One of Wall Street’s finest slipped and told the New York Times that the financial reform bill wouldn’t affect their core business to any major degree.
Many executives spent the weekend trying to assess the impact of the legislation, which has yet to take final form. With some crucial differences between the House and Senate versions of the bill remaining, lawmakers will confer over the next few weeks and try to reach a final version before Congress’s Fourth of July recess. But Wall Street’s initial verdict seems to be that it could have been much more draconian.
“If you talk to anyone privately, there’s a sigh of relief,” said one veteran investment banker who insisted on anonymity because of the delicacy of the issue. “It’ll crimp the profit pool initially by 15 or 20 percent and increase oversight and compliance costs, but there’s no breakup of any institution or onerous new taxes.”
The reaction of the market to the legislation echoed that view. Stocks of financial institutions performed well on Friday, with shares of JPMorgan Chase and Morgan Stanley each up 5 percent.
They’re not supposed to give that away until AFTER the conference committee! Oh well.
At the most, the bill would lower profits by about 20% initially, analysts said, and that number would drop over time, as financial firms adapted to the changes, and as they found ways to get around the regulations, an inevitable occurrence.
From the earliest days of capitalism, those skilled at making money have proven creative at evading the regulators.
In the Middle Ages, when usury laws banned lenders from charging interest, savvy merchants lent in one currency and took repayment in another, thereby profiting without incurring the wrath of the Catholic Church. So much has happened over the ensuing centuries — a blur of financial ingenuity spanning the creation of stocks to the mortgage-backed investments of the present day — yet history remains unbroken: Time and again, financial innovation finds a lucrative path around regulation.
As Congress and the Obama administration now enter the endgame in an effort to temper the dangers that delivered the worst financial crisis since the Depression, experts assume that this historical narrative will hold. If anything, swift advances in technology — computerized trading strategies unleashed on a global landscape — have made it harder for watchdogs to simply recognize the risks building within markets, let alone deliver effective action.
Yet bans on high-frequency trading never materialized. Neither did the specific policies which the banking giants feared the most – limits on their size and leverage, caps on interest rates for credit card holders, a restoration of the firewall between commercial and investment banks, and and punitive taxes on financial transactions or bonuses. What we’re left with is a broader set of rules on the same financial system. And we have to trust that the regulators who got it wrong last time will, empowered with new rules, actually do their job this time. This is not by accident, but by the design of the Administration, who fully admits their role in shaping the response in a narrow way that protected bank privilege:
What that’s meant in practice is that Geithner’s team spent much of its time during the debate over the Senate bill helping Senate Banking Committee chair Chris Dodd kill off or modify amendments being offered by more-progressive Democrats. A good example was Bernie Sanders’s measure to audit the Fed, which the administration played a key role in getting the senator from Vermont to tone down. Another was the Brown-Kaufman Amendment, which became a cause célèbre among lefty reformer such as former IMF economist Simon Johnson. “If enacted, Brown-Kaufman would have broken up the six biggest banks in America,” says the senior Treasury official. “If we’d been for it, it probably would have happened. But we weren’t, so it didn’t.”
Jeff Merkley claims that the conferees will try to include his Merkley-Levin amendment in the conference report. But I don’t really see how that could be, given that the House has nothing like it and the Senate only has a study to impose the Volcker rule. Regulators could vote to enact or override the ban on proprietary trading, as written. The likelihood is high that will remain in place. This looks to me like the expected outcome:
If it’s not done now, said Merkley, proponents will likely have to wait until the next crisis to raise the issue.
“If we have another crisis in the next 24 months, people will be taking a second look at what we’re passing now. And if everything goes smoothly for five years, we probably won’t have any momentum until the next crisis occurs,” he said.
We have the blueprint for what the response should look like in the next crisis, which is a step forward, but we’d face the same obstacles.





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Mi$$ion Accompli$hed
I am reminded of a discussion in the movie “Other Peoples Money,” where Larry The Liquidator (Danny DeVito) is warned that someday Congress will pass some laws and put guys like him out of business. He merely smiled and said “Pass all the laws you want, you won’t stop the game. Guys like me don’t go away, we adapt.”
Then other than Kabuki, what’s the point? Why even bother?
Oh well. At least we tried.
We’ll get ‘em next time…after the banks meltdown again later this year.
I hope they all live long lives and do not experience prolonged excrutiating agony.
“major financial regulation changes since the 1930′s by the Obama Admin”
That was Rachel Maddow last week.
So even so called “libruls” lie to us on behalf of the WH.
The nightmare continues.
I saw the same thing on a PBS documentary on the banking mess, predatory lending, etc. One of the men who started a credit card company for low-income higher risk borrowers said exactly the same thing. “Whatever you do, we will figure out how to make money.”
We got thoroughly gamed again. Let’s start planning what we won’t do about it.
How can we expect effective legislation from the very people who not only played a role in creating the mess, but refuse to acknowledge their own role and that of government in general? Dodd and Frank should have resigned, not become entrenched in regulating something they clearly don’t understand.
They were warned of what was coming and scoffed at the notion that a fiscal collapse was imminent. Are we to believe the new regulations and bureaucrats will predict the next disaster and prevent it? Talk about a false sense of security.
Oh dear, David, you’re so quaint. You think the masters of the universe still have to pretend, for public consumption, that they’ve been chastened? Guess you didn’t see the Wall St. execs testify before congress, or note the bonuses paid with taxpayer money.
We have been saying this for more than a year. I’ve put up a list 3 times now laying out what kinds of reform are needed. The first one was in December 2008. Except for some tweaking around the ratings agencies, I don’t think one of the proposals has made it into this legislation. The Administration’s plan in June 2009 and Barney Frank’s House bill in September-October 2009 all made it clear that reform was not going to happen. Then the action switched to the Senate and Dodd’s bill. Dodd is an even bigger whore for the financial industry than Frank, and that is saying something. And too the Senate is even more conservative than the House. So again reform was never in the cards, ever.
Then there is Obama who supported the TARP and used his prestige as presumptive Presidential nominee to get it passed. And of course Obama pushed to get another term for Helicopter Ben at the Fed. Also there is his economics team of Summers, Rubin, Geithner, and “Let’s cut Social Security” Orszag. Where among any of these people and events do you discern even a whiff or a trace of reform? Reform was never going to happen. It hasn’t happened. It won’t happen even if there is another crash as long as this crew of evil looting clowns remain where they are.
Bless you for continuing to type this over & over again. I got tired of pointing out that O’s economics appointments revealed everything.
I’m reading Stiglitz’s Freefall. I know most of what’s in it already, but reading it altogether helps me retain details, and he also has some implications and ideas I hadn’t thought about. He also makes a big deal out of how W’s & O’s economics teams were basically the same people.
On edit: I remember fondly the argument you & I & selise had with Krugman on this subject when he came for book salon. And how several commenters thought we had some temerity to argue with St. Paul.
the financial regulation bill is more phony obama/vichy dem/corportist protecting baloney: pretend like they’re doing something while doing nothing to impinge in anyway on the corporations stealing whatever they want of the wealth of Americans.
OT
2-1/2 wars at a time are not enough for O.
It should be clear now that it is the shadow elite working the “evil looting clowns” behind the scenes that is preventing any real reform. Let’s stop pretending that there is any difference between the right and left; it’s a ridiculous premise on its face in 2010.
Reform is a fool’s errand. When reform is impossible only revolution is left. That or submission.
Thank you. There are only two things that get people’s attention: love and fear. Obviously love has not worked, now is the time to consider the alternatvie, whether we personally like it or not. This is war, and nice guys do not win.
I have often wondered what liberals in Germany were thinking in 1933. Now I know. The only question that remains is what we are going to do about it. It’s the only questions.
What do you mean! It matters not who O appoints, they will do whatever he wants them to do because he’s the great micromanager progressive 11th dimensional chess master. Besides, he’s only been in office six weeks, right?
Without federal funding of elections, we will always have the scene where good guys like Frank must deal with “centrist” Democrats to get anything passed.
Watching C-Span I saw time after time the first two rows of Dems, Frank and the rest of the old timers, push liberal progressive change, only to have the bottom tier, where the newly elected centrist Dems sit, kill the reform. I had the Southern Dems joining the GOP in the 40′s and 50′s so that civil rights and social programs always died – now I have the “centrist” Dems and GOP doing the same.
The Obama-Rahm administration is revealed more clearly each day to be merely a subsidiary of the Cheney-Bush Crime Syndicate with exactly the same objectives: absolute unitary executive authority over all government processes, but completely subservient to the whims of the greediest corporate fat-cats. This truly is the third Cheney-Bush term, and the American people are getting robbed, ruined, then cast aside.
There will be NO REFORMS WHATSOEVER during Cheney-Bush III. All corporate & government criminals get off scot-free and their crimes and criminal methods become enshrined as precedent or cast in legislative bronze as the phony “reforms” being used by Congress to distract the citizens from the real sabotage of the Constitution and the rule of law.
The only real question at this point is who progressives will be supporting for President in 2012, and how we will set about defeating Obama-Rahm and their Criminal Corporatist Cabal.
Yeah but that’s only partially true. Maybe it’s just a matter of scale…. keeping the scams to a minimum. I don’t believe we’ll ever have a perfect system but in the past we certainly have had a much more credible system(FDR till about Nixon).
I don’t see how a rigged system run by an exponentially greedy kleptocracy is even remotely sustainable. Either we get meaningful reforms soon or the entire thing will go tits up.
We have to join POWER 9 (www.power9m.org) if we want our Debt Amnesty.We have nothing to lose and much to win.
Tell friends and family,if we are united in this Movement we will obtain our Debt Amnesty.