RebelCapitalist: Financial Information for the Rest of Us

IT’S ON!

Apr 23, 2010 | By: Mr_Blue | Tags: financial regulatory reform, chris dodd, #finreg

It’s on! The fight over the control of our economy, our political system and our financial system - it’s us versus the financial oligarchy. The financial oligarchy has had the upper hand since de-regulation began back in the 1980s. The survival of the real economy and our future depends on making sure the financial system returns to being a intermediary service sector and not the huge behemoth that leaves destruction in its wake. Starting Monday, April 26, the Senate will be voting on the very important financial regulatory reform bill. The bill, as proposed by Sen. Chris Dodd, is weak but there are amendments to fight for to make this reform with teeth- reform that we can believe in.

This is our last chance at reform that will actually make a difference. Mike Konczal, a research fellow at the Roosevelt Institute, has drafted this chart and a two page summary that explains 6 items that are worth fighting for in the Senate Bill. Here is the chart:

1) Too Big to Fail and Hard Leverage Cap - one the major defects of Sen. Dodd’s bill is that it leaves too much discretion to regulators. What we need are hard fast and clear rules that limit banks size and leverage and that is what the Safe Banking Act of 2010 does that.

2) Banks pay for their own clean up - this a liquidation fund, NOT a bailout fund that republicans are trying to call it. This advanced funded (by banks) fund would be used by the FDIC to wind down the bank and sell off its assets and liabilities - like to FDIC does when it takes over other bad banks except this liquidation fund is for the big financial conglomerates such as Citibank and Bank of America.

3) Derivatives - Senator Blanche Lincoln surprisingly offered a very strong reform bill that would achieve much needed transparency in this very dangerous market and other very important things.

4) Off-Balance Sheet - there was a whole other banking system operating off the balance sheets of banks and known as the “shadow banking system”. This is where banks were hiding a lot of their leverage from investors and regulators. We need new rules requiring full disclosure of off-balance sheet investments.

5) Volcker Rule - this rule would prevent banks from abusing the Federal Reserve’s discount window. Banks could borrow at low rates from the Fed and use the money to make risky bets in the market. Senators Levin and Merkley have an amendment that address this issue and conflict of interest trades like the one Goldman Sachs did with Paulson & Co.

So there you have it. Mike Konczal has provided a valuable checklist to use when we call our senators to ask them to support meaningful reform.

Good luck.