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The title is a near quote from Senator Bob Corker of Tennessee on Nashville public radio last week. It is the kind of statement we Tennesseans learned to expect based on his background in business and state government: he was the finance commissioner under the last Republican governor, and was realistic and conservative financially. He left the State in reasonably good condition.
I’m a partisan too, but I absolutely agree that financial regulation isn’t a partisan issue. So, we could get regulation done on a bipartisan basis, yes? Not really. Every single Republican and 27 conservadems voted no on the financial regulation bill that just passed the House. Here’s the explanation given by one no voter to the Wall Street Journal:
Republicans countered that the Democrats’ plan would create huge government bureaucracies, stifling access to credit. “Their bill will continue the destruction of jobs in this country,” said Rep. Scott Garrett (R., N.J.).
That isn’t an argument: it’s a negative ad in a hot election. No one thinks we need more consumer credit from the unrepentant financial institutions who dragged us down into the Great Recession. Anti-government free marketers in both parties are so buried in their ideology they feel free to ignore reality. Here’s a fact: consumers don’t want credit. What they want is to work off their debt and increase their savings. The people who want credit are small businesses. Some need credit to operate, and some need credit available so their clients can finance their purchases. That is a problem Garrett and his ilk won’t face, because it would require regulation of banks.
Everybody except their mothers distrusts the people who run the financial giants, as David Wessel tells us in the Wall Street Journal:
Bankers need to be more candid and self-critical about what they got wrong and what they are going to do differently as a result — not small steps, but big ones. They need to distinguish clearly between financial innovations that enrich only bankers and those that enrich the entire society, and then convince the rest of us that the result of this crisis is that they are going to do less of the first and more of the second.
But the banksters got all kinds of special treatment in the House bill. One of the loopholes is for certain derivatives, called commodity swaps, bought to hedge costs by actual businesses (as opposed to financial parasites). Suppose an airline wants to hedge its fuel costs. It could use the commodity markets in a regulated and transparent transaction. Or it could buy commodity swaps from any of the giant banks. Commodity swaps are transactions in which the airline and a bank swap the risk of increases and decreases in the price of a commodity, in this case perhaps airline fuel. The airline pays the fixed price, and the bank pays the variable price. The swap might be based on the spot price. If the spot price at the close of business at the end of the relevant period is above the fixed price, the bank pays the difference to the airline. If the spot price is lower, the airline pays the difference to the bank. This is an unregulated, undisclosed transaction.
On Seeking Alpha, Adam White estimates that about 16-21% of a all derivatives are exempted in this loophole. He points out that the corporations love the off-balance sheet financing they get out of the loophole. I assume both Wall Street and the up-scale end of Main Street will both game this system mercilessly, among other things hiding their overall exposure from investors. And what’s to stop a business with a bucket of swaps from fiddling with the commodities markets to push the price in a direction that favors them on the swap? The pseudonymous Adam Smith in The Money Game describes the cocoa market, where Hershey, M&M and Nestle play with small investors, the mice:
Hershey has only to lean on the market and the mice are mouse pâté.
P. 217. That may be too easy, but I’m sure that the loophole is a playground for the greedheads.
So, what facts justify opposition to serious regulation of financial markets? Don’t ask Corker. It’s embarrassing, for me even if not for him, to hear smart, knowledgeable people talk nonsense.
Bankster image courtesy of Confetti
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Is this the wedge progressives should explore then, giotto?
Republicans and Democrats are just two brands put out by the same company, our elites. You can buy into one or the other. The money all goes to the same place.
What we see in healthcare, the economy, domestic spying, and the wars are impossibly bad policies presented to us in pseudo-serious form by a media that learned its craft from professional wrestling announcers.
There is no reform anywhere. The only debate is between really bad and even worse. Our system is fundamentally broken. It has become a kleptocracy, not in some over-intellectualized sense, but more in an everyday holding up the 7/11 sense, just on a much larger scale. Our leaders, Obama included, are not well meaning but limited individuals. They are crooks.
If you want to know why all our efforts to work with them or modify their conduct fail, it is that. They do not belong in government. They belong behind bars, not figuratively but literally.
What a great picture. One of the billionaires for wealthcare, I assume?
Good morning Masaccio another interesting/informative commentary. The deck is stacked illogically against a recovery. The fixed game creates no incentive to gain jobs and create wealth unless you are inside the corporate monopoly that is guarded by the senators.
Regulation is a politically dirty word. They have to want a recovery…why should they? They are ripping great profits after downsizing. K street rules: who can bridle them? All the large economic sector have powerful lobbies that are not giving up the influence give them the advantage.
Everything that starts as good bills in committee morphs to something that looks the same but is toothless.
Our possible fate in the absence of serious reform?
I hadn’t thought of it as a wedge, but that is indeed a good way to put it. If we want to break through this partisan gridlock, one way to do it is to reach out to people who understand the reality that underlies Corker’s statement. It is the case that few economic issues, and a whole lot of regulatory issues aren’t partisan, in the sense that either party is likely to come up with the same solution once the problem has been identified. This is the place the President has been trying to get the two sides to reach.
I don’t agree with Hugh that the two parties are the same. I don’t like the direction of a lot of the legislation, but can you imagine the Republicans even trying to deal with health care?
“I’m a partisan too, but I absolutely agree that financial regulation isn’t a partisan issue. So, we could get regulation done on a bipartisan basis, yes? Not really. Every single Republican and 27 conservadems voted no on the financial regulation bill that just passed the House.”
And at the same time you have a very broad swath of Republicans expressing their deep seeded and visceral populist outrage against Wall Street !!
I wonder whether socially conscious Democrats are not letting a rare opportunity to ‘harness’ that mass revulsion and turn it against the monied elites, in what amounts to class warfare, go to waste?
Hey stranger how ya doing??
And yes big money will always game the system no matter what… We are just the masses who mean nothing to them!
My personal views on the relationship between The Parties and the people hews closely to Hugh’s. Matters of justice, fairness, equality, war, peace, are not just propaganda catch words devoid of meaning, yet they have been reduced to a prop by the Democrats and have become largely curse words for the Republicans. So while theoretically the differences between the parties are huge, in practice they are just big enough to keep both sides at each other’s throat, to the benefit of the Master Class.
I want to see the Dems. reach across the human interest line, not just the rhetorical ‘aisle’, as that will never happen.
Local banker in our area are blaming regulators for credit restrictions that prevent business loans. I spoke with several executives last week. Local Politicians are overwhelmed by state budget cuts that cut their budgets. More layoffs, furloughs and 3/4 checks coming from the government sector. Construction is shot and bidding projects at 50% of normal. No one is doing well except Wall Street. A stimulus as Paul Krugman will be better medicine. Wall Street is an unruly animal an
d makes it’s profits by stepping over the line. Enron started the strategy of major hiding transactions of shore or any other way to get it done. How do these issue get handled? Is it still possible? We get the smack down they get the cash.Hi Nahant writing a lawsuit pro per. The relevant points of authority take a lot of time to find, organise and put in the right place. I am fine Merry Christmas!
Yes, for one thing the Republicans never were able to get away with the cuts to Medicare that Obama and the Democrats are planning. What was your point again?
Touché.
I’m mostly in agreement with Hugh on this, but still hold to the hope that Obama is not “one of them”. There are a few others there that are sincere, or at least have been able to pull off the facade flawlessly.
Banks sell credit.
They don’t sell cars, donuts, tuna, or shoes.
They sell credit.
Until both Dems and Republicans begin the conversation with a frank admission that **banks** sell credit, and that other companies sell other stuff, I don’t think that we’ll get anywhere.
I’m increasingly struck with the rigidity and inability of the GOP to even describe reality accurately; if anyone saw Orrin Hatch last week on “Morning Meeting” claiming that the solution to health care is to have the GOP regain control of Congress, you saw Exhibit A of their incapacity to deal with current reality. They’re either so dumb they couldn’t catch a sleeping frog on a frozen pond, or they’re so traumatized that all they can do is mouth mantras. I’ve written them off as having any role in solving problems for the foreseeable future.
Which leaves us with the Dems.
The first question, before we can even start a larger conversation, seems to me to be:
1. What kinds of banks exist? (Commercial, local, investment, etc…)
Then get general agreement that there are X types of banks.
This might prompt them to realize that the “Bank Holding Companies” are the financial equivalents of the good ship Titanic.
Next question:
2. What does each type of bank do?
This might also prompt them to recognize that Bank Holding Companies, like Goldman Sachs in its post-autumn 2008 configuration, are quite able to control governments unless they are dismantled.
Next question:
3. What types of banks do we actually need?
Next question:
4. How big should they be, and how integrated?
Lots of questions after those four, but at least if there was some agreement about what a ‘bank’ actually is, we’d have a good baseline.
At this point, the term ‘bank’ has become so amorphous that it could be applied to Citigroup, or to my local small bank. Until all that fuzziness gets cleared up, I see only a big, huge mess that doesn’t solve a damn thing.
As for the GOP… good heavens!
If Orrin Hatch’s ‘solution’ to health care in America is ‘reelect the GOP’, I’d say that their political party is approaching rigor mortis.
Completely inadequate, and utterly hopeless.