The finance bill has three main parts. First, it attempts to tackle the problem of financial institutions that are too big to fail. Second, it would set up a consumer-protection agency that would try to protect consumers from taking out loans they cannot afford or buying products with hidden costs. Third, it proposes to change the way derivatives are traded.
The White House, with a hyperactivity reminiscent of its push for health-care reform, has been encouraging speedy compromise and action. “Unless your business model depends on bilking people, there is little to fear from these new rules,” Barack Obama told bankers in a speech delivered in New York on April 22nd. Joe Biden, the vice-president, and Tim Geithner, the treasury secretary, now have the somewhat harder task of travelling around and explaining how changing regulations on synthetic derivatives will improve the lot of America’s middle class.
Jack and Jill went up the hill to fetch a pail of water.
Floyd decided to setup a wager.
He tells his clients certain ‘hot tips’, all of which are true
– Jack has been training
– He has won the last 5 races against Jill
His clients take put their money on Jack, trusting Floyd to be a straightforward sort of guy.
There is a counterparty to the bets, as there has to be, who isn’t revealed.
Floyd, having told his clients all the absolutely true hot tips, witholds one piece of information – that Jack has broken his leg.
The counterparty to the bets is Floyd and his friends.
Jack crashes, Jill wins, and Floyd & Co rake in the cash. Floyd’s own clients are left in the rubble, to be rescued by taxpayers.
If that is legal, then it is the legislators who should be in the dock to explain why. And then do something about it.
It is the law and regulations that makes things legal and illegal. If obnoxious stuff is legal, it is the rules that have to be changed.
I followed the first few hours of the hearing, and I was surprised at the lack of understanding on the part of the Senators on the committee regarding the fundamentals of market making and risk management. I work in the financial industry and to me the initial defense made by the GS executives made perfect sense. Every single investment bank can be accused of this behaviour, not just GS, and it is a market maker’s job to provide liquidity to both sides of the market.
GS is essentially being persecuted for profiting from selling products they would have rather not owned themselves. By that logic, should we not be picking on anyone that endorses products they don’t use? What about advertising companies that have helped promote products that were eventually deemed unsafe… what about the celebrities that appeared in commercials promoting such products… Don’t we need some regulation there?
Obama’s so-called reform will do nothing to hold accountable the criminals at the head of the banks and hedge funds or break up the financial behemoths that exert a stranglehold on the economy. Instead, it will set up a mechanism to institutionalize government rescue operations of big financial firms to protect the interests of bank executives, shareholders and creditors, ultimately at public expense.
The lawless and reckless actions of Wall Street CEOs have had devastating consequences for tens of millions of people in the US and around the world. The wreckage left in the wake of the financial tsunami of 2008 is registered in millions of lost jobs, home foreclosures, utility shutoffs, and rising hunger, disease and poverty.
With the help of trillions of dollars in taxpayer bailouts, the bankers are making more money today than ever, even as schools are closed, libraries disappear and museums and opera houses are shuttered. There is, the people are told, “no money” for jobs or basic social services.
There is plenty of money. The problem is that it is concentrated in the hands of a financial aristocracy. The immense concentration of wealth among these individuals is not only morally repugnant, it is a menace to society. It is the result of the plundering of the social wealth to feed criminal appetites, at the direct cost of the productive forces.
During the rise of American capitalism as an industrial power, the vast fortunes of the corporate elite, while achieved through ruthless exploitation of the working class, were associated with the expansion of industry and the production of useful products. That is not the case with today’s financial elite. Its wealth is amassed on the basis of financial manipulation and outright fraud, linked to the destruction of the social infrastructure and industry.
Neither bill does anything to curb the power of the banks or limit their parasitic and socially destructive activities. What the media is calling the “most sweeping overhaul” of the banking system since the Great Depression in reality sanctions the ever greater monopolization of the financial system by a handful of Wall Street giants, imposes no limits on executive pay, and allows the banks and hedge funds to continue gambling on exotic and largely unregulated securities such as collateralized debt obligations and credit default swaps.
The so-called bank “reform” is an exercise in mass deception—an attempt to placate popular hostility to the banks and provide the government with political cover while it continues to do the bidding of Wall Street.
The bills have been drawn up in the closest consultation with bankers and bank lobbyists. This collusion has been widely reported in the press and presented as a perfectly normal and acceptable fact of political life. The front-page lead article in Monday’s Wall Street Journal describes the intensive lobbying being carried out by billionaire investor Warren Buffett to alter the Senate bill’s provisions on derivatives.
Buffett, an Obama supporter, wants to exempt existing derivatives deals from collateral requirements in the current language of the bill—a change that would save him billions on his $63 billion derivatives portfolio. Both senators from his home state of Nebraska, one Democrat and one Republican, are championing his cause.
This is just one example of the web of corruption and bribery that extends from Wall Street to the White House and Capitol Hill. The banks have thus far spent $455 million lobbying Congress on the overhaul and handed out $34 million in 2010 election campaign donations, most of it to Democrats.
The circle of corruption includes the ratings companies such as Moody’s and Standard & Poor’s, which blessed toxic subprime mortgage-backed securities with triple-A ratings in return for fees from the banks they were rating, and government regulators who move seamlessly from regulatory offices to lucrative posts at the banks they were supposedly overseeing.
The colossuses of Wall Street amass their huge profits by means of fraud and swindling. Over the past few weeks systematic accounting fraud at Lehman Brothers has been exposed and the Securities and Exchange Commission has indicted Goldman Sachs for defrauding its clients in the run-up to the subprime mortgage crash. This is only the tip of the iceberg.