Then again, it doesn't take a rocket scientist to tell us something's not passing the smell test in the U.S. Senate when we start seeing Republicans lining up in support of it, as now appears to be the case, based upon public pronouncements over the past 24 hours, too.
Frankly, my natural reaction to anything that neanderthals like Senators McConnell and Kyl, et al, support, is to cringe with disgust. It's getting to the point where it's just a primal Democratic instinct! But, latest word is, these morally bereft pigs are practically loving the current iteration of Chris Dodd's legislative legacy!
I could get into a lot of detail about all of this, but just click on the links herein (above and below); read about it firsthand.
Wall Street never met a loophole it didn't like. Then again, if the public was even half-aware of just how twisted the reality is--as opposed to the totally misdirecting MSM narrative to which we're continually subjected--maybe, one day, enough of us will wake up and smell the coffee.
Here's something virtually nobody's talking about...a little word of caution, however...your hair's going to be on fire for the rest of this diary once you read the next blurb, from Hugh Son, over at Bloomberg...
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AIG Said to Insure Goldman's Board Against Investor Suits
By Hugh Son - Apr 20, 2010
American International Group Inc., the financial firm rescued by the U.S., is the lead insurer of Goldman Sachs Group Inc.'s board against shareholder lawsuits, said a person with knowledge of the policy.
AIG is among firms that sold so-called Side A directors and officers' coverage to the New York-based bank, said the person, who declined to be identified because details of the policy are private. Goldman Sachs was sued last week by the Securities and Exchange Commission, which claimed it misled investors in 2007.
AIG, along with insurers including Chubb Corp. and XL Capital Ltd., sell so-called Side A policies. The coverage kicks in when shareholders accuse directors of wasting a company's money through failing to perform oversight duties or if the company becomes insolvent. Goldman Sachs, the most profitable bank in Wall Street history, said today that first-quarter earnings almost doubled to $3.46 billion from a year earlier.
...Business Insurance reported that AIG insured Goldman Sachs's board...
Yes...just when you thought you'd seen it all...the quintessential, hall-of-fame clusterf*ck! Step right up! Sue Goldman Sachs...win...and pay yourself the settlement!
Anywho...George Washington's Guest Post at Naked Capitalism spells much of this regulatory fail out for us in black and white.
(NOTE: Diarist is authorized by Naked Capitalism Publisher Yves Smith to post her blog's diaries in their entirety.)
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Guest Post: Krugman Says Break Up the Giant Banks to Stop Their Domination of the Political Process
Wednesday, April 21, 2010
My view is that I'd love to see those financial giants broken up, if only for political reasons: it's bad to have banks so big they can often write laws.
The giant banks have enough money to - literally - purchase the politicians.
And they can capture the regulators. As Dean Baker wrote on April 7th:
In the United States it will always be easy for regulators to look the other way, even when the ultimate consequences prove to be disastrous. By contrast, cracking down on politically connected banks is difficult for regulators. The banks' executives will call their friends in the administration and Congress to complain about the crazy regulator who is trying to keep them from running their business.
And, you can be sure that the banks will have a story. They pay smart people lots of money to develop those stories. The banks' mouthpieces will make a conscientious regulator look like a crazed vigilante who just doesn't understand modern finance. Just ask Brooksley Born, the head of the Commodities Futures Trading Commission who was stopped in her effort to regulate credit default swaps back in 1998.
And as Miles Mogulescu writes:
[Simon] Johnson has the long-term politics right-unless we break up the 6-8 largest banks which dominate the financial system, we will both be strengthening a self-perpetuating oligarchy which dominates the political system to protect its own wealth and power to the detriment of the national interest and democratic governance, and which uses it's government guaranteed "too big to fail status" to take excessive risk which will lead to the next bubble, the next meltdown, and the next Hobson's choice by an even more debt-ridden government between bailing them out again with trillions in taxpayer dollars or allowing them to fail and sinking the economy into depression.
TBTF is antithetical to democracy. Because of their TBTF competitive economic advantage, the largest banks have become even larger since the beginning of the Great Recession in fall 2008 and the 6 largest banks now control assets totaling over 60% of the country's Gross Domestic Product. With this outsized control of the economy comes outsized control of the government. A bank with assets exceeding 2 trillion dollars can spend whatever it takes to influence elections and convince Congress to pass legislation that favors its interests rather than those of the vast majority of middle class voters, especially after the Supreme Court's pernicious decision in the Citizens United case allowing unlimited election contributions by corporations. "Oligarchy" is a term Americans used to apply to countries like Russia and smaller third world countries, not to ourselves. But with TBTF, as Johnson and Kwak explain,
"The Wall Street banks are the new American oligarchy- a group that gains political power because of its economic power, and then uses that political power for its own benefit. Runaway profits and bonuses in the financial sector were transmuted into political power through campaign contributions and the attraction of the revolving door. But those profits and bonuses also bolstered the credibility and influence of Wall Street; in an era of free market capitalism triumphant, an industry that was making so much money had to be good, and people who were making so much money had to know what they were talking about. Money and ideology were mutually reinforcing.This is not the first time that a powerful economic elite has risen to political prominence. In the late nineteenth century, the giant industrial trusts -- many of them financed by banker and industrialist J. P. Morgan -- dominated the U.S. economy with the support of their allies in Washington, until President Theodore Roosevelt first used the antitrust laws to break them up."
So, argues Johnson, to preserve democracy, and to prevent the next bubble, meltdown and bailout,
"Make our largest banks small enough to fail. There is simply no other way to really end the problem of `too big to fail.'"
I disagree with Krugman on the technical arguments for breaking up the giant banks. For example, I believe that the economy will never stabilize and derivatives will never be transparent until the too big to fails are broken up.
But I applaud and welcome Krugman's clarification that he would like the giant banks to be broken up so that they cannot continue to dominate the political process.
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And, then there's Nomi Prins answering the question: In how many ways does the current Dodd bill fail?
Banks Still Rule -- Ten Ways Dems and Dodd Are Failing on Financial Reform
AlterNet / By Nomi Prins
April 14, 2010
Senate Banking Committee Chairman Christopher Dodd's financial "reform" proposal (Barney Frank's wasn't much better) won't change the nature of anything Wall Street does. Dodd's needless watering down of a proposal to create a new Consumer Financial Protection Agency has been well-documented, so here is a list of 10 other problems Dodd's bill will not fix:
1) It won't make the biggest most "systemically important" banks (read: systemically destructive) any smaller...
2) It won't reduce the economic danger from rampant, overleveraged trading activities...
3) It won't change the nature, transparency, size, complexity or usage of the most heinous derivatives...
4) It won't prevent the creation of new toxic assets...
5) It won't contain the risk to the shadow banking system from hedge funds, private equity firms and venture capital funds...
6) It won't remove the conflicts of interest between banks that issue securities and rating agencies that rate them, and get paid a fee for doing so...
7) It won't contain systemic risk...
8) It won't wrest control of our economic future from the banks the Fed couldn't regulate over the past decade...
9) It won't constrain the Fed's future bailout operations...
10) It won't prevent bank failures by separating speculative banking from deposit-insured commercial banking a la Glass Steagall, but instead contains plans for resolving them, after the fact...
Putting it more bluntly, Prins concurs with Simon Johnson and concludes...
None of this is reform. We're actually better off with no legislation than we are with this vapid 1,336-page opus--the false sense of security it creates will only encourage greater risk-taking. If the Dodd bill passes in its current version, we absolutely, unequivocally will see another system-wide crash that will invoke greater hardships on the country than the last collapse.
Bold type is diarist's emphasis.
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But, Bernie Sanders gives us the money quote, today (see bold type, below), IMHO...
Bernie Sanders Says It Is Time To Break Up The Big Banks As They Are Nothing But Monopolies
Submitted by Tyler Durden on 04/21/2010 16:45 -0500
...The argument for breaking them up is blatantly simple: to protect taxpayers against another TBTF episode, as well as to preempt their concentration of ownership which means "unbelievable power and monopolistic influence over the whole economy."
Sanders, following in William Black's footsteps, is also painfully blunt: "the issue is not whether Congress regulates Wall Street, it's the degree to which Wall Street regulates Congress."
No matter what kind of reform you bring forth, if a BofA is about to teeter, and take with it a significant part of the economy and millions of jobs they are going to be bailed out. What you have to do is break them up today."
In conclusion Bernie sumarizes our current predicament perfectly: "Take a breath for a moment and think about where we're at. You have a middle class collapsing, you have small and medium sized businesses desperately in need of affordable credit so they can expand and create jobs, they're not getting that help. What you have is a Wall Street living in a parallel universe playing with trillions of dollars in gambling casinos, instead of investing in the real economy and producing real products, and helping us create real jobs. That's is the ultimate issue - we need a new Wall Street, where it lives in the real world, not just in a world in which they can use their greed and recklessness to make as much money as they possibly can any way they can..."
Bold type is diarist's emphasis.
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Yes, IMHO, many can't see the bigger-picture issue here because they're letting the spin get in the way; only a few folks are talking about this over-arching truth. Are you?
"...the issue is not whether Congress regulates Wall Street, it's the degree to which Wall Street regulates Congress..."