law and bailout firms that aren’t even under its jurisdiction at the smallest sign of trouble. (ie. LTCM – Cayman Islands) Good luck enforcing that policy uniformly on all global firms.

    #4 – this would happen as soon as the financial firms that underwrite the CDS contracts have to be financially prudent. (read: no bailouts, no Fed backstop)

    #5 – hah… hah… hah

    We have a better chance of converting the entire Middle East to Christianity than removing corruption from the spheres of power.

  10. not to say that I didn’t miss an utterance, of hers, while she was ‘Head’ of the FDIC..

    though, was she ~this vocal, on these Topics, while she was?

    if she was, I, certainly, do not recall her being so..
    ~~

    and, if my recollection is, anywhere, near accurate..

    wtf? why did she choose to wait?

  11. Petey Wheatstraw says:

    Investigations and unrelenting prosecutions would cut the cancer out.

  12. louis says:

    Has anyone from the rating agencies gone to jail yet? How about public hanging’s for “captured” regulators.

  13. super_trooper says:

    No Sh!t sherlock’s. It sounds nice, feels good………but…..Ain’t gonna happen. Waste of ink. I want a piece on how to make this happen. I am tired of reading all this idealistic stuff. It’s time to execute.

  14. gman says:

    Not a bad list. One major quibble…

    4. End speculation in the credit derivatives market
    If arsonists can’t buy fire insurance on someone else’s house, why allow speculation using credit derivatives? Credit default swaps with no vested interested are the same thing.

    Solution: Require CDS buyers to demonstrate a specific interest. Even better regulate CDS as insurance products.

    What is next, banning put buying if you don’t own the stock or bond..no shorting any intrument? How do you have markets without shorts and longs? Barry has long extolled the virtue of the short in the mkt and I agree. Their must be a fix for this issue short of this!? Transparency or margining should do the trick before BAN!

  15. AHodge says:

    Its a good start,
    she is the best on the planet for doing wbank workouts
    resolution would be fine if she was in charge
    a huge talent and reformer was lost when she was pushed out

    you cant be everything
    she doesnt know much about derivatives and complex product or its accounting
    she doesnt know much about the non bank part of our credit system
    and its near complete breakdown

  16. Robespierre says:

    All those five points taken from Alice in wonderland. Might as well ask for lead to be turn into gold….
    When WS owns Democrats and Republicans alike how are those rules ever going to pass?

  17. sooperedd says:

    While all steps are sound, reasonable and overdue, they will never see the light of day.
    There exists a vacuum of true leadership for the common good and doing the right thing that has been filled with greed and selfishness. Enough is never enough. The greed genie will never be put back in his bottle. The trajectory of the U.S. government must run it’s course, ending with it’s eventual demise. Then and only then will things change.

  18. VennData says:

    How about getting Wall Street’s marketplace out of buildings and away from people and into the cloud so it’s not shut down for days on end because of rain?

    Not a single High Frequency Traders was flooded out.

  19. philipat says:

    But she was “An insider” and unable to influence any change.

    The rest comprise an educated and critical minority of, perhaps 1%, this being a different 1% to THE 1%!!. The rest are too busy watching “Dancin with the Stars” whilst eating Chessy Twirls bought in WM.

    So I’m not holding my breath waiting for change.

    Sad really, the US used to be such a beacon to the world.