October 12, 2009

You Can Take It To The Bank


On Wednesday the House Financial Services Committee will take up the alleged legislative regulation of the bank rackets. Unlike in the case of health care, here the Obama administration has drawn up basic guidelines for what it wants and thinks will be necessary.
Only one of these – a proposed Consumer Financial Protection Agency – had any intrinsic value in its original concept. But this week that original CFPA apparently won’t be on the table, as committee chairman Barney Frank, in a procedure which has become familiar, has already gutted it before the legislative negotiation even began. The three most important elements are already off the table, it seems.
1. In peddling their “instruments” banks would have been required to offer a “vanilla option” not loaded down with all the incomprehensible and manipulative provisions meant to exploit the borrower’s or investor’s lack of expertise in high finance, the way a car salesman tries to foist upon a rube all kinds of expensive options no one in his right mind would ever want.
This requirement has been stripped.
2. This was going to be financed by a levy on the rackets, largely on the banks. Now they plan to change the financing so that the banks pay less, non-banks more. So the banks are seeking to exploit the situation against their competitors. Even if the bill passes they’ll still have an upside.
3. Having stripped the vanilla option, they’re also dumping the requirement that banks ensure customers understand the “products” they’re being sold. This was the called the “reasonableness standard”.
With a name like that, it sure couldn’t stand. Frank said it would put banks in the “untenable position” of having to be reasonable and extract less profit through con jobs.
Beyond those, the original concept has also been compromised through a welter of exceptions and exemptions and other waterings down. All this has happened before the Congressional debate has even begun.   
This is the result of some preemptive deal our government made with racket lobbyists. They haven’t even tried to offer an explanation. Even in the case of health care the claim was that the secret deals garnered the administration the quid pro quo of racket support, advertising, promises not to fight the legislation.
Here there’s not even the fig leaf of such a give and take. Frank and the administration just handed these things over and got zero in return. The rackets are still going to fight even the anemic crippled proposal still being made.
We’ve long been familiar with Frank’s corruption. He was the House point man for the legislative bailout, a hardcore supporter of even the original 3 page plan to make Paulson a veritable Treasury dictator. (Of course the financial coup d’etat went ahead anyway.) And the administration’s capture has been its main theme since day one. The CFPA was the only part of its original proposal which had any merit at all. The rest was never anything but a joke.
“Regulate” derivatives, require that they be traded on a public exchange. Except for the exceptions, and most of them will be allowed to be exceptions. “Regulate” executive pay. Nobody even pretends to know how you can prevent them from evading such regulation (as opposed to having fair and rational marginal tax rates). On its face this is just demagoguery meant to sound good, appease the easily distracted, and really do nothing. These proposed regulations are a sham.
(Of course those of us who aren’t easily distracted know by now that even sincerely intended regulation can never achieve its purpose in the war of attrition versus deeply entrenched rentier rackets. The lobbyists will always eventually win that game. Anybody who actually wants to solve the problem has to recognize that the rackets existentially are the problem. The right conclusions then have to be drawn, the right action taken.)
The other phony part of the proposal was to place systemic resolution authority, that is the authority to deal with insolvent Too Big To Fail banks, in the hands of the Fed.
Again this is absurd on its face, as the Fed is objectively a pro-bank partisan against the interests of the people. The conflict is right there in its regulatory mandate: to promote the “safety and soundness” of the big banks, something it has always interpreted as meaning the safety and soundness of the rackets’ prerogatives and profits. Greenspan always refused to regulate subprime mortgages. Fed regulators have been consistently pro-bank, anti-profit. That’s why a strong CFPA would have been so important. In principle its mandate would have been pro-public.
This isn’t surprising. The Fed itself is the biggest Too Big To Fail bank, the linchpin of the entire Ponzi scheme of debt and “growth”. It’s bound to institutionally identify with the rackets, being the wirepuller who orchestrates all racketeer activity. Its status as a quasi-public entity is only to enable it to engage in legal and political arbitrage, claiming to be either public or private as the context suits it. So in its “public” existence it pushes for full regulatory authority over the “systemically significant” entities (TBTF banks), authority it never intends to use. But it claims “private” status to fend off audits and FOIA lawsuits. Heads-I-win, tails-you lose.
And then of course there’s its stellar record in practice. As a matter of ideology the Fed has always claimed there’s no such thing as a bubble. Even when a bubble occurs it has no role to play in preventing the crash, but only to clean up the mess afterward. The Fed’s job is to provide easy money when there’s already too much money, and then even easier money after the crash (“quantitative easing”) while trying to stave off hyperinflation.
That’s who Obama thinks should be our main bank regulator. Here there may have been some improvement. There was so much bottom-up resistance to putting the fox even more completely in charge of the henhouse that the proposed systemic resolution council, originally intended to be purely cosmetic, now looks to be given some real power. We’ll see if it is.
(But as we know, that can’t work either. Given the structure of the system, the very existence of Too Big To Fail rackets, a better regulator than the Fed is still doomed to failure. Of course no one in the administration or the Congressional leadership is proposing the obvious solution, the only course of action which would be effective and moral, which is to dismantle the TBTF banks completely and ensure that no such racket ever exists again.)
So things already look good for the banks. The process is the same as with health care and the insurance racket.
1. Obama/Frank preemptively give away almost everything and get little or nothing in return. We have the administration’s original weak proposal, and Frank then guts it completely, and that’s all still in the preliminary stage. (Why we should even be negotiating at all with financial terrorists is a question beyond answer in this system.)
2. The rackets and the Republicans then treat that already completely compromised position as the baseline for their attack.
3. Since we’re in the disaster capitalism phase of the bubble-crash cycle, the banks are looking to their opportunities. As I mentioned, they’re using their lobbying muscle to foist the burden of regulatory fees off their own shoulders and onto those of non-bank competitors.
They also want to use regulatory judo to turn the CFPA itself against the people by using it as an anti-federalist, anti-state weapon. If a gutted CFPA still has to exist at all, they want to use it to override stronger state regulations, and are lobbying toward that goal.
Discussion questions:
1. Can we learn from history, from the evidence?
2. Do we think this template of “reform” from within the system can ever work?
3. Can there ever be a compromise where we could get our country back, yet these criminals could still exist?
4. Do we think these cadres will or even can ever change their ways?
5. Do we think the American people will ever be able to move forward so long as these people exist?
6. Can their behavior ever be anything other than absolutely antisocial? Will they ever do anything other than try to kill every seed we plant before it grows? Every seed of reform and recovery and redemption and hope we could ever try to plant?
7. Can we learn from history, and do what we have to do?


  1. Barney Frank, indeed, a blight on the body politic if ever there was one.

    Comment by Edwardo — October 12, 2009 @ 11:37 am

  2. Someone needs to explain to these idiot bankers that if you kill off all the customers, you won’t make the profits.

    Comment by Yakkis — October 12, 2009 @ 11:42 am

  3. Also someone needs to tell these idiot politicians that if they bargain themselves down, then they’ll never get anywhere.

    Comment by Yakkis — October 12, 2009 @ 11:45 am

  4. Someone should also explain to me Obama’s theory about putting the very people who cause the disasters in charge of everything. Has that ever worked?

    Comment by Yakkis — October 12, 2009 @ 11:49 am

  5. All good points. Though where it comes to killing off your own customers I suppose the bank rackets’ “business model” can survive longer in a country of serfs than, say, Walmart’s, since the banks can still skim off the transfers among the global oligarchy for as long as it lasts.

    Comment by Russ — October 12, 2009 @ 5:08 pm

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