A Citizen’s Guide To Reforming Wall Street
by digby
In case you were wondering about next steps, Robert Reich says there are three things that the new financial reform bill doesn’t do that it needs to do:
1. Require that trading of all derivatives be done on open exchanges where parties have to disclose what they’re buying and selling and have enough capital to pay up if their bets go wrong. The exception in the current bill for so-called “unique” derivatives opens up a loophole big enough for bankers to drive their Ferrari’s through.
2. Resurrect the Glass-Steagall Act in its entirety so commercial banks are separated from investment banks. The current bill doesn’t go nearly far enough. Commercial banks should take deposits and lend money. Investment banks should be limited to the casino we call the stock market, helping companies issue new issues and making bets. Nothing good comes of mixing the two. We learned this after the Great Crash of 1929, and then forgot it in 1999 when Congress allowed financial supermarkets to do both.
3. Cap the size of big banks at $100 billion in assets. The current bill doesn’t limit the size of banks at all. It creates a process for winding down the operations of any bank that gets into trouble. But if several big banks are threatened, as they were when the housing bubble burst, their failure would pose a risk to the whole financial system, and Congress and the Fed would surely have to bail them out. The only way to ensure no bank is too big to fail is to make sure no bank is too big, period. Nobody has been able to show any scale efficiencies over $100 billion in assets, so that should be the limit.
Wall Street doesn’t want these three major reforms because they’d cut deeply into profits, and it’s using its formidable lobbying clout with both parties to prevent these reforms from even from surfacing.
Update: This bodes well:
Sen. Bernie Sanders (I-Vt.) said a vote today in the Senate Budget Committee showed the potential for legislation to break up financial institutions considered “too big to fail.”
In a strong signal of the growing momentum behind proposals to dismantle financial institutions that dominate the U.S. economy, the budget panel narrowly voted 12 to 10 against a Sanders’ amendment.
“While we didn’t quite win today’s vote, we took a major step forward in showing there is a great deal of support for breaking up huge financial institutions,” Sanders said. “We must break up these behemoths not only because they are a burden on taxpayers but because of the incredible economic power they exert on the economy through their monopolistic practices. The enormous concentration of ownership in the financial sector has led to higher bank fees, usurious interest rates on credit cards, and fewer choices for consumers.”
Sanders said the four major U.S. banks – Bank of America, Citigroup, JPMorgan Chase and Well Fargo – issue two-thirds of the credit cards in the country, write half the mortgages and collectively hold $7.4 trillion in assets, about 52 percent of the nation’s estimated total output last year.
“Incredibly, despite all of them being bailed out during the Wall Street meltdown because they were ‘too big to fail,’ three of them are now bigger than before the bailout,” Sanders said. Since the 2008 taxpayer bailout of big banks, Wells Fargo has grown 43 percent bigger; JP Morgan Chase has grown 51 percent bigger; and Bank of America is now 138 percent bigger than before the financial crisis began.
Sanders said there is a wide and growing spectrum of support for breaking up big banks. Three Federal Reserve bank presidents – James Bullard, president and chief executive of the Federal Reserve Bank of St. Louis’ Kansas City Fed President Thomas M. Hoenig, and Dallas Fed President Richard W. Fisher – all support breaking up too-big-to-fail banks.
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