Posted by Karl Denninger
The WSJ has an interesting article that deserves some exposition:
As debate started in the Senate Thursday on the broad overhaul, some administration officials and lawmakers said they worried the amendments could backfire, steering lending and trading in complex financial instruments to hedge funds and other finance companies that are less regulated than banks. There are also fears that tight limits on U.S. banks could put them at a competitive disadvantage, because similar restraints don’t exist for their overseas rivals.
Notice the weasel in here. One part (trading complex financial instruments) should be diverted to hedge funds and other unregulated – and free-to-fail, no-backstopped firms.
The other part (lending) will always be done by banks – you have one on the corner, or a credit union, that will write you a loan, yes?
Sens. Ted Kaufman (D., Del.) and Sherrod Brown (D., Ohio) plan an amendment that would prohibit any bank from ever holding more than 10% of the country’s deposits and put strict caps on the debt banks issue.
Sens. Maria Cantwell (D., Wash.) and John McCain (R., Ariz.) have worked on an amendment that would force commercial banks to separate from investment banks—revisiting the Glass-Steagall Act of the 1930s.
That plus the above would effectively BE Glass-Steagall.
I like that a lot.
Obama administration officials have declined to weigh in on any specific amendments, with one exception: a move by Sen. Bernie Sanders (I., Vt.) to give the government more power to audit certain operations at the Federal Reserve. Fed and administration officials have signaled they would fight to stop it at all costs. Mr. Sanders has more than a dozen co-sponsors.
Why should the administration fight such a thing? What possible purpose – that doesn’t involve scams and fraud – is served by The Fed being able to operate in secrecy?
“Hopefully, common sense and maturity will take control, and the hyperbole and populism, while good for the TV cameras, will be put aside,” said Mr. Gregg said.
Mr. Gregg (and the rest of you) ought to read this (warning – not mine, and full of colorful language. Not suitable for children and all that:)
“I’m sure you have the answer, you and Ron Paul and all the other pot-smoking libertarian do-gooders have it all figured out. But what I’m saying is, no confidence means end of the confidence game. That’s what Lehman showed. Every single player in finance suddenly had to face the fundamental problem—this whole [email protected] economy is built on fraud and lies and garbage. So when Lehman collapsed, every single player panicked, going, ‘If Lehman was nothing but a Ponzi scheme—and I know what I’m running is a Ponzi scheme—holy shit, that means everyone else is running a Ponzi scheme too! Run for the exits!’ No one trusted anyone else, everyone pulled out, and the entire global economy collapsed just like that. And that meant your parents, my parents, every teacher, every fireman, every person in the country going into retirement, every price on every asset—wiped out.
Oh. You mean that “if we scam and screw people enough, then you must let us keep doing that, lest we have riots or even civil war”?
That seems to be the argument that Judd Gregg and others – including Geithner and Obama – are putting forward.
Here’s the problem with the argument: It doesn’t work in the long haul.
It got a lot more vicious and personal than this, but when our verbal slap-fight ended—and he paid the bill—I thought about what he said, and it made a lot more sense. Fraud has become so endemic in this country that it’s woven its way into America’s DNA, forming a symbiotic relationship that can’t be undone without killing off the host. If they push it just a little too hard, the entire American economy could crash, asset values could tank, and that means tens of millions of extremely pissed off retirees and Baby Boomers. As the Wall Streeter put it: “Whoever is responsible for bursting this latest bubble by exposing all the fraud—and tanking all the markets—will not only be out of power for at least a generation, but they’ll all have to get radical reconstructive surgery on their faces and seek political asylum somewhere remote. No one wants to be that guy, and that’s why it’s not going to happen.”
That may be true, but all bubbles to eventually burst, all Ponzi schemes do collapse. The only question is when. For those of us not on the verge of retiring, the sooner we have this day of reckoning and get it over with, the better.
What the author forgets is that for those who are on the verge of retiring, you’d be better off getting it over with now and choosing not to retire, than having it happen once you do and being completely and irredeemably hosed.
In case you’ve forgotten, this isn’t uniquely (or even largely) the fault of one political party or the other. It’s both.
But here’s the key: The party that does not put a stop to this and gets tagged with obstructing locking all these ignoble, felonious bastards up will be the one that – at best – never darkens the halls of Congress or The White House again.