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One of the biggest beefs I have with former President Clinton is that he oversaw the dismantling to the Glass-Steagall Act late in his term. This Consumer Protection/Bank Regualtion Law enacted after the 1930's Great Depression, put a "fire wall" between our hard earned savings, and the big bankers propensity "to gamble" with said savings.

It can be argued that this grand dismantling (of GSA) led directly to the Great Recession of the 00's -- the lingering economic downturn, we are currently are still living through.

A well-informed consumer-driven society would be actively arguing for the restoration of that Glass-Steagall Act firewall -- for the re-enactment of Glass-Steagall, as a new and improved GSA II. Unfortunately our "economic system" is neither.  (... well-informed nor consumer-driven.)

Instead we "muddle through" with half-measures, and band-aid fixes. Chasing "proposed solutions," that our big banker friends, given their resources (our savings, etc.), can forever delay, water-down, and effectively ignore.  Unfortunately in our current system, we all know who's interests they "put first"... (Here's a Hint:  It's not ours ...)

Glass-Steagall Fans Plan New Assault If Volcker Rule Deemed Weak

by Phil Mattingly and Cheyenne Hopkins, Bloomberg News, -- Dec 9, 2013

Dec. 9 (Bloomberg) -- Five U.S. agencies will finish the Volcker rule tomorrow after more than three years of Wall Street resistance to its limits on trading and investing. Lawmakers and their allies who want to rein in big banks are ready to pounce if it isn't strict enough.

Politicians and advocates -- some Democrats, some Republicans -- who blame the 2008 financial crisis on deregulation express concern that the Volcker rule won'€™t adequately block banks from making risky bets with their own money. If they deem the rule too weak, they say it will add fuel to a push to reinstate a Depression-era law known as Glass-Steagall that until 1999 split banks and securities firms.

The Volcker Rule, the Volcker Rule -- yeah I've heard of that newly proposed regulatory solution.  What ever happened to that?

Can you spell:  "Nada, Business as Usual. Nevermind."

aka ... forever delayed, watered-down, and effectively ignored.  

["The Fed, one of the agencies involved, extended the deadline for complying with the {Volcker} rule to July 21, 2015, from July 21, 2014."]

The Volcker Rule:  A triumph of complexity over common sense

by Allan Sloan, -- Dec 19, 2013

The rule has 71 pages, which is a lot of words to transform former Fed chairman Paul Volcker's simple-sounding proposal into law. His idea, as you probably know, was to ban big financial institutions from putting taxpayers at risk by using federally insured deposits for securities speculation. But the rule itself is only the start of the complexity. It comes with an 892-page explanation. [...]

Ever since Volcker first enunciated his idea in early 2009, I've been skeptical of it because he didn't propose to stop banks from making markets in securities on behalf of their customers. Market-making requires buying and selling securities and keeping some on hand as inventory. Differentiating between these trades and any trades made for a bank'€™s own account is devilishly difficult, if not outright impossible. Even with almost 1,000 pages of rules and explanations, it's going to be up to regulators to decide in specific cases what'€™s speculating and what'€™s perfectly permissible market-making.

Throw in the fact that banks will be allowed to trade in order to hedge exposures to various things, and you've got complexity squared. Heck, complexity cubed. Or to the fourth power.

But big banks are so good at trading stuff, at minimizing risk, and collateralizing their your debts -- What could possible go wrong?

Well, leave it to the bankers lawyer association to find the 'public outrage' issue to harp on going forward, amongst all that Volcker Rule fine print.

Volcker Rule Challenged in U.S. Court by Bank Group

by Joel Rosenblatt, -- Dec 24, 2013

The final version of the Volcker Rule was challenged in a lawsuit over claims that requiring small banks to divest their holdings in some collateralized debt obligations will cause them about $600 million in losses.

The American Bankers Association, which represents mostly community banks, objects to a portion of the rule that will force lenders to get rid of CDOs backed by trust-preferred securities, according to the complaint filed yesterday in federal court in Washington. The association seeks a court order blocking the rule from taking effect before the end of the year.

Community Banks

Letters urging the regulators to help community banks deal with the rule’s impact on trust-preferred securities were sent Dec. 18 by Democratic Senators Mike Crapo of Idaho and Joe Manchin of West Virginia, and Republican Senators Mark Kirk of Illinois and Roger Wicker of Mississippi. Independent Community Bankers of America President Camden Fine said that day that more than 300 banks are “likely to take losses in their capital accounts” if forced to write down the securities.

Those collateralized debt obligations (CDO's) are off-loaded risk swaps, Volcker and company can't possible expect them to absorb all that risk again, can they?  Those Community Banks are 'Mom and Pop' operations afterall. Oh the nerve of these modern-day regulators, expecting Banks to give something back to consumer society ... say like invest in local jobs, and NOT these incredible world-market CDOs inventions. That somehow make investment risk, just magically disappear ...

If it turns out the Volcker Rule is too weak, in its attempt to restore us to an era of Glass-Steagall Act II, no worries -- Allan Sloan the Washington Post critic of the Volcker Rule, goes on to suggest this "very simple" regulatory solution:

The solution to the problem that the Volcker Rule tries to address is what I call the Hoenig Rule: a 2011 proposal by Tom Hoenig, then head of the Kansas City Fed and currently vice chair of the Federal Deposit Insurance Corp., to ban banks from all trading. However, unlike Volcker, who was an adviser to President Obama and is treated by many people (not including me) as a quasi-divine being, Hoenig’s name carries little clout in Washington.
OMG!  "to ban banks from all trading" ...

How on earth do you ever expect banks to make 20% ROI ("return on investment" on our savings) -- if you stop them from leveraging the "magic compounding" of Wall Street?

It's unheard of.  What was former Fed Governor Hoenig thinking!?

Does he want them to start investing in Main Street again?  What a populist stooge ...

U.S. Weighs Doubling Leverage Standard for Biggest Banks

by Yalman Onaran, -- Jun 21, 2013

Hoenig Rule

FDIC Vice Chairman Thomas Hoenig has called for scrapping risk-based rules entirely in favor of a 10 percent leverage ratio, calculated to include even more off-balance-sheet assets than allowed under Basel and define capital more narrowly. To reach Hoenig’s requirements, the three largest U.S. banks -- JPMorgan, Bank of America and Citigroup -- would have to stop distributing dividends for about five years, according to FDIC data and analysts’ earnings expectations compiled by Bloomberg.

A bipartisan Senate bill introduced in April by David Vitter, a Louisiana Republican, and Ohio Democrat Sherrod Brown would set the leverage ratio at 15 percent. Banks have assailed the proposal. It “would limit an institution’s ability to lend to businesses, hampering economic growth and job creation,” the Securities Industry & Financial Markets Association, a Washington-based lobbying group, said at the time.

The FDIC, prodded by Hoenig, is pushing for a leverage requirement even higher than 6 percent, according to four people with knowledge of the talks.

"Capital Requirements," "Leverage Ratios," -- what are those again?  Come on it's the holiday "consumer" season, and I left my spreadsheet-calculator as the office.

Didn't Dodd-Franks set a minimum level of assets, that a "trading bank" must hold -- ie. keep off the casino tables, to be held in reserve as that emergency "bus ticket home" money?  ... in the event, the Vegas-gods are unkind.

And wasn't that minimum level around 15% of their your assets -- that could not be wagered leveraged into "other" investments?

Yes, it was ... BUT the Collins Amendment, and the 'limits on regulatory discretion as spelled out the Basel III requirements' {pg 24} -- put the kibosh on the best made plans for re-instituting some of that Depression-era "adult supervision," previously safeguarded by Glass-Steagall Act I.

3% Capital Requirements, is all we they really need ... afterall it's better than nothing, right? Especially when you consider the 'sound investment' track-record of the big banks ... Just look at those TARP paydays -- What a revenue windfall that was, eh?  ... for them.

[ Fast forward the "historic context" ... as of Jun 21, 2013 ]

U.S. regulators are considering doubling a minimum capital requirement for the largest banks, which could force some of them to halt dividend payments.

The standard would increase the amount of capital the lenders must hold to 6 percent of total assets, regardless of their risk, according to four people with knowledge of the talks. That’s twice the level set by global banking supervisors.

The 3 percent was clearly inadequate, nothing really,” said Simon Johnson, an economics professor at the Massachusetts Institute of Technology and a former chief economist for the International Monetary Fund. “Going up to five or six will make the rule be worth something. Having a lot of capital is crucial for banks to be sound. The leverage ratio is a good safety tool because risk-weighting can be gamed by banks so easily.”

And so in July 2013, those discretionary Basel III regulations went up it to 6% ... Oh the Dividend Horrors!
Leverage ratio

Basel III introduced a minimum "leverage ratio". The leverage ratio was calculated by dividing Tier 1 capital by the bank's average total consolidated assets;[4] The banks were expected to maintain a leverage ratio in excess of 3% under Basel III. In July 2013, the US Federal Reserve Bank announced that the minimum Basel III leverage ratio would be 6% for 8 Systemically important financial institution (SIFI) banks and 5% for their bank holding companies.[5] [...]

6% Capital Requirements ... Woooh, I feel safe now (putting my hard-earn funds, in their 'well-regulated' piggy bank). Don't you?  It's better than 0%, right?

No wonder those big banks rarely have any cash-on-hand left over to lend to local home buyers, or to local small business owners, or to the actual local community "job creators" -- they're too busy catering to the "Faux Job Creators™," who are on some beach somewhere, cashing their (now 3% lighter) dividend checks ...

Because 94% of theirs your long-term investment assets -- are actively in play, or otherwise counter-leveraged, "put to work" in some overly-creative wall street investment vehicle; Investments backed by a FDIC-guarantee to garner the banks the best ROI -- allowable by regulatory law.

Their Return On Investment -- not ours!

That's some system.

OMG!  "ban banks from all trading !?"

That's unheard of.  What was former Fed Governor Hoenig thinking!?  Stop the Crazy Talk ...

They already have enough "Fed-discretionary Basel III regulations" -- give them a freaking 6% break, already, OK?

For it makes little difference, to our ill-informed, non-consumer-driven society, that that 6% Basel regulatory limit still misses the mark; because in the context of our income-siphoning history, Glass-Steagall Act II regulations -- sadly, they are NOT.

Not that any average consumer would notice ... what the banks are doing, with "their" funds.

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Comment Preferences

  •  gotta get beyond band-aids to real re-regulation (7+ / 0-)
    It can be argued that this grand dismantling (of GSA) led directly to the Great Recession of the 00's -- the lingering economic downturn, we are current still living through.

    Warning - some snark may be above‽ (-9.50; -7.03)‽ eState4Column5©2013 "I’m not the strapping young Muslim socialist that I used to be" - Barack Obama 04/27/2013

    by annieli on Wed Dec 25, 2013 at 01:30:47 PM PST

  •  I just watched "Hank" on Netflix (7+ / 0-)

    (I confess to have posted some of this comment elsewhere)

    It's a biographical account by Secretary of Treasure Hank Paulson about the financial debacle.

    It's clear to me that it all got started by the repeal of Glass-Steagall.  From then on unregulated banks became increasingly fraudulent by selling securitized sub-prime mortgage packages that were not as secure as they represented.  

    The repeal of Glass-Steagall was voted by a Congress heavily influenced by the banking CEOs.  Money in politics is at the bottom of this disease.  Certainly Congress and POTUS were voted in but the driving force was the financial industry.

    Banks were able to become to-big-to-fail as Paulson states in the film.  Blame the repeal of Glass-Steagall for this too.

    Paulson was CEO of Goldman Sachs before he was appointed in 2006.  The real estate bubble was ready to burst.  And yet he claims ignorance about the dynamics that caused it; securitization of sub-prime mortgage loans.  This is where he looses me.

    Everybody in the front lines of real estate knew what was going on.  My Kennedy shoe shine moment came in 2004 when I met a hair stylist who was buying his 4th house in Palm Springs even though I earned twice as much as he did.

    The corruption of the mortgage financial system was there for all top see.

    Certainly all the large bank and investment bank CEOs and even AIG knew they were fraudulently making billions by selling these securitizized mortgage packages in the US and around the world by lying about their nature and supported by the global reputation of the US financial system.

    Paulson may have saved the day, but it is clear, and he does say it in the film,  that nothing has changed and we face another debacle soon.

    The corruption of Fannie Mae and Freddy Mac CEOs is clear too.  They got fired non too soon.  But I do believe that putting one or more of these corrupt CEOs would go a long way to prevent the next bubble and the next financial debacle.

    But, until we reinstate Glass-Steagall with extra teeth and we get money out of politics à la Citizens United, we are skating on thin ice.

    Daily Kos an oasis of truth. Truth that leads to action.

    by Shockwave on Wed Dec 25, 2013 at 01:39:01 PM PST

  •  we'd be wise (5+ / 0-)

    wise to remember the smartest thing former Fed Chairman Greenspan ever said:

    Greenspan Destroys Deregulation in 16 Seconds


    "I made a mistake in presuming that the self-interest of organizations, specifically banks and others, were such, as they were best capable of protecting their own shareholders."
    iow,  market aren't always self-correcting.

    for the the longer version

  •  Wouldn't it just be easier... (4+ / 0-)

    ... to repeal Gramm-Leach-Bliley and Reinstate Glass-Steagall?

    Or, is that stating the obvious?  No one in the Beltway Bubble ever seems to want to enact laws that are obvious and simple.

    I've heard the "justification" of a "new" Glass-Steagall to make it more compatible with modern banking which only has computers to make it faster, but that doesn't justify keeping the old laws separating the various kinds of banking from each other to minimize the risk for ordinary people who have much smaller amounts of money in the bank than corporations.  With loopholes big enough to fly a jumbo jet through, there is no way to regulate the banks.

    I distrust pretzel-logic laws that are so twisted with loopholes that they make no sense whatsoever.  I much prefer simply-stated laws like the Constitution and Bill of Rights.

    Laws are made for men of ordinary understanding and should, therefore, be construed by the ordinary rules of common sense. Their meaning is not to be sought for in metaphysical subtleties which may make anything mean everything or nothing at pleasure.
     ~ Thomas Jefferson

    I'm sick of attempts to steer this nation from principles evolved in The Age of Reason to hallucinations derived from illiterate herdsmen. ~ Crashing Vor

    by NonnyO on Wed Dec 25, 2013 at 03:58:53 PM PST

    •  This would seem to be the simplest... (0+ / 0-)

      ... way of fixing the banks. (Caveat: I'm not a banking expert other than that I know that keeping a lot of money in a bank doesn't enhance my savings any more; not when it's lucky to be getting 1% interest. Remember when a savings account would earn 5.74%?)

      The only amendments I would add to such a change back to the Glass-Steagall policy would be

      a.) Give the banks a period of time -- a couple of years, say -- to make the split and no exceptions.

      b.) Failure to comply will result in jail time for C-level execs and boards of directors.

      c.) No fines that are nothing more than slaps on the wrist and would be paid for by depositors and shareholders, anyway.

      d.) No ability to claims of no guilt. You knew the law, you knew the deadline, if you fail to meet it, you are guilty.

      They have enough money to pull this off and it'd just be too bad (just cut the flood of crocodile tears, bankers, we're not falling for it again) if they had to forgo all raises, bonuses, art purchases, executive suite redecorations, and mergers with other banks for a couple of years to hire financial consultants to orchestrate the split in the least disruptive way.

      IMNSHO, we ought to make banking as boring as possible. Would it really be so bad if we simplified banking to the way it was pre-Reagan?

  •  Oh, and I don't forgive Clinton... (5+ / 0-)

    ... for signing Gramm-Leach-Bliley.  It was a stupid move on his part, not worthy of a Rhodes Scholar.

    I'm sick of attempts to steer this nation from principles evolved in The Age of Reason to hallucinations derived from illiterate herdsmen. ~ Crashing Vor

    by NonnyO on Wed Dec 25, 2013 at 04:01:14 PM PST

    •  Clinton and Gramm-Leach-Bliley (2+ / 0-)
      Recommended by:
      jamess, CentralMass

      I don't know all the inside baseball stuff of this about background negotiations, but when Clinton signed the bill November 12 1999, it was veto-proof,  90-8 in the Senate and 362-57 in the house (WikiPedia). Sounds like it's Congress who bears responsibility (yes Democrats too) for approving this. And the Financial Industry pushed hard, because they saw a lot of money coming. They weren't wrong. If there's anyone in this mess that bears most of the blame, it's Phil Gramm (Weasel, TX). And he was an Economist, and tragically wrong. He and his wife Wendy had a lot to do with the "Commodity Futures Modernization Act", which made derivatives, MBS, CDS and oil speculation what they became.....

      And a low-regulation-enforcement attitude under GWB starting a year or so later just encouraged malefactors to rob the henhouse.

      Without geometry, life is pointless. And blues harmonica players suck.

      by blindcynic on Wed Dec 25, 2013 at 10:18:52 PM PST

      [ Parent ]

      •  Since it was veto-proof... (2+ / 0-)
        Recommended by:
        jamess, shaharazade

        ... couldn't Clinton have just let it pass without his signature (if he disapproved of it)?

        There have been so MANY bone-headed moves on the part of the legislative branch and the executive branch for the last 20 years or so that all these bad decisions just can't be an accident of bad judgment.  I sense malice and/or coercion on the part of corporations and/or Wall Street and/or TBTF banks and/or MIC behind many of these things, especially the unconstitutional and illegal AUMFs, Patriot Act, MCA '06, FISA fiasco '08, MCA '09, and Dumbya's executive order to create the 'office of faith-based initiatives.'  All these things remain in force (with extensions to original expiration dates) and have taken away our rights.  All need to be repealed in full - no tinkering with a paragraph or section here or there, but repealed in full.

        WHEN do we get our constitutional rights back?

        I'm sick of attempts to steer this nation from principles evolved in The Age of Reason to hallucinations derived from illiterate herdsmen. ~ Crashing Vor

        by NonnyO on Wed Dec 25, 2013 at 11:15:16 PM PST

        [ Parent ]

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