FDIC BoG Member: Glass-Steagall Return Would Boost Banks

[Octafish]

The guy knows the importance of keeping the taxpayers off the hook from the Banksters.

Glass-Steagall Return Would Boost Banks, FDIC’s Hoenig Says

By Jesse Hamilton and Kathleen Hays on June 26, 2012
Bloomberg Businessweek

A revival of the Glass-Steagall Act, the Depression-era law that separated commercial and investment banking, is “absolutely necessary” to protect the U.S. financial system, Federal Deposit Insurance Corp board member Thomas Hoenig said in a Bloomberg Radio interview.

Using Dodd-Frank Act powers to break up banks one-by-one is the wrong approach to removing the threat that risky trading could spark a repeat of the 2008 credit crisis, Hoenig said today on “The Hays Advantage” with Kathleen Hays.

“It’s picking winners and losers based on what they present to you, and I think it is fraught with problems,” said Hoenig, who retired as president of the Federal Reserve Bank of Kansas City before joining the FDIC in April.

SNIP...

Structural Issue

“If we don’t make these changes, I think we’re destined to repeat the mistakes of the past,” Hoenig said. “When you mix commercial banking and high-risk broker-dealer activities, you increase the risk overall and as a result you invite new problems.”

CONTINUED...

http://www.businessweek.com/news/2012-06-26/glass-steagall-revival-would-bolster-banks-fdic-s-hoenig-says

Why would anyone be against Glass Steagall, besides the Banksters and their cronies?

[Rex]

1. 'Why would anyone be against Glass Steagall, besides the Banksters and their cronies?'

The obvious reasons really. We all know them by their words.

[Octafish]

6. That's why we're Democrats and democrats, Rex.

It's also why we have such a problem with all these assorted wolves in sheep's clothing,
especially when it comes to matters of war and peace, power and profit.

The Bi-Partisan Origins of the Financial Crisis

Shattering the Glass-Steagall Act

by WILLIAM KAUFMAN
CounterPunch Weekend Edition September 19-21, 2008

If you’re looking for a major cause of the current banking meltdown, you need seek no farther than the 1999 repeal of the Glass-Steagall Act.

The Glass-Steagall Act, passed in 1933, mandated the separation of commercial and investment banking in order to protect depositors from the hazards of risky investment and speculation. It worked fine for fifty years until the banking industry began lobbying for its repeal during the 1980s, the go-go years of Reaganesque market fundamentalism, an outlook embraced wholeheartedly by mainstream Democrats under the rubric "neoliberalism."

The main cheerleader for the repeal was Phil Gramm, the fulsome reactionary who, until he recently shoved his foot even farther into his mouth than usual, was McCain’s chief economic advisor.

But wait . . . as usual, the Democrats were eager to pile on to this reversal of New Deal regulatory progressivism — fully 38 of 45 Senate Democrats voted for the repeal (which passed 90-8), including some famous names commonly associated with "progressive" politics by the easily gulled: Dodd, Kennedy, Kerry, Reid, and Schumer. And, of course, there was the inevitable shout of "yea" from the ever-servile corporate factotum Joseph Biden, Barack Obama’s idea of a tribune of "change"–if by change one means erasing any lingering obstacle to corporate domination of the polity.

CONTINUED...

http://www.counterpunch.org/2008/09/19/shattering-the-glass-steagall-act/

Real democrats and Democrats speak the words we want to hear: Justice, Freedom, Equality, Opportunity, Progress...

We know where the wolf elephants are coming from. They don't act the way they talk. They don't even know how to act like they have a clue.

[TheWraith]

2. Who's against it? But it's not a protection like you think it is.

Most of the banks that had the most serious collapses were either purely investment banks or separated in a way that was fine under Glass-Steagall. It's a mistake to think Glass Steagall would have prevented a meltdown that was largely predicated on lack of regulations on derivatives.

[Octafish]

7. I dunno. Let's hear from the horse's mouth...

The reason there was a lack of regulation on derivatives, and real estate and all the rest of it, is that Glass Steagall got dumped.

Read all about it:

Parsons Blames Glass-Steagall Repeal for Crisis

By Kim Chipman and Christine Harper - Apr 19, 2012 8:48 PM ET
Bloomberg

Richard Parsons, speaking two days after ending his 16-year tenure on the board of Citigroup Inc. (C) and a predecessor, said the financial crisis was partly caused by a regulatory change that permitted the company’s creation.

The 1999 repeal of the Glass-Steagall law that separated banks from investment banks and insurers made the business more complicated, Parsons said yesterday at a Rockefeller Foundation event in Washington. He served as chairman of Citigroup, the third-biggest U.S. bank by assets, from 2009 until handing off the role to Michael O’Neill at the April 17 annual meeting.

SNIP...

U.S. Bailout

“People have a sort of a notion that ‘well, we can decide that’s too big to manage,’” he said. “But it got that way because there was a market need and institutions find and follow the needs of the marketplace. So what we have to do is we have to learn how to improve our ability to manage it and manage it more effectively.”

Citigroup, which took the most government aid of any U.S. bank during the financial crisis, has lost 86 percent of its value in the past four years, twice as much as the 24-company KBW Bank Index. (BKX) Most shareholders voted this week against the bank’s compensation plan, which awarded Pandit about $15 million in total pay for 2011, when the shares fell 44 percent.

CONTINUED...

http://www.bloomberg.com/news/2012-04-19/parsons-blames-glass-steagall-repeal-for-crisis.html

Gee. That guy profited some from the merger of his bank and Citi. Wonder what got on his conscience?

[ProSense]

3. If the

loophole in the Volcker rule is addressed, that would fully reinstate the divisions of Glass-Steagall. From the OP:

Taking that step would remove government safety nets from the banks’ riskiest investment behavior and “reinvigorate” the U.S. investment banking industry, Hoenig said. Breaking out investment operations in a more total way than Dodd-Frank’s so- called Volcker Rule ban on proprietary trading, will “create a more innovative environment,” he said.

The problem is the loophole.

Here's a good interview with Elizabeth Warren:

Elizabeth Warren: ‘That’s the strongest argument for a modern Glass-Steagall’

Posted by Ezra Klein

<...>

EK: Do you support a modernized Glass-Steagall law?

EW: Yeah! I’ve talked with Sen. Maria Cantwell from Washington State. She’s been working on that, and I think the debate should be on the table.

EK: What about breaking up the big banks?

EW: You’re approaching risk from two different directions. One is the risk of the activity. That’s the Volcker rule. The other direction is to say risk is an assumption of size. Community banks shouldn’t have to deal with complex regulatory oversight, but the largest institutions should be subject to far more aggressive oversight and have to pay more for the protections they receive from the American taxpayer. Then shareholders may decide to invest in institutions that are not so large.

<...>

EK: Can Dodd-Frank work if it’s effectively implemented?

EW: I think Dodd-Frank is a strong bill that moves in the right direction. But the market keeps changing. The practices keep changing. The idea that we’ll pass one law and then declare that problem is solved, we’ll be back again in 50 years, just doesn’t work anymore. We had a double problem here: Both deregulation and the failure to adapt to new financial conditions and products and practices. That’s what permitted risk to multiply in the system until it nearly brought the economy to its knees.

http://www.washingtonpost.com/blogs/ezra-klein/post/elizabeth-warren-thats-the-strongest-argument-for-a-modern-glass-steagall/2012/05/14/gIQAfxTLPU_blog.html

Dodd-Frank goes a lot further, addressing things that Glass-Steagall never did.

Dodd-Frank in One Graph



http://www.businessweek.com/magazine/doddfrank-in-one-graph-01122012-gfx.html

[banned from Kos]

4. nice graph.

bump this.

[Octafish]

8. Nice graphic for making things clear as mud. What does it matter if the Volcker Rule isn't amended?

No one even knows if the law -- even written as is -- will ever become law or not in 2014, anyway. Behold:

Confusion Still Reigns on 'Volcker Rule' Date .

By SCOTT PATTERSON
Wall Street Journal
BUSINESSMay 6, 2012, 8:03 p.m. ET.

The Federal Reserve's attempt to clarify the "Volcker rule" is only creating more confusion.

At issue is whether the Fed is requiring banks to start scaling back on making bets with their own money almost immediately, or whether they can continue until the ban on such activities [font color="red"]goes into effect in two years[/font color].

Law firms, bankers, analysts and members of Congress are divided on what the Fed is advising.

The matter may come down to the interpretation of just two words: "good faith."

CONTINUED...

http://online.wsj.com/article/SB10001424052702303877604577381940420257930.html

"Good faith." Ha ha. It is to laugh.

P.S. Regarding Glass Steagall: So what if it was written before derivatives and other scams were around? As a law, Glass Steagall worked to prevent the Banksters from profiting from another Wall Street collapse that had led to the Great Depression. It worked pretty well for 65 years, until newly-bipartisan Washington types led by Phil Gramm and Bill Clinton got it passed on their own ways through the revolving Golden Door.

[ProSense]

12. Nothing

"Nice graphic for making things clear as mud. What does it matter if the Volcker Rule isn't amended?"

...wrong with the chart, it's easy to read.

"So what if it was written before derivatives and other scams were around? As a law, Glass Steagall worked to prevent the Banksters from profiting from another Wall Street collapse that had led to the Great Depression."

<...>

They certainly were worried about systemic risk in 1982, when I had something of a front-row seat. There were fears that the Latin debt crisis would take down one or more money center banks — Citi, or Chase, say. And policy was shaped in part by the desire to make sure that didn’t happen. Bear in mind that this was in the days before the repeal of Glass-Steagal, before finance got so big and wild; the New Deal regulations were mostly still in place. Yet even then major banks were too big to fail.

http://krugman.blogs.nytimes.com/2009/06/18/too-big-to-fail-fail/

In addition to the activities that were beyond the scope of Glass-Steagall, by the time the law was repealed, it had been watered down over decades.

[Octafish]

13. Again, what difference does that make? Glass Steagall kept the taxpayers off the hook.

Without it, Wall Street and its toadies on The Fed managed to weasel the bill for the party onto the taxpayer in 2008.

Forget Volcker — bring back Glass-Steagall

By Cate Long
Reuters Blog March 1, 2012

Imagine you are a financial regulator whose agency is underfunded, understaffed and under-trained and that firms under your jurisdiction are likely to pick off your best employees by offering them triple the salary you pay them.

Furthermore, imagine that Congress has written an 800-page law that instructs you to write and enforce new regulations on banks and securities firms to ensure financial stability for the system. The most complex part of this new law, the Volcker Rule, would require you to cooperate with three other agencies to jointly issue a 530-page Proposed Rule that asks 1,300 questions.

Now imagine that in the course of honing this rule, 17,000 comment letters will flow into your agency, the majority of which promote the status quo.

SNIP...

The Volcker Rule is supposed to isolate the risk of a bank trading its own assets and separate that from depositors’ assets. In other words, the Volcker Rule should isolate the risk of a big derivatives or fixed-income loss on the house account from the cash savings of retired teachers and other customers of the bank. By design, it is aimed at the heart of the nation’s largest banks, the five institutions that use their enormous staffs and FDIC-insured balance sheets to dominate trading and commercial banking.

SNIP...

The core issue in attempting to define the Volcker Rule is that federal securities and banking regulators have never really supervised the fixed-income and derivatives markets. Dodd-Frank has many provisions for the regulation of derivatives but entirely skips over any requirement to regulate bond trading. The SEC heavily regulates stock trading but conducts little to no oversight of bond markets. Bonds are an enormous, dark market that few people understand, hence all the laments that eliminating prop trading of bonds will dry up liquidity — a ridiculous idea. If there are larger profits in bond trading because the five major banks are limited, new entrants will expand into the market to capture those profits and provide liquidity.

CONTINUED with links for details...

http://blogs.reuters.com/muniland/2012/03/01/forget-volcker-bring-back-glass-steagall/

So, whatever it is that the graphic says to you, it doesn't matter to the question because compared to what Glass Steagall did, the Volcker Rule won't cut it.

[ProSense]

14. The

"Again, what difference does that make? Glass Steagall kept the taxpayers off the hook."

...Volcker rule prohibits bailouts. No more bailouts.

[Octafish]

15. Only as originally sold to the public. In its current state, sorry: No.

The Volcker Rule: Return to Sender

Robert Kuttner
The American Prospect

EXCERPT...

The back story: In the infighting of late 2008, President Obama's incoming economic team of Larry Summers and Tim Geithner marginalized Volcker as a senior official of the new administration, despite the fact -- no, because of the fact -- that Volcker had been one of Obama's earliest supporters and understood the dynamics of the financial collapse far better than either of them. They gave Volcker a ceremonial advisory position with no real power. Volcker was a menace because he was counseling more constraints on bank powers than Summers and Geithner wanted.

SNIP...

Then in early 2010, Scott Brown stunned Washington with his upset win of Ted Kennedy's former Massachusetts senate seat. The White House political team desperately needed a populist pivot and an emblem of tough financial regulation. Obama quickly sent for a surprised Volcker, who had never before been in the role of populist (but then everything is relative.)

The White House, using Volcker as a prop, conjured up a "Volcker Rule," in the spirit of the Glass-Steagall Act (which Summers and Geithner in their Clinton-era roles had helped repeal). Despite Volcker's gracious endorsement, the proposed rule was not as elegantly simple as Glass-Steagall, or as tough as Volcker's own counsel.

The thrown-together Rule was vague; it did not propose to separate investment banking from commercial banking. It constrained but did not entirely prohibit proprietary securities trading by government-guaranteed banks. By the time the industry got through with its legislative lobbying, the version that passed Congress as part of the Dodd-Frank Act was tough in principle but left room for mischief in the administrative rule-making.

As Joseph Stiglitz and Robert Johnson observe in a letter to the regulators that is must-reading if you care about this stuff:

To the extent the Volcker Rule is too complex, that is at best a reflection of the incredible complexity that banking itself has created, and at worst a reflection of the proposed rule's timidity: it attempts to protect the complexity of the status quo and implement a law that directs a reduction of trading by banks without reducing trading by banks or trading overall. These contradictions must be rejected. For the U.S. to rebuild a healthy financial system -- one where savings go to productive investments, and the returns go back the investors -- the Volcker Rule's mandate to reduce bank involvement in complex trading activities must be implemented. Naturally, banks are resistant to these demands because they have taken refuge in complexity to extract massive margins and fees that generate bonuses, while avoiding the harsh sunlight of competition and the risk-reducing incentives of the threat of failure.

CONTINUED with VOLCKER's own words on the matter...

http://www.huffingtonpost.com/robert-kuttner/volcker-rule_b_1303005.html

[ProSense]

16. Actually

"Only as originally sold to the public. In its current state, sorry: No."

...Stiglitz made my original point, which is that closing the Volcker rule loophole, returning it to its orignal form would address the full divisions of Glass-Steagall.

In addition, Dodd-Frank gave the FDIC new powers beyond those it had prior to the repeal.

<...>

The Federal Reserve and the Financial Stability Oversight Council should use section 121 of the Dodd-Frank Act – which gives the Fed the ability to mitigate the “grave threat” that a financial institution poses by limiting banks’ activities or forcing it to divest assets – to break Bank of America into separate institutions. If crafted properly, these smaller institutions would be less likely to fail, would not endanger the U.S. financial system in the event of failure and would be easier to liquidate in an orderly fashion should it become necessary, the petition said.

http://www.citizen.org/pressroom/pressroomredirect.cfm?ID=3511

[Octafish]

17. Gosh. That's a lot of if'n 'n' maybein' 'n' possiblies for the Volcker Loophole to Close.

Do you really believe the Washington to Wall Street to Washington revolving door is going to do something about it?

Wall Street Lines Campaign Coffers to Pare Back Volcker Rule

EXCERPT...

Members of Congress pressing to weaken a proposal to prohibit banks from engaging in risky activities received millions in campaign contributions from the financial services industry, says a new Public Citizen report.

According to “Industry’s Mes-sengers,” released March 27, lawmakers trying to weaken the Volcker Rule — one of the most important reforms of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 — received a total of $66.7 million in campaign contributions from the financial services industry from the 2008 elections through the first quarter of 2012. In comparison, those pursuing stronger protections for consumers received $1.9 million.

In short, the average contribution from the financial services industry for those seeking to give banks more leeway was more than four times that of Congress members seeking to rein banks in.

In addition...

PC has a nice report in PDF format on the Volcker Rule.

[ProSense]

19. Well,

Gosh. That's a lot of if'n 'n' maybein' 'n' possiblies for the Volcker Loophole to Close.

Do you really believe the Washington to Wall Street to Washington revolving door is going to do something about it?

...given that Democrats were able to pass a massive reform bill, I'm sure closing the loophole will stand at least the same chance as reinstating Glass-Steagall, especially since the outcome will be the same.

Also, who can argue with this:

...lawmakers trying to weaken the Volcker Rule — one of the most important reforms of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 — received a total of $66.7 million in campaign contributions from the financial services industry...

They've been at this since the bill was signed into law. In some instances, the only way to get around the inevitable is to get out now.

Banks’ preemptive strike against Dodd-Frank

By Suzy Khimm

When Deutsche Bank reorganized its U.S. operations this week in response to new banking rules, it was the latest manifestation of what both supporters and opponents of the Dodd-Frank regulatory overhaul predicted would happen: The law has pushed big banks to reorganize — to comply with the new rules on Wall Street, as well as to avoid their impact...Deutsche Bank and London-based Barclays have moved their commercial banks from their U.S. subsidiaries into their global firms to avoid new, more stringent capital requirements — even though they don’t go into effect until July 2015.

But that doesn’t necessarily mean that Dodd-Frank has fallen short of what its authors intended. By giving up its status as a U.S. bank holding company, Deutsche Bank is forfeiting its access to the Federal Reserve’s emergency lending window. Doing so effectively cuts itself out of any future government-backed bailout in the event of a crisis. One of the overarching goals of Dodd-Frank was limiting taxpayer exposure to bailing out big firms.

“They’re saying, ‘If this is the price we have to pay, we’re going to shed that protection — we’re not too big to fail,’ ” said University of Maryland law professor Michael Greenberger, a former regulator at the Commodity Futures Trading Commission. Deutsche Bank was the Fed’s second-largest discount-window borrower during the 2008-2009 crisis.

<...>

The Volcker Rule, which is scheduled to take effect in July, also prohibits banks from providing more than 3 percent of capital in private-equity or hedge funds, prompting banks to spin off those operations as well. Other Dodd-Frank rules recently prompted insurance giant MetLife to sell its FDIC-insured banking unit, which would have subjected the firm to greater regulation and scrutiny by the Federal Reserve.

- more -

http://www.washingtonpost.com/business/economy/banks-preemptive-strike-against-dodd-frank/2012/03/23/gIQATnUmWS_story.html

The regulatory framework is there, and the banks and those trying to weaken it know that.

[GopperStopper2680]

5. I wholly agree that we should reinstate Glass-steagall.

But the powers that be don't. You might as well have asked Hitler to neatly and conveniently end World War Two and shoot himself in the head in a shallow grave in a Berlin slum. That's about as realistic as asking the Fed which runs the country behind the scenes through its fiat machine to reinstate Glass-Steagall.

[Octafish]

10. Four years ago, DUers suggested nationalizing the banks...

...and got razzed for their trouble. Me? I echoed what William K. Black wrote:

Know your BFEE: Goldmine Sacked or The Best Way to Rob a Bank Is to Own One

Here's someone we really should have listened to:

Obama’s open-ended bailout of the banks

Barry Gray
World Socialist Web Site
27 February 2009

It is increasingly clear that the policy of the Obama administration is to pump as much taxpayer money as possible into the banks to avert a new wave of failures, in the hope that the economy will somehow begin to recover in 2010. Then Wall Street will be free to resume the speculative practices that enriched the financial aristocracy while precipitating the greatest global economic crisis since the 1930s.

Federal Reserve Board Chairman Ben Bernanke said as much in testimony before the US Congress earlier this week. In his prepared statement to the Senate Banking Committee and the House Financial Services Committee he said, "If actions taken by the administration, the Congress and the Federal Reserve are successful in restoring some measure of financial stability—and only if that is the case, in my view—there is a reasonable prospect that the current recession will end in 2009 and that 2010 will be a year of recovery."

With banking giants such as Citigroup and Bank of America teetering on the brink of bankruptcy, and a new surge of bank losses in consumer and commercial loans as well as home mortgages in the offing as the impact of the recession deepens, the government has been obliged, with great reluctance, to increase its equity stake in the banks in return for the next round of cash infusions, in order to shore up the banks' balance sheets.

[font color="red"]To allay fears on Wall Street of government "nationalization," which would wipe out bank shareholders and result in large losses for bondholders, Bernanke and Obama administration officials have spent much of this week reiterating the government's support for private ownership and control of the banks.[/font color]

Bernanke told Congress that while the government might be forced to acquire a substantial minority stake in some banks, it had no intention of gaining majority control. Treasury Secretary Timothy Geithner, announcing details of bank "stress tests" that are to pave the way for hundreds of billions of dollars in new bailout money, said Wednesday, "US government ownership is not an objective" of the administration's bank rescue program.

CONTINUED...

http://www.wsws.org/articles/2009/feb2009/pers-f27.shtml

Since then, how many millions of Americans have lost their homes? How many taxpayer billions did the Wall Street bonuses come to?

So, I guess there really is little chance of reform now that the "New Normal" is Serfdom.

[xchrom]

9. Du rec. Nt

[Octafish]

11. Banksters Gone Wild!

Seems like real journalists in the jolly old, of all places, are up and at 'em.

Banksters Go Wild - and "The Economist" Joins the Revolution

By Richard (RJ) Eskow
Campaign for America's Future

In the ongoing scandal about Barclays' employees tampering with the "LIBOR," or London interbank lending rate - which is to say, bank fraud - The Economist offers this brilliant cover. It's not just the word "banksters," or the fact that it shows bank executives dressed like the guys in Reservoir Dogs. It's the little things, like the two guys whispering to each other, the two others on their cell phones, and - best of all - the fact that they're wearing typical bankers' power ties.

An accompanying piece in the magazine is entitled "The rotten heart of finance." If this were a movie, this is the point where the Keanu Reeves character says: Whoa.

When The Economist joins the revolution, the world may very well be seeing one of those "tipping points" we keep hearing about. The magazine, while very well written and researched, has always represented the conservative mainline of economic thinking. It spent years mocking Paul Krugman, for example, for Krugman's prophetic warnings about a housing bubble and imminent collapse.

Now it writes that the new revelations "not only betray a culture of casual dishonesty; they set the stage for lawsuits and more regulation right the way round the globe. This could well be global finance’s 'tobacco moment'."

The world's most prestigious, mainstream financial publication is drawing a parallel between today's banking scandals and the wave of revelations and multimillion dollar settlements that turned the public against an entire industry, eventually forcing the industry's Tobacco Institute to disband and make its records public.

Whoa.

CONTINUED...

http://ourfuture.org/blog-entry/2012072706/banksters-go-wild-and-economist-joins-revolution

I don't want to see capital punishment for the corrupt capitalists. Life imprisonment at hard labor would be just.

[fascisthunter]

18. ask somebody who was banned from the Daily Kos

I'm sure they'd have a wonderfully packaged response for ya...