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**Joshua Nightshade** · 06-08-2012, 12:39 AM

If you aren't cynical about how fucked our government is, you will be. It's a very long piece, but it's a good read.

How Wall Street Killed Financial Reform | Politics News | Rolling Stone

Quote:

Upon entering office, FDR was in exactly the same position Obama found himself in after his inauguration in 2009. Then, as now, the American economy was in tatters after the bursting of a massive financial bubble, brought on when speculators borrowed huge sums and gambled on unregistered securities in largely unregulated exchanges. This mania for instant riches led to an explosion of Wall Street fraud and manipulation, creating a mountain of illusory growth divorced from the real-world economy: Of the $50 billion in securities sold in America in the 1920s, half turned out to be worthless.

Roosevelt's response to all of this was to pass a number of sweeping new laws that focused on a single theme: protecting consumers by forcing the business of Wall Street into the light. The Securities Act of 1933 required all publicly traded companies to register themselves and offer prospectuses to investors; the Securities Exchange Act of 1934 forced publicly traded companies to make regular financial disclosures; and the Commodity Exchange Act of 1936 required all commodities and futures to be traded on organized exchanges. FDR also created the FDIC to protect bank depositors (through an insurance fund paid for by the banks themselves) and passed the Glass-Steagall Act to separate insurance companies, investment banks and commercial banks. Post-New Deal, if you put money in a bank, you knew it was safe, and if you bought stock, you knew what you were buying.

This reform strategy worked for more than half a century – and it offered Obama a clear outline of how to respond to the crash he faced. What made 2008 possible was that Wall Street had moved its speculative frenzy away from the regulated exchange system created by FDR, and into darker, less-regulated markets that had coalesced around brand-new financial innovations like credit default swaps and collateralized-debt obligations. It wasn't that the old system had broken down; Wall Street had just moved the playground.

All Obama needed to do to rescue the economy and protect consumers was to make sure that the new playground had some rules. That meant moving swaps and other derivatives onto open exchanges, making sure that federally insured banks that dabbled in those dangerous markets retained more capital, and coming up with some kind of plan to prevent the next AIG or Lehman Brothers disaster – i.e., a plan for unwinding failing companies that wouldn't require federal bailouts.

The initial proposal for Dodd-Frank addressed most of those concerns. As drafted, it would have created a system for shutting down failing megafirms, required swaps to be traded and cleared on regulated exchanges, and restored the spirit of Glass-Steagall through the so-called Volcker Rule, which would have prevented federally insured banks from engaging in dangerous speculation. It envisioned a powerful new Consumer Financial Protection Bureau to represent the interests of consumers against Wall Street, a bureau headed not by some banker stooge but by an actual consumer advocate and financial expert like Elizabeth Warren, the Harvard professor who came up with the idea. And it would have cleaned up the mortgage markets by ending predatory home-lending and forcing everyone in the market, from homeowners to banks to investors buying mortgage securities, to post real cash and keep "skin in the game" when buying or selling a mortgage.

Then, behind the closed doors of Congress, Wall Street lobbyists and their allies got to work. Though many of the new regulatory concepts survived in the final bill, most of them wound up whittled down to such an extreme degree that they were barely recognizable in the end. Over the course of a ferocious year of negotiations in the House and the Senate, the rules on swaps were riddled with loopholes: One initially promising rule preventing federally insured banks from trading in risky derivatives ultimately ended up exempting a huge chunk of the swaps market from the new law. The Volcker Rule banning proprietary gambling survived, but not before getting its brains beaten out in last-minute conference negotiations; Wall Street first won broad exemptions for mutual funds, insurers and trusts, and then, with the aid of both Treasury Secretary Tim Geithner and Sen. Chuck Schumer of New York, managed to secure a lunatic and arbitrary numerical exemption that allows banks to gamble up to three percent of their "Tier 1" capital, a number that for big banks stretches to the billions.

/snip

**Joshua Nightshade** · 06-08-2012, 12:49 AM

tl;dr:

Quote:

All of these derivatives issues are oppressively dull and technical, and it's extremely difficult for most people to imagine how something like Jim Himes' exemption for foreign affiliates can actually affect their daily lives. But having an unregulated market instead of a regulated one might mean you'll pay an extra 50 cents for every gallon of gas (or possibly more, even according to Goldman Sachs). Or you might have to pay hundreds or thousands more in taxes every year because your town or county or country, if you happen to live in Greece, grossly overpaid an investment bank when it borrowed money. An unregulated derivatives market essentially gives Wall Street a way to place hidden taxes on everything in the world.

The best way to explain where those hidden taxes come from is to compare a regulated market to an unregulated one. It's the difference between buying soap and buying drugs. You go into a corner store and there's a price tag on the soap, but you can always go across the street, or on the Internet, to see what soap costs someplace else. But when you go to buy an eight ball of coke, you have to ask your dealer what the price is, and it's not like you can compare prices online. If you're tough and streetwise and you know what coke costs, you might get it for a couple hundred bucks. But if you're some quivering Ivy Leaguer idling in a Lexus, the price might be $400.

That's how the swaps market works. It operates completely in the dark. If you're some Podunk town in Texas or Alabama and you need swaps financing, you've got to ask Goldman Sachs or Morgan Stanley what it costs. There's no exchange where you can compare prices. And modern investment bankers are ethically a notch below your average drug dealer. They will extract from their customer – a town, an airline, a chain of retail stores – whatever they think he'll pay. And that extra cost will be passed on to you by the overcharged customer, in the form of higher taxes, bigger home-heating bills, higher sewer rates or pricier airline tickets. Wall Street will be taking a bite out of you every time you write a check.

TorturedPolygon · 06-08-2012, 12:58 AM

I've had such a girl crush on Elizabeth Warren since seeing her on Jon Stewart discussing this.

Elizabeth Warren - The Daily Show with Jon Stewart - 01/26/10 - Video Clip | Comedy Central

Tranquility · 06-08-2012, 01:45 PM

Its like there is no way to win in this day and age. Even the previous major world reforms brought on by violence won't work. There are too many nefarious outside interests that will corrupt any new system before it can be rebuilt.

The current system is FUBAR by design. It simply can't be reformed. It can't even be trashed and rebuilt, also by design. The corruption is so deeply ingrained into our society that it is like a hydra.

I think part of the success of the current corruption is built on the ideals of human rights activists. The corruption knows no system is perfect and uses that knowledge directly against those trying to do the right thing. Even the simplest idea of democracy is corrupted to the core through lobbying and getting the "right" people elected and placed in key positions of power. The corruption embraces every human rights ideal and then uses it against us.

**Eunoli Rain** · 06-08-2012, 03:04 PM

People saw things that way until the New Deal, as well. We need an FDR for our times - and as much as I like President Obama, I don't think he's it - and I think if anything, Romney is the anti-it.

Aribeth Zelin · 06-08-2012, 03:07 PM

That or we need another Johnson [the more recent one]. Because blackmail against rat bastards is perfectly acceptable way to get good and just things done.

**Amber Guity** · 06-08-2012, 03:58 PM

Anyone ever read Vince Flynn's book "Term Limits"?

Polo · 06-10-2012, 03:04 PM

Taibbi is so valuable because he writes highly-readable stuff about things that most of us tend to zone-out on. As he said (and Joshua quoted above):

Quote:

All of these derivatives issues are oppressively dull and technical, and it's extremely difficult for most people to imagine how something like Jim Himes' exemption for foreign affiliates can actually affect their daily lives. But having an unregulated market instead of a regulated one might mean you'll pay an extra 50 cents for every gallon of gas (or possibly more, even according to Goldman Sachs). ...

Of course this is a big part of the reasons that Wall Street was able to get away with gutting regulation so that they could fleece us as they please---the fact that we voters just don't want to put in any time thinking about this stuff.

But as Taibbi points out, that choice costs us.

Isablan Neva · 06-10-2012, 06:26 PM

Quote:

Originally Posted by Polo

Taibbi is so valuable because he writes highly-readable stuff about things that most of us tend to zone-out on. As he said (and Joshua quoted above):

Of course this is a big part of the reasons that Wall Street was able to get away with gutting regulation so that they could fleece us as they please---the fact that we voters just don't want to put in any time thinking about this stuff.

But as Taibbi points out, that choice costs us.

Exactly. People realize this. That's why reform hasn't happened. If the people wanted reform, they've had TWO elections in which to make it happen. All they did was elect "business as usual" candidates and sent them to Washington to make sure their particular benefits were kept intact. People don't want reform. They want their house prices rising again. They want their 401k numbers going up again. If corruption is the way to make that happen, they are 100% on board.

The proof is in the election results.

More people want their slice of the pie than want reform.

Seyla Warden · 06-10-2012, 06:29 PM

Quote:

Originally Posted by Isablan Neva

If the people wanted reform, they've had TWO elections in which to make it happen.

and

Quote:

All they did was elect "business as usual" candidates

Don't compute. The only candidates up for election at all were 'business as usual' ones. You literally cannot get on a ballot at that level without being bought and paid for.

Sonja Aeghin · 06-10-2012, 07:22 PM

Quote:

Originally Posted by Seyla Warden

The only candidates up for election at all were 'business as usual' ones. You literally cannot get on a ballot at that level without being bought and paid for.

Unless you can bankroll your own campaign. But that's another can of worms.

Polo · 06-10-2012, 07:28 PM

Quote:

Originally Posted by Isablan Neva

More people want their slice of the pie than want reform.

Yes. And the irony is, well-considered reform would increase productivity and would ultimately benefit even those voting against it.

Sometimes the hallowed "I've got mine, Jack" attitude is ruinously shortsighted.

06-08-2012, 12:58 AM	#3 (permalink)
TorturedPolygon Indentured Servant bitter midget Join Date: Dec 2010 Location: Blissful Ignorance Posts: 405 My Mood: SL Join Date: 07/03/2004 Client: Niran's	I've had such a girl crush on Elizabeth Warren since seeing her on Jon Stewart discussing this. Elizabeth Warren - The Daily Show with Jon Stewart - 01/26/10 - Video Clip \| Comedy Central __________________ Seriously. . .poking and prodding just makes a bitch even bitchier. ~Maelstrom Eyre

06-08-2012, 03:07 PM	#6 (permalink)
Aribeth Zelin Just call me Beth Singing along with old music Join Date: Mar 2011 Location: Out in the mists Posts: 5,719 My Mood: SL Join Date: Oct 4 2009 Business: Faerycat Designs Client: Firestorm	That or we need another Johnson [the more recent one]. Because blackmail against rat bastards is perfectly acceptable way to get good and just things done. __________________ Faerycat Designs In World -Marketplace 1- Marketplace 2

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06-08-2012, 01:45 PM	#4 (permalink)
Tranquility Senior Member Join Date: Sep 2007 Posts: 3,015 My Mood:	Its like there is no way to win in this day and age. Even the previous major world reforms brought on by violence won't work. There are too many nefarious outside interests that will corrupt any new system before it can be rebuilt. The current system is FUBAR by design. It simply can't be reformed. It can't even be trashed and rebuilt, also by design. The corruption is so deeply ingrained into our society that it is like a hydra. I think part of the success of the current corruption is built on the ideals of human rights activists. The corruption knows no system is perfect and uses that knowledge directly against those trying to do the right thing. Even the simplest idea of democracy is corrupted to the core through lobbying and getting the "right" people elected and placed in key positions of power. The corruption embraces every human rights ideal and then uses it against us.

06-08-2012, 03:04 PM	#5 (permalink)
Eunoli Rain Senior Member *SLU Supporter* Not eating peas Join Date: Mar 2011 Location: Shady Falls Posts: 2,024	People saw things that way until the New Deal, as well. We need an FDR for our times - and as much as I like President Obama, I don't think he's it - and I think if anything, Romney is the anti-it.

06-08-2012, 03:58 PM	#7 (permalink)
Amber Guity state of non-being *SLU Supporter* The maple kind? Join Date: Dec 2009 Posts: 1,375 My Mood: Client: Firestorm	Anyone ever read Vince Flynn's book "Term Limits"?

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