Senators have voted along party lines in general on the Financial Regulation bill. Knowledgeable Senators know that the bill will do far more damage to an already weakened economy than it will do good. Yet they vote along party lines. Some justify this by saying their voter mail/email confirms that FinReg is desired by the majority of their constituents. This is a cop out. If they have bothered to understand the FinReg economic implications, they know it is a bad bill in sum. It may have a few good items, but it will overall be economically destructive. They know most of their constituents do not understand a bill they can barely grasp the implications of themselves. If these “vote the party line” / “appease the voters” Senators vote FinReg into law, they may well be torpedoing their state’s economies. CA and IL are on the top of the Cumulative Probability of Default list for sovereign governments. Other big finance states such as NY, NJ, CT, MA, and TX are troubled too. Some are very troubled. CA, IL, and NY get huge amounts of tax revenues from the financial system. They cannot afford at this time to have their tax revenues cut further.
FinReg will make some banking operations unprofitable. These jobs will move offshore. It will cut into the profitability of others. Some of these jobs will move offshore. It will require more capital for the same financial operations we do now. This means a big tightening of already tight credit. Tight credit means fewer businesses will be able to grow. It means fewer jobs will be created. FinReg will make banking more cumbersome and less efficient. This is not what we should be aspiring to accomplish.
The government suspended mark to market accounting because it believed mark to market would lead to a complete failure of the banking system if it was not suspended. Now in their schizophrenic wisdom Congress is acting in direct contradiction to that action. The system is too weak at this time to soak up this kind of histrionic schizophrenia. Many worldwide factors have already been conspiring to send the US economy into a double dip recession. The last thing the US needs is a dose of poison for the banking industry to help it along this path.
Feinstein and Boxer are both from the SF Bay Area. They should both know how negative FinReg will be for their state. Dodd probably knows best of all. He seems to think he is compromising as best he can. I have no doubt he his trying very hard to craft the bill as best he can. However, he does not control it. He should see the economic harm coming. He probably does. This bill does not protect the financial system. It instead attempts to sterilize the banks. That just moves certain risky functions out into less well regulated entities. It moves some banking functions offshore, resulting in a net loss of jobs and banking income for the US.
Is getting to punch the banks in the eye worth the cost of a new recession or even a depression? To me it definitely is not. When Ben Bernanke recommends against the Derivatives portion of the bill, in direct opposition to the head man, Obama, you can be sure it is a mistake for the US economy. Dodd has tried to kill a lot of the bad parts, but he has not been successful enough. Instead of listening to the sanity of the top economist Bernanke, the Congress has been listening to bullying populism on the part of its chief executive, Obama. It has been listening to an Agriculture chair from one of the most financially backward states in the Union.
To counter Bernanke, etc., Obama has brought in an octagenarian in Volcker to back his case. He is so out of touch with reality that he thinks the world still revolves solely around the US and European financial systems. It is just this kind of thinking that is hurrying the demise of those systems.
Senators should know what I have said above is true. They should act on it with their votes. Below is a list of Democratic Senators who will be betraying their states by voting the party line on FinReg.
Boxer - D - CA
Burris - D - IL
Dodd - D - CT
Durbin - D - IL
Feinstein - D - CA
Gellibrand -D - NY
Kerry - D - MA
Lautenberg - D - NJ
Lieberman -D - CT
Menendez - D - NJ
Schumer - D - NY
And that likely cross over Republican Brown - R - MA
All of these states derive significant revenues from the banking activities that will be constricted or hurt by FinReg. All of these states already have significant financial problems with their state budgets. When the double dip recession/depression hits in these states at least partially because of FinReg, it would be wise of voters to remember that these people acted to put them there. “I just voted the party line” doesn’t cut it in my book. In difficult times, it is important for the leaders to stand up. If all Senators are sheep, what are they doing in Washington? None of the above Senators will be acting in their constituents best interests, if they vote for FinReg. They should be ashamed of themselves if they do, especially Dodd (perhaps the most knowledgeable). He is retiring at the end of his term. He doesn’t have to worry about re-election. He should “man up”. If it means defying Obama and populism to do what he knows is right, he should still do it!
I would point out that CA's Senatorial candidate Carly Fiorina, a former CEO of HP, seems to agree with these sentiments. Of course, she wouldn't know anything about economics either, or would she? Oh, she did further mention that she was opposed to the increase in bureaucracy that the FinReg bill would engender. Those following my blog know I did not simply parrot her ideas. People can agree without that.
Disclosure: No postions at this time