Banks Try to Block Regulation, Saying It Will Hamper Innovation

By Dirk van Dijk

While most of the news yesterday was focused on the General Motors (GM) bankruptcy, there was an article in the New York Times that is worth reading about the efforts of the banks to get back to business as usual, with no significant changes to the regulatory structure (other that pure cosmetics). This, after the combination of de-regulation and lack of enforcement of financial regulations brought the world to the edge of the financial abyss and caused incredible pain and suffering in the real economy -- not only here in the U.S. but around the globe.

Now, lobbying is a constitutional right enjoyed by all citizens, and ever since the Santa Ana Railroad decision in the late 19th century, that right has been extended to corporations. But it does not mean that our elected representatives have to take these people seriously. UFO witnesses also have the right to petition Congress.

However, rest assured that the bank lobby does not have the well being of the country in mind. The Close Encounters Resource Organization (CERO) has the right to petition Congress as does the Mortgage Bankers Association (MBA). Congress has a right to ignore their requests, and the MBA has done far more damage to this country than CERO ever could. So why are bankers given more of a hearing? They have more money to spend on Congress, as the article points out:

Through political action committees and their own employees, securities and investment firms gave $152 million in political contributions from 2007 to 2008, according to the most recent Federal Election Commission data. The top five companies -- Goldman Sachs (GS), Citigroup (C), JP Morgan Chase (JPM), Bank of America (BAC) and Credit Suisse (CS) -- gave $22.7 million and spent more than $25 million combined on lobbying activities in that period, according to election data compiled by the Center for Responsive Politics.

The bankers argue that too much regulation will slow down financial innovation. That very well may be true, but how many recent financial innovations have really helped the economy or investors? The only one I can really think of off-hand are ETFs. Most of the others have just been ways to make financial transactions more complex and opaque. Just how in the long run has the economy been strengthened by innovations like CDOs, CDOs squared or cubed, CDSs, CMBSs? They mostly serve to lure people into investments they do not truly understand (but which they get into because they are "sophisticated"). They also make it possible for Wall Street to rake in huge fees.

We desperately need more transparency, not less. Putting derivatives like CDSs on an exchange with a central clearinghouse is a good idea, but the Geithner proposal would exempt customized swaps. If that happens, it is almost a guarantee that with in five years 90% of all derivatives will be specifically "customized" so they can avoid being regulated and can be hidden from regulators and investors.

Even after we have subsidized the banks to the tune of hundreds of billions to help clean up the mess they made, they are pushing hard for the right to make more and even bigger messes in the future. They have the money to buy the ear of Congress and the Administration (of either party). Bank regulation is the sort of down-in-the-weeds boring -- but extremely important -- issue that most people quickly lose interest in. It is exactly the sort of issue where the special interests can have the greatest sway and do the most damage to the common good.

Citizens who believe these measures will further put at risk the country and the futures of our children and grandchildren have the option to get in touch with their senators and representatives and let them know that what the banks want is bad for the country. Perhaps Congress will listen to demands that we have more oversight and transparency in the markets.

Comments

[notsosmart:]

just making sure they can issue more phony AAA rated paper & increase or add all kind of fees.if the sheeples dont wake up this will happen again.better take time out of your busy day to contact congress to ignore these lobbies & regulate these ponzi schemes.

Jun 02 10:34 AM

[farmer448:]

Maybe it is time to disallow Corporations, Limited Liability Partnerships, Limited Liability Corporations any of the rights of citizens.

Jun 02 01:34 PM

[carey_jim:]

This is normal corporate behavior.

It doesn't look as if the Obama administration has the will or capacity to change it.

Ralph Nader has dedicated his life to the problems of excessive corporate power and its abuses, and has only made minor, if vital and important changes.

Not cynicism talking just political realism.

Jun 02 03:09 PM

[Graham and ...:]

It is NOT true that "what's good for the banks is good for America," any more than it was for General Motors.

And given the sorry recent history of bank innovation discussed in the article, it's about the last thing we need just now.

And if GM's worst cars killed people, probably so did the banks' worst "subprime" products (by causing ruined homeowners and investors to jump out windows).

Jun 02 03:29 PM

[D. McHattie:]

The banks have proven that they cannot be relied upon to behave responsibly.

If they are going to act like children then we will have to treat them like children.

Jun 03 07:54 AM

[Troyhector:]

The nation is finding it difficult to recover from on of the deepest downturns of the housing market so far. Despite a lot of federal efforts to bail out the situation, the market is not showing very bright signs of easing. The recession in this market is still increasing every day as the unemployment rates are also reaching red alert.

www.housingnewslive.co...

With high job losses, house owners are unable to pay back the loans which they thought they would repay through their fat pay checks every month. In spite of efforts taken by the government to alter the loan repayment terms, the anxious borrowers are still unsure of their repayment capabilities. Hence, foreclosure rates are still on the high and the lenders are pricing them aggressively to increase the sales of these homes.

Jun 03 08:09 PM