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Paulson's Fixit Plan for Wall Street: Less regulation, More Power to the Fed
By Mike Whitney
Created Apr 1 2008 - 9:02am
It is being billed as a "massive shakeup of US financial market regulation",
but don't be deceived. Treasury Secretary Henry Paulson's proposals for
broad market reform are neither "timely" nor "thoughtful" (Reuters) In fact,
its all just more of the same free market "we can police ourselves" mumbo
jumbo that got us into this mess in the first place. The real objective of
Paulson's so called reforms is to decapitate the SEC and increase the powers
of the Federal Reserve. Same wine, different bottle. Paulson's real motive
is to preempt the regulatory sledgehammer that is set to descend on the
entire financial industry following the 2008 election. There's growing fear
that a President Obama may tote his firehose down to Wall Street and flush
out some of the cobwebs that have collected in the market's dark corners.
If Paulson's plan is approved in its present form, Congress will have even
less control over the financial system than it does now and the same group
of self-serving banking mandarins who created the biggest equity bubble in
history will be able to administer the markets however they choose without
the annoyance of government supervision. That's exactly what Treasury
Secretary and his pals at the Fed want; unlimited power with no
accountability.
Paulson is expected to lay out guidelines and principles that are intended
to help regulators supervise the financial markets. According to AFP:
"The President's Working Group on Financial Markets said the current
regulatory structure is working well despite calls by some US lawmakers."
In other words, the failing banking system, the housing meltdown, and the
frozen corporate bond market are all signs of a robust financial system?
This may be the most ludicrous statement since "Mission accomplished". The
system is imploding and real people are being hurt by the fallout. Thirty
years of industry-led lobbying has dismantled the regulatory regime which
made US financial markets the envy of the world. The credibility and
transparency are gone along with the Depresion era legislation like
Glass-Steagall and government oversight of over-the counter derivatives
instruments. Now the system is prey to all types of dodgy debt instruments,
suspicious "dark pool" trading and off-balance sheets operations which
reinforce the belief that cautious investment is no better than casino
gambling.
"The regulatory line of sight today is by the counterparties," the official
said, adding that the guidelines should be "beneficial to industry." (AFP)
How is that different than saying, "Caveat emptor"? That's not a motto that
inspires confidence. Many people still naively believe that planning their
retirement should not have to be a Darwinian tussle with a crafty junk-bond
salesman.
Under Paulson's plan, the Federal Reserve will be granted new regulatory
powers, but whatever for? The Fed doesn't use the powers it has now. No one
stopped the Fed from intervening in the mortgage lending fiasco, or the
ratings agency abuses or the off-balance sheets shenanigans. They had the
authority and they should have used it. The Fed knew everything that was
going on---including the mushrooming sales of derivatives contracts which
soared from under $1 trillion in 2000 to over $500 trillion in 2006---but
they decided to cheerlead from the sidelines rather than do their jobs. The
fact is, they were worried that if they got involved they might upset the
gravy-train of obscene profits that was enriching their bankster friends.
Former Fed chief Greenspan used to croon like a smitten teenager every time
he was asked about subprime loans or adjustable rate mortgages. And, as New
York Times columnist Floyd Norris points out, (Greenspan) "praised the
growth in the derivatives market as a boon for market stability, and
resisted calls to use the Fed's power to increase regulation." Of course, he
did. It was all part of Maestro's "New Economy"; trickle-down Elysium, where
the endless flow of low interest credit merged with financial innovation to
create a Reaganesque El Dorado. There are no regulations in Eden; anything
goes and to heck with the public, they can fend for themselves. Its a dog
eat dog world and there ain't no love.
Now its Paulson's job to keep the neoliberal flame lit long enough to make
sure that government busybodies and bureaucratic do-goodies don't upset the
applecart. That means concocting a wacky public relations campaign to
convince the public that Wall Street is not just a pirate's cove of
land-sharks and bunko artists, but a trusted ally in maintaining a strong
economy through vital and efficient markets.
The Times' Norris summed up Paulson's sham reforms like this:
"The plan has its genesis in a yearlong effort to limiting Washington's role
in the market. And that DNA is unmistakably evident in the fine print.
Although the proposal would impose the first regulation of hedge funds and
private equity funds, that oversight would have a light touch, enabling the
government to do little beyond collecting information - except in times of
crisis. The regulatory umbrella created in the 1930s would grow wider, with
power concentrated in fewer agencies. But that authority would be limited,
doing virtually nothing to regulate the many new financial products whose
unwise use has been a culprit in the current financial crisis. ("In Treasury
Plan, a Reluctant Eye over Wall Street", Floyd Norris, New York Times)
What nonsense. The house is on fire and hyperventilating Hank is still
wasting our time with this rubbish. The real problem is that Paulson and his
buddies at the Federal Reserve think of the financial system as their
personal fiefdom so they refuse to loosen their hoary grip even though the
economy is listing starboard and the water is flooding into the lower decks.
Once again, the New York Times:
"All the checks and balances in the plan reflect the mindset of its
architect, Treasury Secretary Henry Paulson, who came to Washington after a
long career on Wall Street. He has worried that any effort to substantially
tighten regulation could hamper the ability of American markets to compete
with foreign rivals."
No one elected Paulson to do anything. He has no mandate. He is an industry
rep. who has worked exclusively for a small group of wealthy investors who
have put the entire country at risk with their toxic mortgage-backed bonds,
their reckless Ponzi-type speculation, and their off-book chicanery. Paulson
should be removed immediately and returned to his wolf's lair at G-Sax. If
Bush is serious about straightening out Wall Street, then bring in Eliot
Spitzer. He's available. And he'll do what it takes to clean house, that is,
put a truncheon-wielding robo-cop in every trading-pit at the NYSE, and
dispatch government accountants to every office of every CFO making sure
they have a Big Red Pen in one hand and a taser in the other. That's the
only way to get the attention of the bandit-class.
"I do not believe it is fair or accurate to blame our regulatory structure
for the current turmoil," says Paulson.
Paulson is wrong. The current turmoil is all about the lack of regulation
and he'd better prepare himself for some big changes. The pendulum is
already in motion and tighter regulations will soon follow. There needs to
be an accounting process for all transactions and capital requirements for
every financial institution that creates credit. No exceptions. All of these
businesses pose a real danger to the overall system and, therefore, must
conform to clearly articulated and strictly enforced rules; no off-balance
sheets operations, no dark pool trading, no unregulated derivatives
contracts, no level 3 assets, no "mark to model" garbage bonds where CFOs
unilaterally decide what they are worth by picking a number out of a hat.
Its time to restore order to the markets so retirees and working class
families can feel safe investing in their futures. They are the ones who are
most hurt by Wall Street's trickery.
Paulson's plan is a non starter. The era of sandbagging, supply-side
banditry is over. Good riddance.
--
NOTICE: This post contains copyrighted material the use of which has not
always been authorized by the copyright owner. I am making such material
available to advance understanding of
political, human rights, democracy, scientific, and social justice issues. I
believe this constitutes a 'fair use' of such copyrighted material as
provided for in section 107 of the US Copyright
Law. In accordance with Title 17 U.S.C. Section 107
"A little patience and we shall see the reign of witches pass over, their
spells dissolve, and the people recovering their true sight, restore their
government to its true principles. It is true that in the meantime we are
suffering deeply in spirit,
and incurring the horrors of a war and long oppressions of enormous public
debt. But if the game runs sometimes against us at home we must have
patience till luck turns, and then we shall have an opportunity of winning
back the principles we have lost, for this is a game where principles are at
stake."
-Thomas Jefferson
By Mike Whitney
Created Apr 1 2008 - 9:02am
It is being billed as a "massive shakeup of US financial market regulation",
but don't be deceived. Treasury Secretary Henry Paulson's proposals for
broad market reform are neither "timely" nor "thoughtful" (Reuters) In fact,
its all just more of the same free market "we can police ourselves" mumbo
jumbo that got us into this mess in the first place. The real objective of
Paulson's so called reforms is to decapitate the SEC and increase the powers
of the Federal Reserve. Same wine, different bottle. Paulson's real motive
is to preempt the regulatory sledgehammer that is set to descend on the
entire financial industry following the 2008 election. There's growing fear
that a President Obama may tote his firehose down to Wall Street and flush
out some of the cobwebs that have collected in the market's dark corners.
If Paulson's plan is approved in its present form, Congress will have even
less control over the financial system than it does now and the same group
of self-serving banking mandarins who created the biggest equity bubble in
history will be able to administer the markets however they choose without
the annoyance of government supervision. That's exactly what Treasury
Secretary and his pals at the Fed want; unlimited power with no
accountability.
Paulson is expected to lay out guidelines and principles that are intended
to help regulators supervise the financial markets. According to AFP:
"The President's Working Group on Financial Markets said the current
regulatory structure is working well despite calls by some US lawmakers."
In other words, the failing banking system, the housing meltdown, and the
frozen corporate bond market are all signs of a robust financial system?
This may be the most ludicrous statement since "Mission accomplished". The
system is imploding and real people are being hurt by the fallout. Thirty
years of industry-led lobbying has dismantled the regulatory regime which
made US financial markets the envy of the world. The credibility and
transparency are gone along with the Depresion era legislation like
Glass-Steagall and government oversight of over-the counter derivatives
instruments. Now the system is prey to all types of dodgy debt instruments,
suspicious "dark pool" trading and off-balance sheets operations which
reinforce the belief that cautious investment is no better than casino
gambling.
"The regulatory line of sight today is by the counterparties," the official
said, adding that the guidelines should be "beneficial to industry." (AFP)
How is that different than saying, "Caveat emptor"? That's not a motto that
inspires confidence. Many people still naively believe that planning their
retirement should not have to be a Darwinian tussle with a crafty junk-bond
salesman.
Under Paulson's plan, the Federal Reserve will be granted new regulatory
powers, but whatever for? The Fed doesn't use the powers it has now. No one
stopped the Fed from intervening in the mortgage lending fiasco, or the
ratings agency abuses or the off-balance sheets shenanigans. They had the
authority and they should have used it. The Fed knew everything that was
going on---including the mushrooming sales of derivatives contracts which
soared from under $1 trillion in 2000 to over $500 trillion in 2006---but
they decided to cheerlead from the sidelines rather than do their jobs. The
fact is, they were worried that if they got involved they might upset the
gravy-train of obscene profits that was enriching their bankster friends.
Former Fed chief Greenspan used to croon like a smitten teenager every time
he was asked about subprime loans or adjustable rate mortgages. And, as New
York Times columnist Floyd Norris points out, (Greenspan) "praised the
growth in the derivatives market as a boon for market stability, and
resisted calls to use the Fed's power to increase regulation." Of course, he
did. It was all part of Maestro's "New Economy"; trickle-down Elysium, where
the endless flow of low interest credit merged with financial innovation to
create a Reaganesque El Dorado. There are no regulations in Eden; anything
goes and to heck with the public, they can fend for themselves. Its a dog
eat dog world and there ain't no love.
Now its Paulson's job to keep the neoliberal flame lit long enough to make
sure that government busybodies and bureaucratic do-goodies don't upset the
applecart. That means concocting a wacky public relations campaign to
convince the public that Wall Street is not just a pirate's cove of
land-sharks and bunko artists, but a trusted ally in maintaining a strong
economy through vital and efficient markets.
The Times' Norris summed up Paulson's sham reforms like this:
"The plan has its genesis in a yearlong effort to limiting Washington's role
in the market. And that DNA is unmistakably evident in the fine print.
Although the proposal would impose the first regulation of hedge funds and
private equity funds, that oversight would have a light touch, enabling the
government to do little beyond collecting information - except in times of
crisis. The regulatory umbrella created in the 1930s would grow wider, with
power concentrated in fewer agencies. But that authority would be limited,
doing virtually nothing to regulate the many new financial products whose
unwise use has been a culprit in the current financial crisis. ("In Treasury
Plan, a Reluctant Eye over Wall Street", Floyd Norris, New York Times)
What nonsense. The house is on fire and hyperventilating Hank is still
wasting our time with this rubbish. The real problem is that Paulson and his
buddies at the Federal Reserve think of the financial system as their
personal fiefdom so they refuse to loosen their hoary grip even though the
economy is listing starboard and the water is flooding into the lower decks.
Once again, the New York Times:
"All the checks and balances in the plan reflect the mindset of its
architect, Treasury Secretary Henry Paulson, who came to Washington after a
long career on Wall Street. He has worried that any effort to substantially
tighten regulation could hamper the ability of American markets to compete
with foreign rivals."
No one elected Paulson to do anything. He has no mandate. He is an industry
rep. who has worked exclusively for a small group of wealthy investors who
have put the entire country at risk with their toxic mortgage-backed bonds,
their reckless Ponzi-type speculation, and their off-book chicanery. Paulson
should be removed immediately and returned to his wolf's lair at G-Sax. If
Bush is serious about straightening out Wall Street, then bring in Eliot
Spitzer. He's available. And he'll do what it takes to clean house, that is,
put a truncheon-wielding robo-cop in every trading-pit at the NYSE, and
dispatch government accountants to every office of every CFO making sure
they have a Big Red Pen in one hand and a taser in the other. That's the
only way to get the attention of the bandit-class.
"I do not believe it is fair or accurate to blame our regulatory structure
for the current turmoil," says Paulson.
Paulson is wrong. The current turmoil is all about the lack of regulation
and he'd better prepare himself for some big changes. The pendulum is
already in motion and tighter regulations will soon follow. There needs to
be an accounting process for all transactions and capital requirements for
every financial institution that creates credit. No exceptions. All of these
businesses pose a real danger to the overall system and, therefore, must
conform to clearly articulated and strictly enforced rules; no off-balance
sheets operations, no dark pool trading, no unregulated derivatives
contracts, no level 3 assets, no "mark to model" garbage bonds where CFOs
unilaterally decide what they are worth by picking a number out of a hat.
Its time to restore order to the markets so retirees and working class
families can feel safe investing in their futures. They are the ones who are
most hurt by Wall Street's trickery.
Paulson's plan is a non starter. The era of sandbagging, supply-side
banditry is over. Good riddance.
--
NOTICE: This post contains copyrighted material the use of which has not
always been authorized by the copyright owner. I am making such material
available to advance understanding of
political, human rights, democracy, scientific, and social justice issues. I
believe this constitutes a 'fair use' of such copyrighted material as
provided for in section 107 of the US Copyright
Law. In accordance with Title 17 U.S.C. Section 107
"A little patience and we shall see the reign of witches pass over, their
spells dissolve, and the people recovering their true sight, restore their
government to its true principles. It is true that in the meantime we are
suffering deeply in spirit,
and incurring the horrors of a war and long oppressions of enormous public
debt. But if the game runs sometimes against us at home we must have
patience till luck turns, and then we shall have an opportunity of winning
back the principles we have lost, for this is a game where principles are at
stake."
-Thomas Jefferson