Denial is a river that runs through our financial system.

[kentuck]

Every day that goes by without changes to our financial system and without new regulations only feed the fears of many people, and not just Glen Beck followers. The President and our Congress seem to have passed the issue to the Federal Reserve and our Big Banks. They don't have the appetite or the will power to deal with it.

As reported in the New York Times editorial page, today, "The Financial Crisis Inquiry Commission, created by Congress to examine the causes of the crisis, held its first public meeting last week. In his opening remarks, the chairman, Phil Angelides, a former California state treasurer, likened the group’s potential impact to that of the Pecora hearings in the 1930s, which examined the stock market crash of 1929 and led to transformational changes in banking, investing and financial regulation.

And yet, last week’s meeting was oddly inauspicious, feeding doubts about the commission’s ability to realize that potential." http://www.nytimes.com/2009/09/20/opinion/20sun1.html?adxnnl=1&ref=opinion&adxnnlx=1253444522-0cnS5440sUzjxmOua8udRQ

Furthermore, they say, " The meeting itself was mainly prepared statements from commission members, describing the group’s mission and expressing their commitment to a full investigation. In their more enlightening moments, some of the commissioners previewed specific concerns to pursue — like the role in the crisis of derivatives, of Fannie Mae and other too-big-to-fail institutions, and of the Federal Reserve and other regulators.

But the real work — gathering documents and taking testimony from financial executives and government officials — will not start before November. Public hearings are not expected until December. A final report is due to Congress on Dec. 15, 2010."

The Congress does not seem able to deal with such a monumental problem. They are prepared to let the financial system fix itself. Without strict regulations, and the sooner the better, the banks and investment firms will backslide back into the river of denial and greed. The President is not leading on this issue.

[fasttense]

1. In the 9 months Democrats have been in control, why have they not done everything already?

Though I think regulating out of control corporations BEFORE they gave them Tax dollars to spend would have been a better idea.

[kentuck]

2. They will have a report on December 15th, of next year.

Is that soon enough for you?

[HamdenRice]

3. I think the issue is very complicated and they rightly recognize it will take a long time

I recently posted something about this in another thread:

Ever read the "Securities Law Reporter"???

I used to have to work with it. It's a legal publication that contains all the laws and regulations for just one slice of the financial industry -- the securities companies. Iirc it was about 8 volumes of looseleaf pages with tiny print, containing the securities act, securities exchange act, investment company act and related acts, plus the hundreds of thousands of regulations issued under those acts, and we received about 30 pages per month to replace old pages as laws and regs changed.

It will take years to figure out what went wrong, what regs were responsible and what needs to be done.

<end quote>

That's just the law and regs relating to one narrow aspect of the financial crisis. Just figuring out what happened and reading through and understanding the existing laws and regs will take the Commission years.

[kentuck]

4. "what regs were responsible.." ??

I thought it was the lack of regulations that was the problem?

[HamdenRice]

7. I think many people misunderstand financial deregulation

I think a more descriptive, but less sexy, term would be pro-bank regulation.

Throughout the Bush years, Wall Street remained massively regulated. Deregulation never meant unregulation; it meant regulation favorable to existing Wall St banks.

For example, if there were not massive regulation, the investment banks would have not made money. Think about Initial Public Offerings and the stock market in general. There is this massive amount of incomprehensible regulation that says a company can only issue a stock to the public if the stock is "registered" with the SEC. The only people who know how to get a stock registered were the investment banks, their lawyers and accountants. That created an oligopoly/monopoly for Wall St bankers. Think about that: every corporation in America had to come to one of a handful of Wall St banks just to issue their stock.

If the issuance of stock were "unregulated," than any company could just sell its shares through its web site or at Sears or Wallmart. Every first year lawyer would be able to draft a stock certificate for sale to the public if it weren't for the system of massive regulation that gives Wall St the sole ability to issue registered shares in America. Wall St wouldn't exist without the Securities Act and the massive incomprehensible regulations that exist that they monopolize.

So the deregulation of the stock market involved keeping just as massive an amount of regulation, but when Wall St went to the Bush SEC and said, can we issue stock with this incredibly confusing, murky, registration statement, the SEC would say sure. When Wall St said, can we register bonds that are made up of other bonds without registering with the Investment Company Act, Bush's SEC said sure. But they didn't say you don't need a registration statement and Wall St would be crazy to ask them to allow that.

Another example is leverage. I'm sure you've heard the story of how the banks asked the Clinton administration to allow more and more leverage of bank assets, which was allowed. But that doesn't mean that the banks said 'we want no leverage' regulations.

The amount of regulation in the banking (not Wall St investment banking) system is equally mind-boggling.

The amount of regulation was always the same. It was what was in the regulations that changed that allowed the risky behavior and then the collapse.

The worst part is that no one really understands it. I worked in a firm of about 700 professionals in the early 90s, many of them supposedly securities law experts. But no one really understood the whole thing. There was this one retired guy, a genial genius named Neil something who lived in a retirement home in Arizona. Every time a hard question came up, we had to "call Neil," and he would walk us through it. That's one guy in 700 who really got it. The reason Neil "got it" is because he was so old, he was around when it was a simpler system, and he watched it grow and knew how the pieces fit together. But if you started when there were already 30,000 pages of regulations, there was no way you could ever "catch up" to Neil, and that describes 99.9% of people in finance.

The Committee staff, even if they are drawn from the SEC, Fed, FDIC, private firms, whatever -- none of them is going to have a big picture. They are going to be reading 30,000 pages of laws and regs for the next 2 years before they even begin to have enough of an inkling of how the big picture works in order to start suggesting ways to reform it.

[kentuck]

9. Even Alan Greenspan did not know what was happening.

The entire system is mind-boggling. But there should be some basic principles to guide us. They should not be permitted to be "too big to fail". Monopolies are not good for our economy or our financial system. Too much leverage on the dollar is not good. People are greedy. We have to have some basic guidelines. We cannot continue with what we had in the past. There is a gamble, perhaps a danger, by letting the present status quo continue for another year or longer.

[HamdenRice]

10. And worse, Greenspan thought he understood it

which made him arrogant and wreckless. Ironically, I sometimes think real deregulation might be less risky than the current system which was regulating Wall St into a money making monopoly.

A number of people here have suggested just bring back Glass Steagall. But they can't just dust off a 1930s law and expect it to apply to the current system. There were thousands of savings banks and savings and loans back then, that don't even exist. It will be difficult to separate investment banking from commercial banking as G-S did, after the feds just brokered the forced marriages of investment banks and commercial banks during the crisis.

They had to do a huge rethink and figure out HOW they are going to break up this system. That means they have to INVENT whole new categories of financial companies. It's going to take, as it took in the 1930s, an immense amount of IMAGINATION of the future, not just bringing back what existed pre Bush. I hope that includes inventing a new local thrift sector (savings and savings & loans).

[kentuck]

11. "... the forced marriages of investment banks and commercial banks.."

I think that was mostly a marriage of convenience, where investment firms such as Goldman Sachs, wanted part of the big bucks from the TARP money. So they re-classified themselves as a "bank". But they don't act like our local bank? They still act like a large investment firm, trying to make big, quick profits from whatever scheme they can dream up.

[AllentownJake]

6. We don't have years to figure it out

We have a very narrow window, and once that window closes reform will be impossible till they crash the car again.

These guys are drunk drivers that were just handed a brand new automobile after wrecking their car and killing a bunch of people.

[HamdenRice]

8. Sadly, it will take years. See post 7. nt

[AllentownJake]

5. This is going to make the Healthcare Debate look tame

Honestly, the insurance company are kittens in comparison to Wall Street.

You think there was some astroturfing going on in the Healthcare debate, wait till Wall Street gets the RW rallied up to rant and rave about reform.