Obama to crackdown on banks

[torrefaction]

http://business.timesonline.co.uk/tol/business/economics/article6997968.ece

The President said: “We should no longer allow banks to stray too far from their central mission of serving their customers. My resolve to reform the system is only strengthened when I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low and cannot refund taxpayers for the bailout. If these folks want a fight, it’s a fight I’m ready to have. Never again will the American taxpayer be held hostage by a bank that is too big to fail.”

Flanked by his economic advisers, he said that Wall Street banks must: halt “proprietary trading”, where banks risk huge sums predicting the outcome of future moves in the price of commodities such as oil; operate more cautiously and have

The clampdown on proprietary trading could cause difficulties for RBS which is attempting to sell RBS Sempra, its commodities trading business, and has been in talks with JP Morgan Chase. The bank has been forced to sell the operation by European competition regulators as of a condition of receiving state aid.

Analysts said that the proposals, if enacted unilaterally by the US, could damage Wall Street’s standing as a global financial centre. Ralph Fogel, investment strategist at Fogel Neale Partners in New York, said: “This is going to have a tremendous impact on big-name brokerage firms. If they stop prop trading it will not only dry up liquidity in the market but it will change the whole structure of Wall Street.”

Read the article, discuss.

[Hemalin]

The return of Glass-Steagall? I didn't think it'd actually happen.

[BlackPete]

I was about to create a new thread, but I think this thread will do just fine: The US does not have capitalism now (http://www.cnbc.com/id/34921639), according to Joseph Stiglitz, Columbia University professor and Nobel laureate.

It's pretty thought provoking, and this part stood out to me:

For 50 years after the depression there was lots of regulation and not one financial crisis and in the last 30 years there have been 100 financial crises, he said.

Socialize the losses and privatize the gains indeed.... sigh.

[torrefaction]

Yeah, I really don't think this is a great move, personally. The last thing we want is for investment bankers to run screaming out of our country when things already how low liquidity.

[roboninja]

"...I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low and cannot refund taxpayers for the bailout."


This is the part that rings true, and I cannot see how it can be dismissed. Constant record profits during these "dire financial times"?

[torrefaction]

Yeah, there's some clear problems, but I'm not sure how to fix them without throwing the baby out with the bathwater here.

[RandoM51]

Let 'em run, some other country can subsidize their failures.

If they---investment banking firms/bankers---can't survive without jeopardizing the commercial banking that people rely on for day-to-day banking they shouldn't exist in the first place.

[Serapth]

"...I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low and cannot refund taxpayers for the bailout."


This is the part that rings true, and I cannot see how it can be dismissed. Constant record profits during these "dire financial times"?

Seriously though, when you are borrowing money at 0% and lending it out at > 0%, you are bound to make a ton of money. I mean, for example, if I was a Banana farmer but instead of having to grow and care for the banana's, I just got them given to me by the government to sell... well, I am bound to have record profits too.


Canada's banking system survived ( thrived? ) through this whole crisis without requiring a government bailout. A combination of regulation and more conservative business practices was the key. Ironically though, many Canadian banks were able to cherry pick choice assets of failing American banks, so now a lot of your banks are actually Canadian owned right now.

[BlackPete]

Big Banks Have Already Figured Out The Loophole In Obama’s New Rules (http://www.businessinsider.com/big-banks-have-already-figured-out-the-loophole-in-obamas-new-rules-2010-1)

Don't worry, the banks will be fine.

[Ink Asylum]

Let 'em run. The idea that rich people and those in the financial industry will leave in such high numbers that it will have any appreciable effect on our economy is bunk. It's as believable as all those people every election who swear they'll leave the country if the candidate they hate wins. It never happens.

Personally, I think we could do with a lot less investment bankers. They caused this crisis we don't need them around to keep fucking things up while we try to recover.

As cynical as I've been lately I think financial regulation might have a chance in Congress, even with the loss of the supermajority. There are plenty of congresspeople that are in the pocket of the financial industry, but the populist anger on both sides is so real that voting against sensible regulations might be something that most congresspeople wouldn't consider. Even Republicans. They've been stoking populist rage all year, time for them to put their votes where their mouths are.

[RandoM51]

Big Banks Have Already Figured Out The Loophole In Obama’s New Rules (http://www.businessinsider.com/big-banks-have-already-figured-out-the-loophole-in-obamas-new-rules-2010-1)

Don't worry, the banks will be fine.

I guess they're hoping nobody involved in the new rules actually reads www.businessinsider.com.

[BigJonno]

Let 'em run. The idea that rich people and those in the financial industry will leave in such high numbers that it will have any appreciable effect on our economy is bunk. It's as believable as all those people every election who swear they'll leave the country if the candidate they hate wins. It never happens.

Personally, I think we could do with a lot less investment bankers. They caused this crisis we don't need them around to keep fucking things up while we try to recover.

As cynical as I've been lately I think financial regulation might have a chance in Congress, even with the loss of the supermajority. There are plenty of congresspeople that are in the pocket of the financial industry, but the populist anger on both sides is so real that voting against sensible regulations might be something that most congresspeople wouldn't consider. Even Republicans. They've been stoking populist rage all year, time for them to put their votes where their mouths are.

I agree. I felt sick to my stomach when I read that Goldman-Sachs had been handing out record bonuses and I'll bet that 99% of the public feel the same way. It doesn't take a financial genius to see that there is something wrong with banks raking in huge profits during a financial crisis when they've been bailed out with taxpayer's money.

[Generation ABXY]

"Never again will the American taxpayer be held hostage by a bank that is too big to fail."

I hope this means the government will stop propagating the idea that anyone is too big to fail and just let 'em, next time.

[ShivaX]

"Never again will the American taxpayer be held hostage by a bank that is too big to fail."

I hope this means the government will stop propagating the idea that anyone is too big to fail and just let 'em, next time.

Well that'll never happen.

I think some sort of regulation has a shot. I mean even Ben Stein said to just nationalize the banks back when they were talking about bailouts because they were too important to the economy as a whole.

[Doogie2K]

Canada's banking system survived ( thrived? ) through this whole crisis without requiring a government bailout. A combination of regulation and more conservative business practices was the key. Ironically though, many Canadian banks were able to cherry pick choice assets of failing American banks, so now a lot of your banks are actually Canadian owned right now.

Heck, that started years before the recession. I was baffled by the fact that there's an arena in Raleigh, North Carolina named for the Royal Bank of Canada until I learned why (http://en.wikipedia.org/wiki/RBC_Centura).

[LordDon]

We need to bring back Teddy Roosevelt-style trust busting and break up these too-large-to-fail banks. You want to gain the benefits of capitalism then you should also be forced to take responsibility for its failures.

[J Arcane]

Has he actually implemented anything yet? Because I'm seeing a lot of words like "to" and "proposed" that say no. And given his record so far, and the fact that he's said shit like this before, does anyone think it'll actually happen?

[Ultima Thulian]

We need to bring back Teddy Roosevelt-style trust busting and break up these too-large-to-fail banks. You want to gain the benefits of capitalism then you should also be forced to take responsibility for its failures.

This.

(too short)

[Arphahat]

Has he actually implemented anything yet? Because I'm seeing a lot of words like "to" and "proposed" that say no. And given his record so far, and the fact that he's said shit like this before, does anyone think it'll actually happen?

As crazy excited as I was about Obama during the election, I am equally disappointed in the nothing he has done so far.

[MagGnome]

I for one don't think it will actually happen, but I wish it would.

The government needs to put the screws on the banks. The banks have been screwing us for the last few years, after all. Unfortunately our government seems completely inept and a good portion of "our" representatives are in the pocket of the financial industry.

Edit - I'm with Arphahat and J Arcane. I was really excited about Obama's election, but he has quickly become a huge disappointment. I've reached the point where I put little stock in anything he says.

[Ox]

We need to bring back Teddy Roosevelt-style trust busting and break up these too-large-to-fail banks. You want to gain the benefits of capitalism then you should also be forced to take responsibility for its failures.
Trust-busting doesn't really apply, because none of the banks are monopolies or even remotely close to it. Bear Stearns was only the seventh-largest investment bank -- hardly a "trust" in any Rooseveltian sense of the word. But the government concluded it could not fail. "Too big to fail" is kind of a misnomer. But "too relevant to the financial health of other firms to fail" isn't as pithy.

Also, smaller banks have a key disadvantage: they have fewer assets. Which means a bad investment is more likely to cause them to go belly-up, seeing as they don't have as much strategic depth. And if one bank goes belly-up, any bank that it owed money to suddenly has a problem. Ironically, breaking up the financial industry into smaller banks may dramatically increase the risk of financial crises.

This is a complicated point, though, which is why I doubt many in Washington think about it. It sounds like [URL="http://uk.reuters.com/article/idUKN2123718120100122"the Treasury Secretary[/URL] may also be concerned, although the article refers to concerns like competitiveness, as well.

Let 'em run. The idea that rich people and those in the financial industry will leave in such high numbers that it will have any appreciable effect on our economy is bunk. It's as believable as all those people every election who swear they'll leave the country if the candidate they hate wins. It never happens.
You understand there's a difference between the investment banks and the investment bankers, right? Loss of competitiveness means the banks will move offshore, not that the bankers will leave the country. You know how Detroit is filled with former auto workers and much auto manufacturing has moved elsewhere (either through outsourcing or simply foreign competition has eaten GM's lunch)? Yeah, the same thing can happen in finance much more easily.

I know you'll be pleased to see investment bankers on welfare, but (a) it's not good for the local economy, and (b) it's not good for tax revenues. As a New Yorker, I'd think you'd have some hesitation about emulating Detroit.

[Ink Asylum]

You understand there's a difference between the investment banks and the investment bankers, right? Loss of competitiveness means the banks will move offshore, not that the bankers will leave the country. You know how Detroit is filled with former auto workers and much auto manufacturing has moved elsewhere (either through outsourcing or simply foreign competition has eaten GM's lunch)? Yeah, the same thing can happen in finance much more easily.

I know you'll be pleased to see investment bankers on welfare, but (a) it's not good for the local economy, and (b) it's not good for tax revenues. As a New Yorker, I'd think you'd have some hesitation about emulating Detroit.

I don't fear losing the kinds of investment bankers and banks that would leave the country over returning to the reasonable levels of regulation we had before the last couple decades of corporate worship. It's still unclear how long it will take to recover from the crisis they caused and so far we've done nothing to prevent the same thing from happening again. I'd rather take my chances with over-regulation for a little while.

[Ox]

I don't fear losing the kinds of investment bankers and banks that would leave the country over returning to the reasonable levels of regulation we had before the last couple decades of corporate worship. It's still unclear how long it will take to recover from the crisis they caused and so far we've done nothing to prevent the same thing from happening again. I'd rather take my chances with over-regulation for a little while.
Are you aware that financial crises aren't country-specific events? They have a tendency to cross borders. The "Asian contagion" very nearly wrecked our banking system despite the relative blamelessness of our banks in those events. Simply declaring "good riddance" is not exactly an enlightened policy.

EDIT: I might be inclined to agree that this regulation is worth the risk if it's likely to prevent similar crises in the future. However, most economists (including the Treasury secretary) agree that proprietary lending had nothing to do with the crisis. It's regulation for the sake of regulation.

[Ink Asylum]

Yes, and our crisis certainly did cross borders. But what's our alternative besides regulating our own financial system? We can't force regulation upon other countries, so if they want to let our greediest and most devious financial wizards to wreak havoc on their economies what can we do about it?

Are you proposing we just admit that there's nothing we can do to rein in the recklessness and avarice of the financial industry so we should just let them continue on their merry way as if the last two years of economic chaos didn't happen, otherwise they'll just go to less regulated countries and cause a crisis there that will still affect us?

[Ox]

No, I'm saying that we should try to regulate them with an eye toward ensuring it's still more attractive to stay here and be regulated than to go somewhere without regulation. And that your attitude of "fuck 'em, call their bluff" both miscalculates their incentives and fails to apprehend the danger.

This means, for example, that we should be careful not to be pointlessly burdensome. Sarbanes-Oxley, to take one instance, imposes very heavy reporting requirements on many financial firms. Those reporting requirements don't actually do much to reduce the threat of crisis, but they are a major pain in the ass for the firms and compels them to hire additional staff just to deal with the paperwork. This, then, is a good example of a stupid regulation: it accomplishes nothing except encouraging firms to go someplace they're actually wanted.

But you know, I can think of one reform that would be absolutely costless in terms of our economic security but would go a long way toward keeping the banks around even as we put more regulations on them. Here it is: stop demonizing them. The vast majority of them were not personally responsible for the financial crisis -- many of them worked with the government to try to contain it. But for two years they've been hated more than trial lawyers, and our elected officials have branded them enemies of the state for being kulaks. 77 (http://news.yahoo.com/s/bloomberg/20100121/pl_bloomberg/a8uii1bcrdmy) percent of them think the President actively opposes their existence, and my only question is what are the other 23% smoking?

I'm not saying you have to roll over and do whatever the bankers tell you. But if you're going to geld a horse, you don't start off by screaming at him for an hour. You approach with a soothing voice and a sugar lump. Your open hostility just makes the kulaks frightened and angry, and that's not in your interest.

[Ink Asylum]

No, I'm saying that we should try to regulate them with an eye toward ensuring it's still more attractive to stay here and be regulated than to go somewhere without regulation. And that your attitude of "fuck 'em, call their bluff" both miscalculates their incentives and fails to apprehend the danger.

A "fuck 'em" attitude wouldn't be necessary if they didn't threaten to take their toys and leave the country whenever any regulation, no matter how reasonable, is proposed. Yes, we definitely should call their bluff and just start fixing the system without listening to their shrieks of rage or threats. When regulations are passed they'll realize they're still making gobs of money, even if it's less than before, and they'll stick around because the rest of the world sucks, too.

I'm not saying you have to roll over and do whatever the bankers tell you. But if you're going to geld a horse, you don't start off by screaming at him for an hour. You approach with a soothing voice and a sugar lump. Your open hostility just makes the kulaks frightened and angry, and that's not in your interest.

We saved their companies and industry with over a trillion taxpayer dollars. We put guys sympathetic to Wall Street into the highest economic positions in the White House. It's been a year without pretty much any meaningful regulations. How much bigger a sugar lump do they need?

At the end of that year and with all that extra money to play with they whine about every little thing, openly mock proposed regulations, are barely lifting a finger to help increase lending or keep people in their homes and pay themselves even bigger bonuses than ever.

We've done more than enough soothing and we've been rewarded by getting kicked in the face and pissed on. They were given billions of carrots and it's done nothing to humble their arrogant nature. Might as well give the stick a try. I doubt it could make them act any worse.

I want smart regulation, too, but regulation that will work is going to be painful for the banksters. They've just gotten too fat for an easy diet to do anything. Trimming them down is not going to be pleasant for them. There's nothing we can offer them that will be effective without freaking them out, so we have to stop treating them with kid gloves and do what's necessary.

[Ox]

A "fuck 'em" attitude wouldn't be necessary if they didn't threaten to take their toys and leave the country whenever any regulation, no matter how reasonable, is proposed.
It's not really necessary under any circumstances.

We saved their companies and industry with over a trillion taxpayer dollars. We put guys sympathetic to Wall Street into the highest economic positions in the White House. It's been a year without pretty much any meaningful regulations. How much bigger a sugar lump do they need?
Actually, you saved some of the companies with a lot of money, much of which has already been paid back. Unfortunately, nobody in this country seems to be able to tell the difference between AIG and the Dawes Tomes Mousley Grubbs Fidelity Fiduciary Bank. So even people who are completely unconnected to the financial crisis and received nothing from the government are considered enemies of the state.

There's nothing we can offer them that will be effective without freaking them out, so we have to stop treating them with kid gloves and do what's necessary.
Okay, so it's war. Fine. Go study up on the financial markets enough that you can understand what to regulate and how to close the loopholes, because you can be sure they won't help you.

[Xerxes]

I like the idea of letting "them" fail. Who is them again?

[Ink Asylum]

Okay, so it's war. Fine. Go study up on the financial markets enough that you can understand what to regulate and how to close the loopholes, because you can be sure they won't help you.

As if they would help us close the loopholes if we just asked nicely.

The financial industry isn't a horse you can sneak up on and geld as long as you're soothing and sweet about it. It's very shortsighted when it comes to long-term stability, but incredibly smart, perceptive and defensive about anything that's going to cause short term profits to dip even the slightest bit.

Just look at what happens when Obama proposes his first set of regulations. How long did it take the banks to find every loophole and gloat about how it's not going to cause more than an insignificant dent in their business? They didn't do that because Obama was mean to them, they did it because it's what they do. They have whole departments of people whose jobs are to find each and every loophole that they can possibly squeeze through in pursuit of maximum short term profit, damn the long term consequences. You can butter them up all you like but you'll never get them to willingly help you do something which will cause them to make less money. It's simply not in their nature.

We spent decades worshiping Wall Street, Democrats and Republicans alike, and it's turned them into a spoiled, rotten, selfish industry that couldn't care less what happens to the rest of the country as long as they can keep paying themselves larger and larger bonuses. They've had much of the political establishment, and a lot of Americans, convinced that what's good for Wall Street is good for America, and if you dare regulate them even the slightest bit the country will suffer. You can't combat that level of ego by playing nice. It's going to take a lot of political will to pass reforms that actually have teeth, so you're going to need the anger of the population on your side to make cowardly, lobbyist-fed politicians go along.

[LongStepMantis]

I'm glad that they have no qualms about throwing the rest of the American people under the bus so they can make more record profits. When is it enough? Does the greed know no bounds at all? I want to be angry and say something full of vitriol and condemnation, but I give up. They don't even bother to hide their greed anymore, and we do nothing. People are too apathetic to try to force any real change in this age, so I predict a lot of doing nothing until the entire system collapses around us down into the ninth circle of hell. So long, and thanks for all the fish.

Play me off, George (http://www.youtube.com/watch?v=acLW1vFO-2Q&feature=related).

[RandoM51]

Edit - I'm with Arphahat and J Arcane. I was really excited about Obama's election, but he has quickly become a huge disappointment. I've reached the point where I put little stock in anything he says.
The cynical among us called it way before the election.

You would have had to get rid of congress as your first act to deliver on quite a few of Obama's naive---I'm giving him the benefit of the doubt here---promises. Look on the bright side, though, I find it hard to believe that McCain/whatshername would be doing a better job. :)

[MagGnome]

McCain/Palin would be doing much worse. Obama seemed like a great choice at the time, considering the alternative.

Edit - I'm with Ink Asylum on this issue. We need to step up regulation on the financial industry. I'm tired of the crying about how companies will leave the country if we put any kind of regulation on them. Guess what? Companies are going to leave the country anyway, because they can do business cheaper in a country like India, where the standard of living is so much lower than ours that Americans cannot possibly compete.

I spent 3.5 years working for a large financial services company, during which time the company raked in huge amounts of money and sent over 25% (possibly close to 40% or more) of the home office jobs to India. Entire floors of the building were empty. We employees were constantly fed the line that the company was tightening the belt because of the economy, meanwhile the CEO and other executives received large bonuses, and the company spent billions of dollars on acquisitions.

[Ox]

Let me just be clear exactly where I see this going.

We're already (http://www.alternet.org/story/143813/as_foreclosure_nightmares_increase,_will_more_home owners_pay_off_their_bankers_in_violence?page=enti re) seeing violent attacks against people in the financial industry. And a disturbingly large portion of the population seems to be kind of gleeful at it.

That compressed vitriol is also found in the Los Angeles case, where Daniel Weston and Gustavo Canez allegedly imprisoned and tortured loan-modification agents Lamond Dean and Luis Garcia while three others -- Mario Soloman Gonzales, Marissa Parker and Mary Ann Parmelee, a realtor -- sat and watched.

"That's not right," explained Kathleen Day, spokeswoman for the nonprofit Center for Responsible Lending. "But clearly people are really mad about what's happened to them. This is the kind of thing that happens when lenders don't lend responsibly. You can't abuse your customers forever."

Got that? We're not blaming the victim here. But if you don't lend responsibly, you can't be surprised when someone kidnaps and tortures you. We've been warned (http://boingboing.net/2009/03/25/anticapitalists-atta.html) that this is "just the beginning." What's scary isn't the violence, it's the fact that people are cheering them on (http://polizeros.com/2009/12/11/and-so-it-begins-violence-against-those-who-plundered-the-country/). When I say bankers are frightened, this is what I mean. There's a reason why I said you thought of them as kulaks.

[Vigil80]

First, Obama was always going to be a disappointment. Why? Because he's just another politician. Hope this, change that, look at me I'm half-black bull aside, it was the same as it's ever been. Big promises but no follow-through, and now people are remembering which hand fills up first if you hope in one and defecate in the other.

As far as the financial institutions go, as usual the best answer is somewhere in the middle. Of course violence against bankers shouldn't be advocated. That's so obvious that it's almost asinine to bring up. The public can try a little harder to be understanding and informed, and bankers can try a little harder to improve their image.

Of course there needs to be a long, hard look at the industry from our government. Regardless of who's irrationally angry at who, this...
"...I see record profits at some of the very firms claiming that they cannot lend more to small business, cannot keep credit card rates low and cannot refund taxpayers for the bailout."

This is the part that rings true, and I cannot see how it can be dismissed. Constant record profits during these "dire financial times"?
...is still true. I never liked Obama that much, but it's true that many of these institutions have not been playing ball like they ought.

I don't think the firms should be invited to leave the country. The best possible scenario is for them to stay and get their stuff straight. But we as a people have feathered their nests enough, and now it's brass tack time. If after reasonable and rational discourse a company decides to take its ball and go somewhere else, they were probably always going to, and would have found some excuse or other. One nice thing about capitalism is if there's an opening in a market, someone will fill it eventually.

[ShivaX]

I don't think the firms should be invited to leave the country. The best possible scenario is for them to stay and get their stuff straight. But we as a people have feathered their nests enough, and now it's brass tack time. If after reasonable and rational discourse a company decides to take its ball and go somewhere else, they were probably always going to, and would have found some excuse or other. One nice thing about capitalism is if there's an opening in a market, someone will fill it eventually.

Since the beginning of this thing the banks have basically been extorting us in my eyes. "Save us or we'll sink the whole ship." Now its just a different form of extortion "Don't regulate us or we'll leave." Whatever. Leave.

Realistically, where are they all going to go? If they could do better elsewhere they would've already left.