"For all Obama's talk of overhaul, the US has failed to wind in Wall Street"

[WhiskeyGirl]

For all Obama's talk of overhaul, the US has failed to wind in Wall Street
With a blank cheque from taxpayers and no real reform the perverse incentives for risk-taking are bigger than ever.

Financial markets had lent on the basis of a bubble – a bubble in large part of their making. They had incentive structures that encouraged excessive risk-taking and shortsighted behaviour. And that was no accident. It was the fruit of vigorous lobbying, which strived equally hard to prevent regulation of changes in the financial structure, new products like credit default swaps – which, while supposedly designed to manage risk, actually created it – and ingenious devices to exploit poor and uninformed borrowers and investors. The sector may not have made good economic investments, but its political investments paid off handsomely.

Is the financial industry doing right by consumers this time around?  Unlimited interest?  In the olden day, credit card issuers didn't issue more card to folks who were overextended.  They didn't keep raising the credit limits...  They were limited by state laws to how much interest they could charge consumers and had a good reason to extend credit only to those that were likely to pay it back.

Had more thought gone into how to deal with Lehmans, the Treasury and Fed might have realised that it played an important role in the shadow banking system, and that it was important to protect the integrity of the shadow system which had come to play such an important role in the US and global financial payments system. But many of Lehmans' activities had no systemic importance. The administration could have found a path between the false dichotomy of abandonment or bailout. That would have protected the payments system, providing the minimum amount of taxpayer money. Shareholders and long-term bondholders would have been wiped out before any public money had to be put in.

For some reason, the Obama administration wiped many small investors on Main Street that should have been first in line for recovery when GM and Chrysler went bankrupt.  I wonder if any of those small investors had friends in the Treasury or Federal Reserve?

Unquestionably we should not have allowed banks to become so big and so intertwined that their failure would cause a crisis. But the Obama administration has created a new concept: institutions too big to be resolved, too big for capital markets to provide the necessary discipline. The perverse incentives for excessive risk-taking at taxpayers' expense are even worse with the too-big-to-be-resolved banks than they are at the too-big-to-fail institutions. We have signed a blank cheque on the public purse. We have not circumscribed their gambling – indeed, they have access to funds from the Fed at close to zero interest rates, and it appears that "trading profits" have (besides "accounting" changes) become the major source of returns.

I wonder who approved their accounting changes?  Where are the financial firewalls?  Breaking up these institutions into smaller less risky operations?   

Last night Barack Obama defended his administration's response to the financial crisis, but the reality is that a year on from Lehmans' collapse, it has failed to take adequate steps to restrict institutions' size, their risk-taking, and their interconnectedness. Indeed, it has allowed the big banks to become even bigger – just as it has failed to stem the flow of profligate executive bonuses.

a good article, read more here - http://www.guardian.co.uk/commentisfree/2009/sep/14/lehmans-one-year-after1

How keep have the Chinese been to integrate into the global banking scheme?

[WhiskeyGirl]

"ush for financial reform stymied; some see future crisis as inevitable."

Each of the crises of the past 25 years — the collapse of the savings and loan industry, the Internet-stock bust a decade later and last year’s credit-market meltdown — were the result of inadequate regulation, says Eugene Ludwig, a former bank regulator who worked in the Treasury Department during the Clinton administration.

“The failure has been government’s inability to restrain bubble growth, and then often reacting with the wrong medicine,” he says.

The administration’s financial plans focus on the right issues, but some don’t go far enough, he says. Financial experts who are more critical of the plan say it largely consists of half-measures that aren’t likely to rein in excessive risk-taking by banks.

Among other things, the administration’s plan would do away with one bank regulator, but leave multiple agencies in charge of bank supervision. It calls for collaboration between the Securities and Exchange Commission and the Commodity Futures Trading Commission, but stops short of combining the agencies — even though their missions are increasingly similar. And the administration would impose more controls on the largest banks’ risk-taking, but would still view them as “too big to fail.”

The first piece of legislation to be taken up by the House Financial Services Committee will be the creation of the consumer product agency...

Fed Chairman Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair also have criticized the proposal. Bernanke says the Fed is now making consumer protection a core mission. Bair would prefer that a new agency have rule-writing authority but leave enforcement to existing agencies, including hers.

Rep. Barney Frank, D-Mass., who leads the House Financial Services Committee and largely supports Obama’s plan, will begin marking up the bill in October.

...

Obama’s idea is to make the Fed the supercop on the lookout for “systemic risks” to the financial system. Opponents say the Fed didn’t recognize the housing bubble until it was too late and therefore shouldn’t be entrusted with greater oversight.

Why didn't Barney work with others to reform the mortgage problem years ago?  IIRC, he concluded that Freddie/Fannie were sound.  If Barney didn't see Freddie/Fannie and other problems, is he a good watchdog for the futue?

http://www.everydaychristian.com/ap/story/4713/

Is the problem that banks might have multiple supervisors?  If they were smaller entities, with single focus pieces, would they have a focused supervisor/regulator?

Will a mega regulator, a jack of all trades, do a better job of supervison than multiple smaller agencies with a single focus?

Why not break up the entities that are to big to fail?  Does their size make the risk unacceptable for taxpayers? 

[WhiskeyGirl]

Where are the details of the crisis last year?  Taxpayers are still on the hook for trillions.

Anyone have a flow chart of who was bankrupt?  Out of cash?  Why?

How is it possible that all these banks were on empty in the middle of the night?  Didn't anyone in these places see warning signs?  Read, study, and comprehend financial reports?  See red flags?

Maybe the warning systems and red flags were turned off?

How long did they know they were in trouble and refuse to take action?

How is it possible they all went belly up in the middle of the night and needed help?

[WhiskeyGirl]

More problems?

The Consumer Financial Protection Agency — which was supposed to be designed to protect borrowers against hidden fees, surprise penalties and deceptive language — is still a problem. International agreement on new capital requirements is not expected before the end of 2010 and the new rules are not expected to go into effect until two years later.

Is the U.S. going to be globalized for consumer protection?  Unlimited interest?  In the olden days, before deregulation, consumers had protection from high interest rates.  Banks that issued credit had incentives to ensure that consumers had the means to pay back the money they used.  What incentive do banks have today?

Is it wise to jump on the global bandwagon? 

American's should find an American solution.

Wall Street has amazing recuperative powers. Financial institutions are again casting around for exotic financial products to sell.

HERE'S ONE of the latest: Bundling life insurance policies that people have sold to raise cash into huge packages and then slicing them up into securities and then selling them to investors.

If this sounds amazingly similar to what happened with home mortgages, it's because it is.

Is it possible that financial institutions would lose money if the person insured lives to long?  They would make more money if the person died sooner?

Where are the consumer guards?  Is it possible that Obama's next target is pre-existing conditions for life insurance products?  People with one foot in the grave and another on a banana peel will have the right to the same insurance coverage as those that are healthy?  Pay life insurance premiums for say five months, die, and leave someone rich?

Why aren't the life insurance bundlers limited to how much profit they can make on a human life?  Why not limit them to an amount equal to two times what they've paid out to the insured, plus premiums?  The balance going to someone other than those making the profit?

If you're in the business of making profits, like those enganged in these life insurance schemes, why aren't they paying taxes on these profit making ventures?  Life insurance, last time I checked, is paid tax free. Maybe I'm wrong and someone pays taxes?  If someone is in the life/death for profit business, should they get all that money free?

jmho