Sunday, December 13, 2009

House passes financial reform

Score this a win for Congressman Paul Kanjorski.

Wall Street Regulation Reform Passes House

WASHINGTON (AP) — The House passed the most ambitious restructuring of federal financial regulations since the New Deal on Friday, aiming to head off any replay of last year's Wall Street failures that plunged the nation deep into recession.

The sprawling legislation would give the government new powers to break up companies that threaten the economy, create a new agency to oversee consumer banking transactions and shine a light into shadow financial markets that have escaped the oversight of regulators.

The vote was a party-line 223-202. No Republicans voted for the bill; 27 Democrats voted against it.

The bill includes his too big to fail amendment and creates a consumer protection agency. Typically, the party of no thinks nothing should be done to avoid another melt down like what happened last fall that has put us in the worst recession in my memory. And some progressives think the bill doesn't go far enough.

WASHINGTON -"Today marks a momentous step as we work to reform Wall Street and better protect the American people from potential future financial crises," said Chairman Kanjorski. "Last year, our economy faced its most dire circumstances since the Great Depression. We took extraordinary, but necessary action to pull the economy back from the brink, and we are now beginning to see signs of recovery. Today, the House passed legislation, with my strong support, that provides the most sweeping financial regulatory reforms in the past 75 years and holds banks accountable for their actions. While no bill is perfect, this legislation takes strong steps to help prevent the near collapse that we faced last year. It also will help us take preventative action to protect every American and our economy so that there will no longer be companies that are "too big to fail" or anymore taxpayer funded bailouts."

Click here for more information on the Kanjorski amendment to address financial institutions deemed "too big to fail."


Anonymous said...

Like him or not, Kanjo did a hell of a job on this legislation and it all goes to his years of service. On the Hill, it is seniority that counts and that's the way it is. Live with it!

Stephen Albert said...

"Too big to fail" is the wrong solution to a complex problem. Think about what this means: the government decides that a company becomes too successful. Whether you are a liberal or a conservative, that kind of reach has to give you pause.

"Too big to fail" is also attempting to solve the wrong problem. In this recession it wasn't that these companies were too large & therefore present a threat, it's that these companies were poorly regulated (often time self regulated, with the SEC "outsourcing" enforcement to NASD and then FINRA, as well as other other SROs) and it was that lack of effective regulation that passively encouraged lax risk management practices.

What about the large firms that didn't require or take any government money during the past year or so? Could they still be deemed "too big to fail"? Think about it: a company does the right things, grows sensibly, manages risk & capital well, and the "reward" from the government could be one of "sorry, you are too big to fail, so we have to carve you up". In my mind that's the worst kind of government intrusion.

The better solution here is also the less flashy one: Let's stop allowing firms in the financial services industry to police themselves. For God's sake, Bernie Madoff was very active in NASD...the body that was supposed to protect the investment public from people guessed it...Bernie Madoff. The current self-regulatory environment in the financial services relies on too much on good faith not nearly enough on independent oversight. The government could actually write solid, enforceable regulations and then staff the SEC (and other agencies) accordingly so that direct regulation of the industry would be more effective. Audit reports could be published on-line for the public to see.

Anonymous said...

The Senate will strip it down. All BS.

Big Dan said...

The "too big to fail"s get taxpayer welfare when they fail. So, they get to keep all profits when they make profits, and they get welfare when their risky casino gambling schemes fail. That's a nice deal, isn't it?

We should've let them all fail, that would be free market capitalism. As it is, there was no free market capitalism at all, they got bailed out by the taxpayers.

If they don't want to be regulated, they want a "free market", then they shouldn't have gotten bailed out. They win both ways.

If they don't want to be regulated and "carved up" so they're not too big to fail, then they should've said "Let us fail and go under, don't bail us out with taxpayer corporate welfare".

Big Dan said...

Stephen: I thought the reason the too big to fails got that way due to the deregulation which occurred by Phil Gramm repealing the Glass-Steagal Act and presided over by President Clinton. I don't think it's "carving up", I think it's putting back the regulation that existed under the Glass-Steagal Act, which provided the safety against exactly what happened with this current financial crisis.

Stephen Albert said...


In my opinion (somewhat educated, as I work in "the industry"), repeal of Glass Steagall is part of the problem, but it's not the entire problem. As I noted, I personally think the larger issue is one of self-regulation. Regardless of the laws in place, if the industry is allowed to police whole or in part...these things would eventually happen. Maybe not as severe, maybe not in the same way, but they still would occur eventually. The AIGs of the world would have simply found other, more creative ways to finance their 15% ROI year over year.

Now I didn't want to rant too much about regulations, but I will say this: the same folks who fought so hard to repeal Glass-Steagall are now fighting (all be it in the shadows at the moment) over Sarbanes-Oxley. Keep an eye out for that one.

As for "carving up", that's something Kanjorsky has spoke about in rather direct terms. Granted, it may be an extreme outcome (assuming the House Bill gets passed as-is), but it's an out come never the less. The problem isn't "too big to fail"...the problem is that the government fails to perform what I'll call "daily" regulation, and a as a result, it ends up wanting these extreme powers. If the SEC (again...just my opinion here) stopped outsourcing securities industry oversight to the securities industry itself, the situation should never even get to the point of "too big to fail".

Bottom line for me: "too big to fail" is fine if you are talking about enhanced regulations; it's a scary example of government power if you are talking about forced re-organizations/divestitures.

McGruff said...

I keep trying to tell the public that Kanjorski is nothing but smoke and mirrors. He puts out a press release the he is helping us out. Gort, maybe you should read this article about his "too big to fail amendment".

For all the fear that bankers have expressed about Representative Paul Kanjorski’s amendment to end “too big to fail,” the final text shows that they don’t have much to fear. While the amendment gives regulators new power, it’s unlikely they’d actually use it.

The Pennsylvania Democrat neuters his own legislation with a single line, which stipulates that for regulators to take action against a systemically dangerous institution (SDI) it must “(pose) a grave threat to the financial stability or economy of the United States.”

But if the point is to break up systemically dangerous institutions pre-emptively, then we want regulators to tear them apart before they pose a grave threat. SDIs tend to fall into that category only after they’re in trouble. By that point it’s too late.

Another problem with Kanjorski’s amendment is that it pollutes bank regulation with politics. The Treasury secretary would have to sign off on resolutions over $10 billion and the president on resolutions over $100 billion.

Kanjorski got the headlines he needed but purposely failed to deliver substance.

The Ney-Kanjorski bill was the same smoke and mirrors. Only it never went anywhere because it wanted to take away state consumer protection and help those who donate to Banjo Kanjo. Well,,,looks like they won again.

McGruff said...

Like I said smoke and mirrors.

On HR4173

(11) H.Amdt. 527 by Rep. Kanjorski [D-PA11]
An amendment numbered 12 printed in House Report 111-370 to strike the provisions exempting public companies with less than $75 million in market capitalization from the requirements of the Sarbanes-Oxley Act related to the external audit of internal controls.
Proposed: Dec 10, 2009. Rejected: Dec 11, 2009.
Dec 11, 2009. On agreeing to the Kanjorski amendment (A011) Failed by recorded vote: 153 - 271 (Roll no. 960). [View Details]

(17) H.Amdt. 533 by Rep. Kanjorski [D-PA11]
An amendment numbered 18 printed in House Report 111-370 to aim to stem the unintended consequences resulting from the definitional change of NRSRO from Nationally Recognized Statistical Rating Organization to Nationally Registered Statistical Rating Organization. Section 6005 creates inconsistencies in the securities laws as it amends the definition only in the 1933 and 1934 Acts and it has potential impact on state rules and regulations requiring a change of state level statute.
Proposed: Dec 11, 2009. Rejected: Dec 11, 2009.

Where's that seniority comment now??

Stephen Albert said...

Isn't it ironic that Congress is talking about "too big to fail" but yet the Federal Government is probably the ultimate example of "too big to fail"?

McGruff said...

Mr. Albert,

You are not only correct but I am afraid that you are more than correct.

Anonymous said...

Just wondering, I heard recently that the bank bailout is being returned and with a profit? Why muddy the water by bringing other "big" business into it? My understanding of this bill is that it is focused on these huge mergers. As for me, I'm happy that there will be some form of control over big business. Example Exxon/Mobil didn't help the little people in anyway but it allows the oil companies to control gas prices. I've often wondered why there is no action taken on price fixing with the oil companies. Why is it that different gas stations using different gas can sell their gas at the same price right down to the tenth of a cent? I guess it is just coincidence.

Anonymous said...

Some one said Kanjo did a hell of a job? were they seriou? for who his family that he gave millions to?The guy has been full of crap his whole life!hasnt done any thing for mr ha!