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Obama to regulate big bank trading
A woman walks past Goldman Sachs headquarters
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TEXT OF INTERVIEW
Steve Chiotakis: A little later this morning, President Obama will announce a plan to trim the size of big banks in this country. The ones that proved to be too big to fail during last year's financial crisis. Marketplace's Washington Bureau Chief John Dimsdale joins us from the nation's capitol with the latest. Good morning John.
John Dimsdale: Good morning, Steve.
Chiotakis: What does the president want to do?
Dimsdale: He's going to ask Congress to give government regulators more powers to limit the financial trading and investing that banks like Citigroup and Goldman Sachs have engaged in ever since those firewalls between those speculative activities and regular banking functions were dropped in the 1990s. For example, banks would no longer be allowed to wheel and deal in mortgage-backed securities -- those are the thing that got them in so much trouble when housing prices tumbled in 2008.
Chiotakis: All right John, so what would this mean for the banks? I mean how are they likely to react?
Dimsdale: Well, depending on what exactly the president proposes -- and we don't yet know all the details -- big banks have made huge profits off the buying and selling and insuring of these speculative investments, so they're not going to like it. Edward Haddis with the Reuters Breaking Views says U.S. banks are likely to say government limits will make them less globally competitive.
Edward Haddis: If indeed the U.S. banks have tighter regulatory restraints than the European and other rivals that could be a disadvantage. But it should be pointed out that U.S. investment banks did fine in the old days against their European rivals, which had lighter restrictions in terms of mixing banking and investment banking.
Haddis points out that other industrialized countries in Europe and Asia are also thinking of reining in bank's more speculative activities in the wake of the financial crisis.
Chiotakis: Marketplace's John Dimsdale reporting from Washington for us. John, thanks.
Dimsdale: You're welcome.
How about adding some more to list:
1. Allow failed companies to actually fail. No bailouts.
2. Audit biggest culprit of all, Federal Reserve. Stop them from stealth bailout of banks. Fed has exchanged the toxic assets of banks with crisp dollar bills. On top of that they are financing all the bank trading activites by giving unlimited free money. The profit the banks such as Goldman sachs are making are because of this privilege they get from Fed. Not because they are super intelligent or something like that.
This is certainly a move in the right direction, but Wall Street won't like it.
It would seem reasonable to work towards a more "bullet proof" solution to to these issues though.
While I never worked on Wall Street I did spend almost 30 years in the Tobacco industry. There were many parallels. Without clear laws in place corporate execs and attorneys will always find ways to subvert regulations in a never ending quest for that "edge" on the competition. This doesn't make them necesarily evil people, rather it is the nature of business in a capitalist society.
There WERE regulations in place both before Graham-Leach-Bliley and after that were not enforced.
One only needs to look at the Commodity Futures Trading Commission (CFTC) under Brooksley Born (who tried to enforce regulations regarding derivatives) to understand that the top regulators of that time (Greenspan, Robert Rubin and Lawrence Summers) had no interest in enforcing the rules already on the books that would have prevented the ensuing credit crisis or at least shed some light on it long before 2007-8.
I believe that we need laws that make absolutely clear the difference between investment and gambling. It seems to me that since the early 1980's we've moved steadily from an investment model to a gambling model. The gambling model has now produced winners (GS,BoA,WF etc.. and let's not forget those bonus recipients!) and losers (small investors, taxpayers and millions of unemployed).
As I've studied the problems I believe strongly that there is only one solution.
The banks created due to the repeal of Glass Steagall need to be broken up into smaller institutions. Small institutions will be "small enough to fail". Since there will then be no case for taxpayer funded bailouts the "gambling" will end (or at least be greatly diminished) and we can get back to the business of investing.
Barton Poran
