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The need for reform and re-regulation of the financial industry increases, while the odds of meaningful reform fade with every action and statement by those involved.

There has already been more than a year of Congressional investigations, with the result that it’s more than clear what happened. Excessive greed and risk-taking, aided and abetted by extreme low interest rates, and regulatory powers spread across too many entities to be effective, resulted in a housing bubble. The record levels of risk undertaken by financial institutions, home-buyers, and investors, particularly in sub-prime mortgages and other forms of ‘creative’ financing, made for a collapse of crisis proportions when the bubble burst.

That has already been determined, as have the parts played by the major participants.

Yet this week, another committee, the Financial Crisis Inquiry Commission, which was actually formed last summer, finally began its investigation.

So we have had the spectacle of present and former bank executives, Federal Reserve governors, and even former Fed Chairman Alan Greenspan, being asked yet again to explain what happened, the extent of their part in it, and what can be done to prevent a recurrence.

All we have learned from the new inquiry so far is that they’re all sorry the financial collapse took place, and apologize for any role they or their firms inadvertently played in either the build-up of the bubbles or the bursting thereof. But it wasn’t deliberate, and they don’t know how or why it happened. All they know is that it sure wasn’t their fault.

Several top bank executives even testified that they had no idea the leveraged collateralized debt obligations (CDOs) they were dealing in were high-risk. One said it was his impression the CDOs “held virtually no risk”. Another testified he was not even aware until late 2007, after the massive loss write-offs had been underway for several months, that his bank had retained $43 billion in CDOs on its own books. He apparently thought they had all been sold off to investors.

While all this meaningless chatter is going on, it becomes ever more clear how little will be changed. At worst the financial industry will only have to find loopholes and other ways of carrying on as before, and their intentions to do so have also been made clear.

For instance, the Securities & Exchange Commission reports that ‘dark pools’ now account for 8% of stock trades. What is a dark pool? It’s a system that allows institutions like major banks, brokerage firms, and hedge funds to trade large blocks of stocks ‘over the counter’ among themselves, out of public view, ostensibly “to prevent their buying or selling from spooking the market”. What is the SEC doing about it? It says it is investigating to determine if dark pool activity detracts from the quality of publicly quoted prices of the stocks involved. Pray tell, how could it not? Meanwhile, the stated purpose of the SEC mandate is

Not to protect public investors from risk or their own mistakes, but to assure that all information available to institutions is also available to public investors and at the same time, so their decisions can be informed decisions.

Thus the insider trader laws, the release of corporate financial statements and economic reports simultaneously to the public and institutions, and so on. But the SEC wonders if it wouldn’t be alright for 8% of stock trades to take place off the exchanges to hide them from the public? Ah yes, reform is on the way.

The SEC has also announced it is proposing a rule that will force Wall Street firms that package and sell asset-backed securities like CDOs, to keep 5% of those packaged loans on their own books, so they will share the risk with those they sell the investments to. The SEC says that should ensure that the firms will be more careful in screening the borrowers who take out the mortgages, car loans, and credit card debt that make up the packages. Wow. That is such a tough new rule, sure to reform that major problem of the past. Except that the loopholes are far too obvious. My 8-year old grandson could devise a plan to carefully screen 5% of loan applicants to make sure they’re good for the loans, and keep those loans as the 5% they must keep on their own books and not sell to investors.

And how about the report in the Wall Street Journal on Friday based on data from the Federal Reserve Bank of New York. That data shows that for the past five quarters 18 major banks, including Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), Bank of America (NYSE:BAC), and Citigroup (NYSE:C), understated the debt levels they used to fund their securities trading in each of those quarters, and by an average of a whopping 42%. The report says they dropped the debt level at the end of each quarter for their quarterly statements, and then increased the debt back to where it was as the next quarter was underway, repeating the process each quarter.

And that is for the last five quarters, after their taxpayer rescue, after hiding of the risks they were taking before has been singled out as a major cause of their collapses, and when they are supposedly under closer scrutiny by reinvigorated regulators.

Ah yes, we’re making progress toward bringing the financial industry under control so they cannot create another financial and economic collapse down the road. Meanwhile, the financial industry is also clearly demonstrating its remorse, and intentions to reform on its own - not.

Disclosure: No positions