Financial Reform Destined To Fail, Top Federal Reserve Official Says
WASHINGTON -- Reforms instituted after the financial crisis to prevent future taxpayer-funded bailouts are bound to fail and will likely be weakened within the next few years, the Federal Reserve's longest-serving policy maker predicted Monday.
The stark warning, offered by Federal Reserve Bank of Kansas City President Thomas Hoenig, who's been warning about the rise of too-big-to-fail banks for more than a decade, comes as international regulators finalize plans to increase supervision of and toughen requirements on the world's largest banking organizations as a reaction to the global financial crisis. Rather than break up big banks, politicians decided to simply subject them to more oversight.
Yet debate rages as to whether the requirements are too tough, or not tough at all, and whether regulators will have the backbone to follow through on their commitments. Republicans in the U.S. House of Representatives are trying to dismantle the domestic financial reform law passed last year; banks are screaming that lending will dry up, inhibiting the anemic U.S. recovery; and on the global level, regulators from some countries where large banks dominate the national economy (and thus enjoy overt taxpayer backing) are trying to weaken international accords.
For Hoenig though, the choice is clear when it comes to what to do with the financial institutions that caused the most punishing downturn since the Great Depression: break them up into pieces that regulators can understand and provide a backstop to entities engaged in the so-called real economy -- but allow those dabbling in more risk-laden activities to fail.
The Obama administration and Congress chose the alternate route in passing the Dodd-Frank financial regulation law. To Hoenig, they made a mistake.
"Following this financial crisis, Congress and the administration turned to the work of repair and reform," he said during a Monday speech in Washington. "Once again, the American public got the standard remedies -- more and increasingly complex regulation and supervision."
"The Dodd-Frank reforms have all been introduced before, but financial markets skirted them," he continued. "Supervisory authority existed, but it was used lightly because of political pressure and the misperceptions that free markets, with generous public support, could self-regulate."
Regulators will lack the will to wind down failing companies deemed systemically important financial institutions, or SIFIs, Hoenig said. The power to force large firms into liquidation was the centerpiece of the Obama administration's plan to reform the financial system in the wake of the crisis and Great Recession.
"I just can't imagine it working," Hoenig said. Speaking of the difficulty of forcing a large, complex firm like Citigroup or Goldman Sachs into bankruptcy-like proceedings, the Midwesterner admitted that if he were the one ultimately making the decision, "I would be inclined to bail them out."
"One of the difficulties in terms of supervision of these SIFIs is they are so horribly complex their directors don't understand it, their management don't understand it, and the supervisors certainly can't deal with all the issues," Hoenig said.
The second part of the administration's plan -- forcing large financial firms to hold more capital as a buffer against the kind of debilitating losses that led policy makers to bail them out -- also will inevitably come up short, as bankers will likely game the system once the economy rebounds.
An international consortium of bank regulators hammered out an agreement over the weekend that requires the world's biggest banks to hold extra capital beyond the requirements faced by their smaller international competitors. SIFIs would be required to hold up to 2.5 percentage points of extra capital as a proportion of their risk-weighted assets, for a total buffer of 9.5 percent.
"I don't have any faith in it at all," Hoenig said in response to a question at an event hosted by the Pew Financial Reform Project and New York University Stern School of Business. "It will be co-opted within three years of the recovery."
"The resistance ... is ferocious," Hoenig said of the banking industry's objections. "Once the economy turns around and these institutions are thought to be sound again, we will start to erode these capital requirements, just as we have in every instance in the past."
Bankers argue that increased capital requirements will impede lending, though academic research tends to refute that assertion. "It's almost propaganda," Hoenig said of bankers' reasons for objecting to tougher standards.
Proponents of the measure say bankers are simply objecting because the more capital firms are forced to hold, the lower their earnings will be in relation to their equity. U.S. bankers say they'll be at a disadvantage relative to their foreign counterparts. Hoenig called that assertion "nonsense."
Others argue that bankers are simply concerned about their bonuses, as shareholders will likely call for lower pay packages as a result of lower earnings.
SIFIs must be broken up and simplified, Hoenig said, not just to avoid the inevitable weakening of standards and reemergence of timid regulators, but also because they're un-American.
"I suggest that the problem with SIFIs is they are fundamentally inconsistent with capitalism," Hoenig said. "They are inherently destabilizing to global markets and detrimental to world growth. So long as the concept of a SIFI exists, and there are institutions so powerful and considered so important that they require special support and different rules, the future of capitalism is at risk and our market economy is in peril."
Hoenig, who became president of the Kansas City Fed in 1991, will step down this October due to the Fed's mandatory retirement policy.
- You cannot regulate banks that own the regulators.
- Neil Barofsky, the former special inspector general for TARP, is out with a new book, Bailout. In it he details how difficult it was for him to get his job done. Gretchen Morgenson has an overview of the book:
His story is illuminating, if deeply depressing. We tag along with Mr. Barofsky, a former federal prosecutor, as he walks into a political buzz saw as the special inspector general for TARP. Government officials, he says, eagerly served Wall Street interests at the public’s expense, and regulators were captured by the very industry they were supposed to be regulating. He says he was warned about being too aggressive in his work, lest he jeopardize his future career.
And so Mr. Barofsky, who formerly prosecuted Colombian drug lords as an assistant United States attorney in New York City, is schooled in the ways of Washington. One telling vignette comes early on in his book, when he is advised by inspectors general in other agencies about how to do his job.
As Mr. Barofsky writes, he had assumed that his assignment to oversee TARP meant that he should be fiercely independent from the Treasury Department, and vigilant against waste, fraud and abuse. But after canvassing other inspector generals for guidance, he writes, he learned of different priorities: maintaining and possibly increasing budgets, appearing to be active — and not making enemies.
“The common refrain went like this,” Mr. Barofsky writes. “There are three different types of I.G.’s. You can be a lap dog, a watchdog or a junkyard dog.” A lap dog is seen as too timid, he was told. But being a junkyard dog was also ill-advised.
“What you want to be is a watchdog,” he continues. “The agency should perceive you as a constructive but independent partner, helping to make things better for the agency, so everyone is better off.” He also learned, he says, that success as an inspector general meant that investigations come second. Don’t second-guess the Treasury. Instead, “focus on process.”
Thus the collision course was set between Mr. Barofsky and a crew of complacent, bank-friendly Treasury officials. He soon discovered that the department’s natural stance of marching in lock step with the banks meant that he had to question its policies and programs repeatedly to ensure that taxpayers weren’t at risk for fraud and abuse.
“The suspicions that the system is rigged in favor of the largest banks and their elites, so they play by their own set of rules to the disfavor of the taxpayers who funded their bailout, are true,” Mr. Barofsky said in an interview last week. “It really happened. These suspicions are valid.”
It's unlikely that Barofsky undersands the grave problems of moral hazard that TARP created. Or how far away TARP is from a free market solutions, but his book provides an important object lesson about what really goes on in Washington D.C. That is, in this glimpse, we see how posers pretend to be conducting investigations, and brickwalls exist for those who actually think they are going to be able to investigate and change things.
- Iceland let their banks fail and they're doing fine.
- George Carlin explains why.
- R2's link is Libertarian drivel.
- [quote]The stark warning, offered by Federal Reserve Bank of Kansas City President Thomas Hoenig
He could very well be correct for all I know, but understand that this guy is a regular on CNBC and Fox Business, and no matter what the subject is, his response is always that the sky is falling, and the end of the world is upon us.
- Cantor’s Office Wrote Loophole into Congressional Insider Trading Bill
Remember when Congress applauded itself recently for creating insider trading laws for members of Congress. Well, they also built in a loophole.
CNN is reporting that House Majority Leader Eric Cantor’s office wrote a loophole into the House version of the Stop Trading on Congressional Knowledge Act (STOCK) by exempting Congress members’ spouses and children from having to report stock market transactions.
The Senate version of the bill requires these transactions be reported within 45 days by both its members and their families. But a memo from the Office of Government Ethics, which oversees all federal executive branch employees, used the House version, telling them spouses and children were not subject to the rule.
The law, which bars members of Congress from trading stocks based on information they get for work purposes and requires them to register any stock transactions over $1,000 within 45 days, was signed into effect in April.
- R5, care to clarify?
Adults usually offer specific critiques of things. Young children use Ad Hominem and Appeals to Ridicule, and that's why we ignore them.
- Agree with R5.
- R6, what about Barofsky, a dyed in the wool liberal and respected officer?
How many people have to come forward and tell stories of cronyism, infighting, incompetence, bribery, and the punishment for revealing secrets of the bureaucracy before you believe it is widespread, toxic and utterly endemic to powerful ruling agencies?
There are tens of thousands of examples, but the media rarely covers them, and people go on believing that the government is really going to get better if we just elect the right people, hire the right people, and everybody will just behave the way their leaders want.
Never gonna happen.
- The only way out of this mess now, is written in the 2nd Amendment.
Government has totally failed.
- R11, I fear you are right.
Have you seen the video from Satuday of Anaheim cops shooting innocent people? See link-
- From 2002-
Our government intervention in the economy and in the private affairs of citizens, and the internal affairs of foreign countries, leads to uncertainty and many unintended consequences. Here are some of the consequences about which we should be concerned.
I predict U.S. taxpayers will pay to rebuild Palestine, both the West Bank and the Gaza, as well as Afghanistan. U.S. taxpayers paid to bomb these areas, so we will be expected to rebuild them.
Peace, of sorts, will come to the Middle East, but will be short-lived. There will be big promises of more U.S. money and weapons flowing to Israel and to Arab countries allied with the United States.
U.S. troops and others will be used to monitor the "peace."
In time, an oil boycott will be imposed, with oil prices soaring to historic highs.
Current Israeli-United States policies will solidify Arab Muslim nations in their efforts to avenge the humiliation of the Palestinians. That will include those Muslim nations that in the past have fought against each other.
(the ongoing EU/USGov supported and funded "Arab Spring")
Some of our moderate Arab allies will be overthrown by Islamic fundamentalists.
The U.N. will continue to condemn, through resolutions, Israeli-U.S. policies in the Middle East, and they will be ignored.
Some European countries will clandestinely support the Muslim countries and their anti-Israel pursuits.
China, ironically assisted by American aid, much more openly will sell to militant Muslims the weapons they want, and will align herself with the Arab nations.
The United States, with Tony Blair as head cheerleader, will attack Iraq without proper authority, and a major war, the largest since World War II, will result.
Major moves will be made by China, India, Russia, and Pakistan in Central Asia to take advantage of the chaos for the purpose of grabbing land, resources, and strategic advantages sought after for years.
The Karzai government will fail, and U.S. military presence will end in Afghanistan.
An international dollar crisis will dramatically boost interest rates in the United States.
Price inflation, with a major economic downturn, will decimate U.S. Federal Government finances, with exploding deficits and uncontrolled spending.
(have you bought bread, milk, eggs, meat, etc.)
Federal Reserve policy will continue at an expanding rate, with massive credit expansion, which will make the dollar crisis worse. Gold will be seen as an alternative to paper money as it returns to its historic role as money.
(gold 2002- $300, gold 2012- $1600)
Erosion of civil liberties here at home will continue as our government responds to political fear in dealing with the terrorist threat by making generous use of the powers obtained with the Patriot Act.
(NDAA, drones, random checks)
The draft will be reinstated, causing domestic turmoil and resentment.
(just wait, unless liberals wake up and realize the Democrats are just Republicans who pretend to care about the little people)
Many American military personnel and civilians will be killed in the coming conflict.
(how many dead kids now?)
The leaders of whichever side loses the war will be hauled into and tried before the International Criminal Court for war crimes. The United States will not officially lose the war, but neither will we win. Our military and political leaders will not be tried by the International Criminal Court.
The Congress and the President will shift radically toward expanding the size and scope of the Federal Government. This will satisfy both the liberals and the conservatives.
Military and police powers will grow, satisfying the conservatives. The welfare state, both domestic and international, will expand, satisfying the liberals. Both sides will endorse military adventurism overseas.
This is the most important of my predictions: Policy changes could prevent all of the previous predictions from occurring. Unfortunately, that will not occur. In due course, the Constitution will continue to be steadily undermined and the American Republic further weakened.
During the next decade, the American people will become poorer and less free, while they become more dependent on the government for economic security.
The war will prove to be divisive, with emotions and hatred growing between the various factions and special interests that drive our policies in the Middle East.
Agitation from more class warfare will succeed in dividing us domestically, and believe it or not, I expect lobbyists will thrive more than ever during the dangerous period of chaos.
I have no timetable for these predictions, but just in case, keep them around and look at them in 5 to 10 years. Let us hope and pray that I am wrong on all accounts. If so, I will be very pleased.
- You mean giving reckless speculative bankers massive amounts of free taxpayer money to gamble without imposing controls will end badly?
- Ellen Ullman explains:
AS a former software engineer, I laughed when I read what the Securities and Exchange Commission might be considering in response to the debacle of Knight Capital’s runaway computerized stock trades: forcing companies to fully test their computer systems before deploying coding changes.
That policy may sound sensible, but if you know anything about computers, it is funny on several accounts.
First, it is impossible to fully test any computer system. To think otherwise is to misunderstand what constitutes such a system. It is not a single body of code created entirely by one company. Rather, it is a collection of “modules” plugged into one another. Software modules are purchased from multiple vendors; the programs are proprietary; a purchaser (like Knight Capital) cannot see this code. Each piece of hardware also has its own embedded, inaccessible programming. The resulting system is a tangle of black boxes wired together that communicate through dimly explained “interfaces.” A programmer on one side of an interface can only hope that the programmer on the other side has gotten it right.
Next, there is no such thing as a body of code without bugs. You can test assiduously: first the programmers test, then the quality-assurance engineers; finally you run the old and new systems in parallel to monitor results. But no matter. There is always one more bug. Society may want to put its trust in computers, but it should know the facts: a bug, fix it. Another bug, fix it. The “fix” itself may introduce a new bug. And so on.
So now consider that tangle of modules. The bug in one meets the bug in another, and that one in another ... and the possibility of system failure multiplies exponentially.
Another absurd thing is trying to define a coding change worth fully testing. A completely new system rollout would certainly qualify. How about installing an updated module from one of those software vendors? It depends on the perceived criticality of the component. How about that new network router and its embedded code? Rarely done. What about a tiny bug fix done by a responsible, hardworking programmer at Knight Capital? Good quality-assurance departments would test that. But individual programmers may see a particular change as insignificant. One time I fixed a function by changing “less than” to “less than or equal to.” That “fix” propagated through the system. And down the system came.
This is a pretty obvious case of how the SEC is clueless, but there are many other instances, especially where security regulations are on the books. In many, many cases, the SEC has no clue as to how sharp operators are using regulations to their advantage---and to the detriment of everyone else.
The SEC should be shut down and securities regulations should be thrown into the garbage dump. This would eliminate the moat that protects the big Wall Street firms from new competitors. Wall Street would be a much better, more honest and more interesting place, without the SEC. You would be able to actual pick between thousands of firms, as opposed to be railroaded into dealing with the crooks at Goldman Sachs, JPMorgan Chase and Citigroup.
- Corruption is inherent in any system controlled by the government.
- [quote]CNN is reporting that House Majority Leader Eric Cantor’s office wrote a loophole into the House version of the Stop Trading on Congressional Knowledge Act (STOCK) by exempting Congress members’ spouses and children from having to report stock market transactions.
- These posts are too long, too much to read, they're HURTING MY EYEBALLS!!!
- Amen, R16.
As R18 points out, they are exempt from insider trading laws. How convenient.
- We are past the point of new regulations.
It is time to start seizing assets.
- Until we remove the money supply from government manipulation and allow currency competition this will just get worse.
No gold standard, necessarily, but allow anyone to create a currency and allow merchants and people to choose which currency they will accept. With POS systems, such conversions would be easy.
Unfortunate that such a system would destroy the government. /sarc
- Reinstate Glass-Steagall, and force the big banks to break up. It worked before, it'll work again.
- R22, that's a naive and dangerous plan. Sorry, but that's what mental-midgets like Libertarians (arrested development!) spout. It falls in the category of "a little knowledge is a dangerous thing". And shows an amazing lack of comprehension of how fiscal and monitary policy are different.
- [quote]No gold standard, necessarily, but allow anyone to create a currency and allow merchants and people to choose which currency they will accept. With POS systems, such conversions would be easy.
You do understand that a) we used to do that and b) there's a reason we don't do that anymore, right? And that your proposal is not only really, really stupid, it wouldn't do a damn thing to deal with the problem of financial reform? Just checking.
R23 has it exactly right, by the way. No need for nonsensical "solutions" that would simply make things worse.
- R23, GS was abolished because the big banks colluded with their government buddies. The big boys are all in bed together. And not in a good gay way.
R25, your ignorance of economics is staggering. The gold standard was abolished because it prevented the empire from waging total war. By printing money, they could push the pain into the future. Now the chickens are roosting and the middle and lower classes are paying the price.
Learn some real economics before exposing your ignorance.
- [quote]No gold standard, necessarily, but allow anyone to create a currency and allow merchants and people to choose which currency they will accept.
you sound deranged. No post-industrial society could survive that.
If I walked into a store with a credit card attached to a gold account, and paid for my stuff and the owner wanted dollars, they could convert it at the POS.
You obviously have no idea what I'm talking about.
- [quote]your ignorance of economics is staggering.
ROFL.... Coming from you, that's a compliment.
[quote]The gold standard was abolished because it prevented the empire from waging total war.
No, dear, it wasn't. I'm sorry, but you don't get to rewrite history to suit your little obsessions.
[quote]By printing money, they could push the pain into the future. Now the chickens are roosting and the middle and lower classes are paying the price.
Dear heart, you do realize that morons like you have been predicting economic Armageddon for nearly 100 years? And that you have always been wrong? And that you are just as wrong this time as you were when you first predicted it here several years ago? Sorry to disappoint you, but out here in the real world we aren't going to see hyperinflation and we aren't going to see an economic meltdown, no matter how much you stamp your feet and hold your breath until you turn blue.
[quote]Learn some real economics before exposing your ignorance.
ROFL.... Oh, the irony....
[quote]If I walked into a store with a credit card attached to a gold account, and paid for my stuff and the owner wanted dollars, they could convert it at the POS. You obviously have no idea what I'm talking about.
Dear heart, we know *exactly* what you're talking about and what you're advocating. It's still a stupid, unworkable idea, and it will not do a damn thing to effect financial reform, which is why we're laughing at you. Fortunately, it also has zero chance of ever taking place, primarily because it's a stupid, unworkable idea.
- What's really funny about you, R28, is that you've been proved wrong over and over and over again in this forum and you just never learn. You always get your ass handed to you, your predictions never come true, and yet you continue to insist that everyone here is ignorant of economics and only you are of the one true faith.
That economic Armageddon and hyperinflation not happening? Oh, well, that couldn't be because your economic faith is wrong. No, no, that's because it's just around the corner. No, really. Any day now it's going to happen. And then we'll all be sorry and you'll be vindicated.
Gold prices not climbing to ten times their current value? Oh, well, that couldn't be because you're a moron who doesn't know anything about economics and who can't recognize a classic bubble and who doesn't know anything about the historic price of gold and its value as an investment. No, no, that, too, is just around the corner. Any day now it's going to happen. And then you'll be rich and we'll all be sorry.
- R39, I was the only one here that said (in 2004) that the housing bubble was going to burst and got shit for it. Things are 100x worse now (since the Federal Reserve refused to write of bad debt, and bailed out the big banks instead) so when TSHTF don't whine.
Why do people like you defend the big banks?
- A troll-dar check of R25/29/30 shows that she defends the Federal Reserve counterfeit schemes and bailout of the big banks.
What a moron.
- Anyone who wants to follow how ignorant R30 is can click here.
- The Fed is the protectorate of the 1 percent.
- [quote]was the only one here that said (in 2004) that the housing bubble was going to burst
No, dear, you weren't, as it didn't take much expertise to recognize that we were in a bubble. Quite a few bloggers, economists, and ordinary people recognized this, including me.
[quote]Things are 100x worse now
No, actually, they aren't, since you can't get "100x worse" than a complete financial meltdown.
[quote]Why do people like you defend the big banks?
We don't. Pointing out that you're full of shit and don't know what the hell you're talking about is not the same thing as "defend[ing] the big banks," no matter how much you'd like to pretend that it is.
[quote]she defends the Federal Reserve counterfeit schemes and bailout of the big banks.
ROFL.... You can't deal with what I actually write so you have to simply make shit up? Do feel free to actually conduct a real debate anytime, dear. I'm right here, and always ready to debunk whatever drivel you care to post. Alas, you are wholly unable to participate in such a debate so you're stuck with these lame insults.
[quote]Anyone who wants to follow how ignorant [R30] is can click here.
By all means. I stand by what I wrote on that thread, as well as this one. Nor have you been able to come up with a single bit of data, logic, or reason to contradict anything I wrote.
This always goes the same way, dear. You always get your ass handled to you because you're full of shit and really don't know what the hell you're talking about. Oh, well... you're amusing, so that's one thing in your favor.
- The Goldman Sachs unit Goldman Sachs Asset Management has hired Andrew "Buddy" Donohue, a former head of the division of investment management at the Securities and Exchange Commission, as deputy general counsel, according to an internal memo obtained by Reuters.
It's always nice to hire your former regulators.
- After working long hours over many months crafting new rules for Wall Street, a number of government regulators are switching sides to work for the firms that will have to follow and interpret them.
Whenever there is a major policy change in Washington like the 2010 Dodd-Frank financial overhaul, it enhances the marketability of government employees with specialized skills and contacts. But in the past, it was officials at the Securities and Exchange Commission, the Federal Reserve and the Treasury Department in particular who found their expertise and contacts most highly valued in the financial industry[...]
At least nine CFTC employees have decamped since June for firms in finance, law and accounting that are figuring out how to comply with the Dodd-Frank overhaul. Six of the staffers were directly involved in rule making and three were in enforcement.
Among the firms doing the hiring are J.P. Morgan Chase, Deutsche Bank AG, Nomura Securities, Covington & Burling LLP and PricewaterhouseCoopers LLP. Some are subject to the rules, while others advise clients who are[...]
Carl Kennedy, a staffer to Commissioner Scott O'Malia, went to J.P. Morgan, and Adedayo Banwo, a lawyer in the agency's general counsel's office, joined Deutsche Bank. Both firms and several other large banks are expected early next year to register as "swap dealers," a designation that carries with it governance rules and capital requirements.[...] critics of the revolving door between Washington and Wall Street say they worry ex-staffers could use their personal connections to pressure the agency into crafting rules favorable to their new employers.
What's really evil here is not just that these characters will provide workarounds to legislation they just crafted, but that they will influence the creation of new rules and regulations that will provide an edge for their crony firms, and create a moat that makes it extremely difficult for others to enter a sector.
- Former senior U.S. Treasury official Tim Adams will succeed Charles Dallara as the head of the Institute of International Finance, a bank lobbying group that represents more than 470 of the world’s largest financial companies.
Adams will take over the helm during a major rewrite of financial regulations across the globe and amid the continuing debt and banking crises in Europe.
Adams served as Treasury undersecretary for international affairs in the administration of President George W. Bush.
- Bob Ryan, who served as a top housing adviser in the Obama administration, will leave for a senior mortgage-banking position at Wells Fargo next month, according to WF.
Ryan is currently a senior advisor to Shaun Donovan, the secretary for Housing and Urban Development.
Donovan called Mr. Ryan “a key source of advice and reason for the last three years at HUD,” in a statement. “We will miss his expertise, wisdom, and candor,” he said.
Get this, Ryan played a key role shepherding the $25 billion mortgage-foreclosure settlement between five of the nation’s largest lenders, including Wells Fargo, and 49 state attorneys general and federal regulators this past March. Wells faces a separate lawsuit over FHA-backed loans that was filed by federal prosecutors in October.
Ryan will become a senior vice president within the capital markets group at Wells Fargo Home Mortgage, where he will coordinate strategy with industry trade groups and consult with policy makers on a range of housing-finance issues, said Vickee Adams, a company spokeswoman, according to WSJ. Translation: He will run interference for WF and keep the regulators away and promote regulations that will make life more difficult for competitors (especially smaller ones). His assignment starts on Jan. 7.
- WEDNESDAY, MARCH 30, 2011
The Revolving Door Spins for Another D.C. Operator (Leaves W.H. for a Nuclear Power Company)
Dan Turton who lobbies the House of Representatives for the President is leaving his position on Thursday.
On Friday, he will start his new job with the energy company Entergy, which is the second largest generator of nuclear power in the country.
Pulling no punches about it being all about access and connections, Turton said in a statement:
I’ve made a career out of building relationships and doing government affairs and I think I’ve done it successfully. And they need someone to run their government affairs office.
In other words, things have gotten so corrupt in D.C. that these guys have no clue what laissez faire means and think business only gets done by schmoozing with government and getting special legislation. They are proud of this work.
- If you don't think Wall Street insiders have captured the SEC, read this from a Michael Smallberg report:
If you’re looking for evidence of the revolving door that spins between the federal government and Wall Street, look no further than Daniel Gallagher, President Barack Obama’s recently announced nominee for Securities and Exchange Commission commissioner...
Obama’s nomination of Gallagher to help lead the agency during a critical time in its history is also the latest example of the agency’s coziness to the industry it oversees.
Gallagher is currently a partner at WilmerHale. The pricey law firm’s high-profile clients have included Goldman Sachs, JPMorgan Chase, Citigroup and other Wall Street giants regulated by the SEC. If the Senate confirms him, this would be Gallagher’s second spin through the revolving door — he previously left WilmerHale to join the SEC in January 2006, only to return to the firm in 2010. And he would be the latest on an ever-expanding list of WilmerHale alumni at the SEC, including the current general counsel, deputy general counsel, associate general counsel, corporation finance division director, enforcement division chief counsel and deputy secretary.
Of course, the revolving door spins in both directions. Many former SEC employees leave the agency to join WilmerHale and other legal, accounting and consulting firms that represent clients in the securities industry. Several recent reports by the SEC Inspector General have raised troubling questions about whether the promise of future employment representing Wall Street causes some SEC officials to treat potential employers and their clients with a lighter touch.
The Project On Government Oversight (POGO), where I work as an investigator, just released a new report and database showing that hundreds of former SEC employees have recently taken jobs representing clients before the SEC.
All told, POGO’s database shows that 219 former SEC employees filed 789 statements between 2006 and 2010 announcing their intent to appear before the SEC or communicate with its staff on behalf of private clients. One former employee had to file 20 statements during this time period in order to disclose all his clients and the issues on which he expected to appear before the SEC. Another former employee filed his first statement just two days after leaving the agency.
Bottom line: Power centers such as the SEC are regularly captured by the elite in the regulated industry. The industry employs former regulators so that they can skate by regulations, while lobbying for regulations which will limit, if not completely stop, those attempting to enter the industry and compete against the controlling giants.
The only solution to this problem is to eliminate the agencies that become the power centers. The SEC seldom catches any fraud at an early stage, the Bernie Madoff scheme is evidence of that. Meanwhile, the agency allows government operated Ponzi schemes to go on without interference and runs blocking schemes for the big boys, like Goldman Sachs and JPMorgan Chase.
The SEC should be among the first agencies to go, if serious budget cutting ever comes about. It's nothing but a training school for future technocrats of the Wall Street oligopoly.
- Credit expansion is the governments foremost tool in their struggle against the market economy. In their hands it is the magic wand designed to conjure away the scarcity of capital goods, to lower the rate of interest or to abolish it altogether, to finance lavish government spending, to expropriate the capitalists, to contrive everlasting booms, and to make everybody prosperous.
"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."
This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.
But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against 'real' goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.
It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last.
- ROFL.... You got half of your old threads shut down because you spammed. It looks like you didn't miss a single thread. Let's see if we can get this one shut down too, dear.
What's hilarious is that you actually think that bit of drivel applies to anything in the real world today!
- Seizing the assets of the rich, is becoming the only solution.
- Tim Carney spots the press release just put out by Mehri & Skalet. It says in part:
After nearly three years at the Department of Health and Human Services—as the first Director of Obamacare insurance implementation, as Senior Advisor to the Secretary, and as a Regional Director—longtime insurance regulator and plaintiff’s attorney Jay Angoff is returning to DC-based Mehri & Skalet, PLLC as a partner, where he will lead the firm’s insurance and healthcare practice.
“Working at HHS has been immensely rewarding, and I’m pleased with the progress that has been made in implementing the Affordable Care Act,” said Mr. Angoff of his departure from HHS. “I look forward to returning to Mehri & Skalet to help make sure the law is enforced. The Affordable Care Act has given health insurance policyholders new rights, and will give them even more in 2014; it is critical that we defend those newfound rights.”
Is it relevant that the man who helped craft Obamacare’s regulations on insurers will now make lots of money by suing insurers based on those regulations?[...]Think about the incentives at play here: If you are a lawyer working for the government, and you shape the laws in such a way as to make lawsuits easier, you are then making yourself more valuable to a potential future employer.
This is what WaPo had to say about this crony tool:
In April 2010, after a year-long congressional fight, President Obama victoriously passed a sweeping overhaul of America's health-care system. Then, the president needed to find someone to actually implement it.
That person is Angoff. A class-action litigator who specialized in making big insurers pay out, he made his name as insurance commissioner of Missouri and now heads the office created to implement the big reforms smoothly and keep insurance companies honest.
- Jack Lew, President Obama's nominee for treasury secretary, is a revolving-door K Streeter and Wall Streeter who pocketed a near-million-dollar bonus from Citibank three months after taxpayers bailed out the failed financial titan.
In June 2006, Lew joined Citigroup, one of the five largest banks in America, where he worked under fellow Clinton alumnus Robert Rubin. In January 2008, Lew became chief operating officer of Citi Alternative Investments.[...] ome of Citi's "alternative investments" under Lew were tied inextricably to politics. For instance, Citi had a division dedicated to "green" investments that could only be profitable with the right regulations and subsidies. CAI invested in highly subsidized cellulosic ethanol, demand for which came from federal law requiring gasoline blenders to buy it.
GreatPoint Energy was an investment partner with Lew's unit. The company's business was coal gasification, and GreatPoint lobbied for climate change legislation that would drive demand for this process. Lew's unit also tried to make money from investments in greenhouse gas credits, which only have value if the government constrains greenhouse gas emissions.
In autumn 2008, Wall Street began to crumble, and so Washington stepped in with a string of taxpayer-funded bailouts. The U.S. government funneled tens of billions of dollars in emergency aid to Citi, soon buying a huge share in the company. Absent the Troubled Asset Relief Program, Citigroup would likely have collapsed.
On Jan. 15, 2009 -- three months after Congress passed TARP and in the midst of a stock market collapse -- Lew received a payment of $944,518 from Citi, according to his personal financial disclosure forms. Because the Treasury was covering Citi's losses in order to save the failed bank from liquidation, that was, in effect, a check from taxpayers to Lew, days before he entered the Obama administration.