Tag Archives: financial reform

By James Kwak

In What’s the Matter with Kansas? Thomas Frank described how the Republican Party was able to take advantage of the conservative, values-focused, evangelical-driven movement to come to power–and then paid lip service to the priorities of the “base,” instead pursuing policies that helped established business interests and the rich. On a national scale, this was one major reason why conservatives became so disillusioned with George W. Bush.

It’s no surprise to anyone that this is happening again, only substituting “Tea Party” for “evangelical conservatives” and “United States” for “Kansas.”

Spencer Bachus, the likely new chair of the House Financial Services Committee, has announced that he is planning to use whatever powers he can to gut the Dodd-Frank financial reform bill. Why? According to the Financial Times, Bachus “expressed concern that shareholders of Goldman Sachs and JPMorgan Chase will be hurt because the banks will be less profitable.”

So one major effect of the Tea Party movement will be to further enrich Wall Street banks and the bankers who work there. (Which, I guess, is consistent with the common Tea Party insistence on reducing taxes for the rich.)

Is this what you voted for?

(If not, Mike Konczal reminds us that tomorrow is the deadline to submit comments on the implementation of the Volcker Rule.)

By James Kwak

From Mike Konczal:

“Examples? Off the top of my head, ones with a paper trail: [Treasury] fought the Collins amendment for quality of bank capital, fought leverage requirements like a 15-to-1 cap, fought prefunding the resolution mechanism, fought Section 716 spinning out swap desks, removed foreign exchange swaps and introduced end user exemption from derivative language between the Obama white paper and the House Bill, believed they could have gotten the SAFE Banking Amendment to break up the banks but didn’t try, pushed against the full Audit the Fed and encouraged the Scott Brown deal.”

(By the way, if you’re missing your financial commentary fix during my self-imposed hiatus, I recommend Mike’s blog highly–not that that’s news to anyone anymore.)

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By James Kwak

“Geithner’s team spent much of its time during the debate over the Senate bill helping Senate Banking Committee chair Chris Dodd kill off or modify amendments being offered by more-progressive Democrats. A good example was Bernie Sanders’s measure to audit the Fed, which the administration played a key role in getting the senator from Vermont to tone down. Another was the Brown-Kaufman Amendment, which became a cause célèbre among lefty reformers such as former IMF economist Simon Johnson. ‘If enacted, Brown-Kaufman would have broken up the six biggest banks in America,’ says the senior Treasury official. ‘If we’d been for it, it probably would have happened. But we weren’t, so it didn’t.’”

Oh, well.

That’s one passage from John Heileman’s juicy article in New York Magazine. It provides a lot of background support for what many of us have been thinking for a while: the administration is happy with the financial reform bill roughly as it turned out, and it got there by taking up an anti-Wall Street tone (e.g., the Volcker Rule), riding a wave of populist anger to the point where the bill was sure of passing, and then quietly pruning back its most far-reaching components. If anything, that’s a testament to the political skill of the White House and, yes, Tim Geithner as well.

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By James Kwak

Robert Reich discusses a theme that I think I’ve discussed before (and first heard expressed by Ezra Klein):

“The most important thing to know about the 1,500 page financial reform bill passed by the Senate last week — now on he way to being reconciled with the House bill — is that it’s regulatory. It does nothing to change the structure of Wall Street.”

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By James Kwak

The news these days is largely about the financial reform bill on the floor of the Senate. I think you know my opinion about that: many good things, not enough to solve the root problems, but still better than nothing.

Here’s a simplified way of thinking about things. There are two general problems with the financial sector today, which were the subject of two consecutive columns by Paul Krugman. The first problem, according to Krugman: “Much of the financial industry has become a racket — a game in which a handful of people are lavishly paid to mislead and exploit consumers and investors.” This is what we see in the SEC-Goldman suit, the Magnetar trade, and so on. The financial reform bill is largely (but not exclusively) aimed at this problem; that’s why there are a consumer protection agency, new trading and clearing requirements for derivatives, etc. These reforms, I think, have a reasonable chance of doing good.

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