This is not good.

Major Provisions in Senate Financial Overhaul Bill - Dispatch - WSJ
- NEW REGULATORY AUTHORITY: Gives federal regulators new authority to seize and break up large troubled financial firms without taxpayers bailouts in cases where the firm’s collapse could destabilize the financial system. (Great idea! Japan has been doing this for decades and look how stagnant their economy has become. This will have the exact opposite effect intended. It will squash small to medium up and comers in favor of large mortibond risk averse entities. Imagine if every bank offered little beyond checking, savings, CD's and modest loans. Stable yes, dynamic no.) Sets up a liquidation procedure run by the FDIC. (possibly not a horrible idea. Devil is in the details however) Management could be removed, with shareholders and unsecured creditors bearing losses.(they can be removed now so there's got to be more to this) Other provisions would make it harder for top executives at the failed firms to claim large compensation packages, and it would give the government power to limit payments for certain creditors of failed firms.(YES! Finally, exec comp has been out of control for some time now. Good to see they're finally realizing that you cannot give out millions from a sinking ship. One cheer on this one) Treasury would supply funds to cover the up-front costs of winding down the failed firm. (Again, this is awfully vague. Need more details)

-DERIVATIVES: Would require the vast majority of all derivatives trading be executed on a public exchange as opposed to between banks and their customers as many contracts are currently.(Again, vague. I like the idea of a derivative market but I'm not sure the "vast majority" of them need to be open. If you just stopped bailing these bastards out when they fail they'd probably think twice before doing this crap). Most controversially, the bill would adopt language written by Sen. Blanche Lincoln (D., Ark.), that would compel any large commercial banks that have access to the Federal Reserve’s discount window to spin off their derivatives trading business. The Fed, FDIC, Treasury as well as the banking industry have argued against this measure.(This is completely stupid. They are trying to argue for stability in derivative markets and then want to spin them off so they cannot self-leverage. How is this supposed to work? The only plan here can be to kill off derivatives completely. That or they expect that only hedge funds will use them. Stupid, stupid, stupid)

-FINANCIAL STABILITY COUNCIL: Would establish a new, nine-member Financial Stability Oversight Council, (Am I supposed to believe that people that spent a trillion dollars in the last year will be able to bring any sort of stability to any economic or financial entity whatsoever? This fucking idiocy.) comprising existing regulators charged with monitoring and addressing system-wide risks to the nation’s financial stability. (Here, I'll save you the trouble: Stop bailing them out when they fail and stop regulating them to death. Stop making them make bad goddamn loans and punishing them when they don't make those loans. Feckin' edjits) Among its duties, the council would recommend to the Fed stricter capital, (oh great. Just what we need, a tighter equity market) leverage and other rules for large, complex financial firms that are judged to threaten the financial system.(Jesus wept. Exactly when does an institution become "complex" or "large"? Is there some sort of benchmark or league table? Can we vote on that threshold?) In extreme cases, would have the power to break up financial firms.(MAYDAY! MAYDAY! The end is nigh! On what friggin' basis would this be used? Too "large" or "complex"? Congresscritters aren't a very bright lot and most of them would find finance very "complex". The potential for abuse is so high here I can't even put words to describe it. If you think there's too much corporate money in politics now just wait. Now they'll REALLY have to buy the favor of Congress to keep them alive.


Comments

I was going to do a response on my blog, but it's been a while and I still haven't so I'll jot down my comments here.

I disagree with you about breaking up large conglomerates. The obvious solution to the "too big to fail" problem is to break up the banking conglomerates in market manageable sizes. The SEC never should have allowed the major banks to get this big. Now that they are this large, the feds need the authority to break them back down to manageable pieces.

Don't like the FSC. Don't particularly like the plans for derivatives.

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