Bernanke, Siding With Banks, Opposes Plan To Spin Off Swaps Desks

[laughingliberal]

Yesterday, in a letter to Chris Dodd, the chairman of the Senate Banking Committee, Federal Reserve chief Ben Bernanke reiterated his opposition to a measure that may be the financial reform proposal most feared among the large banks.

The provison put forth by Sen. Blanche Lincoln (D - Ark.) would require that banks spin off large portions of their derivatives trading operations. Five banks dominate the derivatives market, holding "97 percent of the total $212.8 trillion worth of derivatives contracts held by U.S. commercial banks," Reuters notes.

In a recent blog post, Robert Reich, the former Secretary of Labor, called Lincoln's provision "the biggest battle in bank reform." Derivatives, of course, have been widely criticized for fueling the financial crisis and escaping regulation.

In his letter, Bernanke echoed recent comments from FDIC chairwoman Sheila Bair, who also opposes Lincoln's proposal. Bernanke wrote:

More at link: http://www.huffingtonpost.com/2010/05/14/bernanke-forcing-banks-to_n_576057.html

They could have just stopped at, "Bernanke Siding With Banks." I have yet to see an issue on which he does not side with the Banksters.

[HillbillyBob]

1. Bernanke needs to be broke and unemployed like

every other snake that has a hand in the banksters mess..prison would be better imo.

[havocmom]

2. He's right of course. Regulation MUST be approved by the industry to work

Just look how well it worked in the Gulf when the Oil Industry got to have major impact on regs

Oh. What? Catastrophic leak? Do I want to contribute old tires and golf balls?

What the hell do we have to do to get employees who will look after OUR interests? :grr:

[ProSense]

3. Reich: Lincoln to the Rescue

Lincoln to the Rescue

Right now, the biggest battle in bank reform is over a provision introduced by Senator Blanche Lincoln of Arkansas that would force the giant Wall Street banks to give up their lucrative derivative trading businesses if they want the government (i.e. taxpayers) to continue insuring their commercial deposits.

The five biggest Wall Street banks have had the derivatives market (derivatives are bets on whether the price of certain assets will rise or fall, bets thereby “derived” from asset prices) almost entirely to themselves. Last year their revenues from derivatives trading totaled a whopping $22.6 billion. Their advantage comes from their large size, plus government insurance of their commercial deposits that allows them to raise money more cheaply than other financial institutions.

Derivatives lie at the point where the basic saving-and-lending function of commercial banking meets the private casino of Wall Street investment banking. You and I subsidize the biggest players in the casino who, precisely because we subsidize them, have grown too big to fail. The Glass-Steagall Act once prevented the casino from using commercial deposits, but since 1999, when Glass-Steagall was repealed, the game has exploded. That’s part of the reason the giants on Wall Street could make wild bets that ended up threatening the entire economy, costing millions of Americans their jobs and savings, and requiring a massive taxpayer-financed bailout.

Lincoln wants to force the banks to put their derivatives into separate entities that aren’t subsidized by you and me. This is just common sense. Her move would also end the big banks’ monopoly over derivatives, thereby reducing their risk to the financial system. It would also cut dramatically into the big banks’ profits.

more

[progressoid]

4. If large banks fear it, it's probably a good thing.

[laughingliberal]

5. +1 nt

[OHdem10]

6. Since Bernanke and Co did not see the Crisis coming and many

economists did see the Crisis coming but were pretty much ignored,
I say we had better start listening to people like Roubini and
Simon Johnson. They warn us over and over: Down size the
Meta Banks and bring back Glass-Steagall (or some of its
Principles). If we do not make the banks smaller, fix the
Derivatives Trading and separate Commercial and Investment
Banks, we are setting ourselves up for another crisis.

They both believe that as long as we leave them "to big to
fail", should a crisis occur the President and Congress
--no matter who they are--will be forced to bail them out.
No Leaders are going to standby and watch runs on bank after
bank until we are in a Great Depression.

The Dodd Bill is a good start but does not go far enough.
IMO, Bernanke is wrong on this one.