Finance Reform: Now or Never!

Republican leaders are in a quandary over Wall Street reforms; how to shill for an industry even more reviled than Congress while still pandering to their tea party base.

Millions remain unemployed; the housing market is "underwater;" and trillions of dollars were lost in the stock market all because of mind boggling greed, predatory lending, reckless speculation, insufficient reserves and inadequate oversight. And Wall Street is spending nearly a million dollars per congressman lobbying to ensure it continues.

You can bet your troubled asset this will all happen again if Senate Minority Leader Mitch McConnell, after huddling with banking lobbyists to coordinate strategy, gets his way.

Most of what is being proposed is simply reinstating the same rules that were abandoned during the deregulatory frenzy of the last three decades which, if kept in place, could have prevented the current crisis:

ï'Ÿ breakup too-big-to-fail banks by reestablishing the firewall between commercial and investment banking that existed prior to 1999.
ï'Ÿ reimpose the 12-1 debt to capital ratio that the Securities and Exchange Commission waived for money center banks in 2004.
ï'Ÿ restore transparency for derivative trading, which existed before 2000, through regulated markets like those for stocks and commodities. Unregulated derivatives, essentially casino chips, worth $592 trillion were the primary culprit responsible for ravaging the world economy and socking the taxpayer for the $700 billion ($87 billion as of now) Troubled Asset Relief Program (TARP).
ï'Ÿ adopt the (former Fed Chair Paul) Volcker Rule restricting commercial banks from using proprietary (in-house) funds to make speculative investments similar to those for which the SEC has charged Goldman Sachs with fraud.
ï'Ÿ establish an independent consumer watchdog agency to regulate the kind of predatory lending that fed the subprime loan mess and insist originators hold at least five percent of any "securitizied" debt to curb the bundling of toxic mortgages.
ï'Ÿ grant "resolution" authority to seize and dismantle failing mega banks. This is what McConnell is characterizing as "perpetual taxpayer bailouts." It is not. It is the same process the FDIC used last year to fold-up 130 smaller banks. If the authority had existed in 2008, instead of the government bailing out AIG and Wall Street banks, it would have nationalized them, hung-out stockholders, canned management and spun-off viable assets. This is what terrifies the "banksters" the most.

"What the deregulatory zealots fail to understand," writes Barry Ritholtz, author of Bailout Nation, "is that we don't regulate markets; we regulate the (often mendacious) behaviors of the human beings who work in those markets -- Without rules, people misbehave -- and even more so when large sums of money are involved."

If these rules don't pass with bipartisan support, the $500 million Wall Street is spending to stop them will be worth every tax deductible penny.