July 25, 2010

CHANGE IS NOT MEASURED BY THE LENGTH AND COMPLEXITY OF THE BILL YOU PASS:

Financial reform? Wall Street has all the power (Robert Reich, July 25, 2010, SF Chronicle)

The American people will continue to foot the bill for the mistakes of Wall Street's biggest banks because the legislation does nothing to diminish the economic and political power of these giants. It does not cap their size. It does not resurrect the Glass-Steagall Act that once separated commercial (normal) banking from investment (casino) banking. It does not even link the pay of their traders and top executives to long-term performance. In other words, it does nothing to change their basic structure. And for this reason, it gives them an implicit federal insurance policy against failure unavailable to smaller banks - thereby adding to their economic and political power in the future.

The bill contains hortatory language but is precariously weak in the details. The so-called Volcker Rule has been watered down and delayed. An important proposal from Sen. Blanche Lincoln, D-Ark., that derivatives be traded in separate entities that aren't subsidized by commercial deposits has been shrunk and compromised. Customized derivates can remain underground. The consumer protection agency has been lodged in the Fed, whose consumer division failed miserably to protect consumers last time around.

On every important issue, the legislation merely passes on to regulators decisions about how to oversee the big banks and treat them if they're behaving badly. But if history proves one lesson, it's that regulators won't and can't. They don't have the resources. They don't have the knowledge. They are staffed by people in their 30s and 40s who are paid a small fraction of what the lawyers working for the banks are paid. Many want and expect better-paying jobs on Wall Street after they leave government, and so are shrink-wrapped in a basic conflict of interest. And the big banks' lawyers and accountants can run circles around them by threatening protracted litigation.

Posted by Orrin Judd at July 25, 2010 8:48 AM
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