The Mystery of Capital

[Jefferson23]

Our book: 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown is on sale! Excerpts from the beginning and the end. What the title means.


By James Kwak

So the dust has settled on the Senate bill, and it remains studiously vague about capital requirements — no hard leverage cap, for example. This is what the administration wanted, for two reasons: first, they claim that regulators need ongoing flexibility to modify capital requirements; second, they claim that they need flexibility to negotiate a uniform international agreement.

There is one thing in there that is controversial enough to get the attention of the bank lobbyists: the Collins Amendment, which Mike Konczal has written about here. The main provision of the amendment is that whatever capital requirements apply to insured depositary institutions (banks), they also have to apply to systemically important financial institutions, including at the holding company level.

Sheila Bair of the FDIC is in favor of the amendment, on the argument that bank holding companies should not be able to evade capital requirements that are imposed on their subsidiary insured banks; she doesn’t want to regulate the depositary institutions but have all her work rendered irrelevant because the holding company collapses, triggering a mess of cross-guarantees.

This seems entirely unobjectionable, but as Konczal points out, the real threat to the banks is that it makes it harder for them to engage in financial engineering on the holding company level to evade capital requirements. According to the Wall Street Journal, not only the banks, but also the administration itself is planning to try to kill this amendment (at this point, in conference committee).


remainder: http://baselinescenario.com/2010/05/21/capital-requirements-senate-financial-reform-bill/

[Warpy]

1. This "reform" bill, while probably the best we can expect out of

such an incredibly conservative Congress, is a bandaid job on a bad, unsustainable system and will ultimately fail. We all know that. What this Congress is doing is trying to keep the gravy train chugging along just long enough for them to retire to the Caribbean.

It's not going to work, of course, because the problem is systemic and eventually that train is going to jump the tracks and it will likely be catastrophic, but I'm afraid conservatives never allow themselves to think in those terms and only wish to cling to a bad system a little longer rather than returning to a good system and making their fatcat donors angry in the process.

The problem is now and always has been conservatism, itself, with its bad dogma, dreams of self regulation that never come to fruition, and inability to deal with rapidly changing circumstance.

[Jefferson23]

2. Very true, and that is why this has been such a depressing process to watch.

When we have the brightest minds like Johnson, Kwak, Stiglitz and others
TELLING them what exactly needs to be done, and end up with much less than what is necessary....words just fail.


How are we going to get meaningful reform without public funded elections?

[Warpy]

3. We'll still be offered "business friendly" candidates

but public funding will certainly help.

Yes, most of us who didn't benefit from the unsustainable system that inflated the wealth of the rich beyond all reason know exactly what needs to be done, but that's why we were never proposed for office.

It's only when a critical number of the bandaids pop loose that academics are finally consulted on what to do about repairing the gushing artery underneath them.

It's going to be like watching a train wreck in slow motion, a line of people waving warning lanterns stretching back for miles.