Banks Blocking Regulation

While most of the news today is focused on the General Motors (GM) bankruptcy, there was an article in the New York Times that is worth reading about the efforts of the banks to get back to business as usual, with no significant changes to the regulatory structure (other that pure cosmetics). This, after the combination of de-regulation and lack of enforcement of financial regulations brought the world to the edge of the financial abyss and caused incredible pain and suffering in the real economy -- not only here in the U.S. but around the globe.

Now, lobbying is a constitutional right enjoyed by all citizens, and ever since the Santa Ana Railroad decision in the late 19th century, that right has been extended to corporations. But it does not mean that our elected representatives have to take these people seriously. UFO witnesses also have the right to petition Congress.

However, rest assured that the bank lobby does not have the well being of the country in mind.  The Close Encounters Resource Organization (CERO) has the right to petition Congress as does the Mortgage Bankers Association (MBA). Congress has a right to ignore their requests, and the MBA has done far more damage to this country than CERO ever could. So why are bankers given more of a hearing? They have more money to spend on Congress, as the article points out:

"Through political action committees and their own employees, securities and investment firms gave $152 million in political contributions from 2007 to 2008, according to the most recent Federal Election Commission data. The top five companies -- Goldman Sachs (GS - Analyst Report), Citigroup (C - Analyst Report), JP Morgan Chase (JPM - Analyst Report), Bank of America (BAC - Analyst Report) and Credit Suisse (CS - Analyst Report) -- gave $22.7 million and spent more than $25 million combined on lobbying activities in that period, according to election data compiled by the Center for Responsive Politics."

The bankers argue that too much regulation will slow down financial innovation. That very well may be true, but how many recent financial innovations have really helped the economy or investors? The only one I can really think of off-hand are ETFs. Most of the others have just been ways to make financial transactions more complex and opaque. Just how in the long run has the economy been strengthened by innovations like CDO's, CDO's squared or cubed, CDS's, CMBS's? They mostly serve to lure people into investments they do not truly understand (but which they get into because they are "sophisticated"). They also make it possible for Wall Street to rake in huge fees.

We desperately need more transparency, not less. Putting derivatives like CDS's on an exchange with a central clearing house is a good idea, but the Geithner proposal would exempt customized swaps. If that happens, it is almost a guarantee that with in five years 90% of all derivatives will be specifically "customized" so they can avoid being regulated and can be hidden from regulators and investors.

Even after we have subsidized the banks to the tune of hundreds of billions to help clean up the mess they made, they are pushing hard for the right to make more and even bigger messes in the future. They have the money to buy the ear of Congress and the Administration (of either party). Bank regulation is the sort of down-in-the-weeds boring -- but extremely important -- issue that most people quickly lose interest in. It is exactly the sort of issue where the special interests can have the greatest sway and do the most damage to the common good.

Citizens who believe these measures will further put at risk the country and the futures of our children and grandchildren have the option to get in touch with their senators and representatives and let them know that what the banks want is bad for the country. Perhaps Congress will listen to demands that we have more oversight and transparency in the markets.