Friday, April 2, 2010

Financial Reform for Dummies!

I just heard Countdown's Keith Olbermann in conversation with Chris Hayes of The Nation. It was an instructive conversation, so I thought I'd share a few of Chris' comments, along with some personal observations.

In 2009, the top 25 Hedge Fund Managers combined income from bonuses was 25 Billion dollars. One such HFM, David Tepper, made 4 Billion dollars.

These bonus payments have resulted in an extreme income disparity, wiping out America's middle class. This time-bomb of a financial bubble was created by Reagan, expanded upon by the congressional Repubs, and was ably assisted by Bill Clinton and the two Bushes. It imploded in 2008.

The financial losses, the enduring emotional pain, and the devastating havoc inflicted upon ordinary Americans were caused by the Repubs insistence upon dismantling FDR's regulatory safeguards which had provided America's middle class with decades of increasing prosperity.

The rush to deregulate our financial markets has resulted in the "financialization" of our economy, and "compensation packages" enjoyed by these 25 top HFMs among others. Such lavish compensation vitiates the revered adage that success is rewarded and failure punished, for these HFMs reap enormous profits if their company does well, and suffer NO punishments if their company does NOT do well.

Their obscene compensation packages thus "incentivize" risk-taking by these HFMs, whose funds are betting billions of dollars in a shadow economy, turning their financial institutions into casinos. Their shadow financial economy is cannibalizing our Real Economy.

The money that is being made by these gamblers' betting practices is NOT socially helpful.

Chris Hayes said that it is common knowledge on Wall Street with even Paul Volcker noting that in fact, these risky behaviors currently being indulged in by the top HFMs are socially dangerous and have proven to be destructively HARMFUL to our American economy.

The financial sector of our economy has one simple task to accomplish: banks and financial institutions exist to take money from savings and put that money into investments - investments, for example, in American companies so that our Real Economy can grow and expand. But with the unfettered financialization of our economy, our financial institutions have more than failed us - they have almost destroyed our economy and our cherished way of life.

Chris Hayes says we need financial reform, and suggests three things:

1. Real financial regulation that breaks up banks and reduces the size of the financial sector's influence in our real economy.

2. A transaction tax which should be placed upon all the money that is now floating around in bets made by these HFMs.

3. General tax reform must be established (and enforced) such that people with high incomes are taxed at an higher rate. Currently, such obscene profits enjoy the lowest taxation rate.

I like Chris' three suggested changes. Would that Chris Dodd and Obama were also listening!


  1. Glad you're watching this Emily. I know marginally more about ekonomix than John McCain does!

  2. Well written and instructive! As a small business owner, I'm on an up front awareness of the banking disadvantages of the day. I am a 'maker' company that is so small that my needs and the advantages that my business bring to the community are so very small that right now, it's an act of faith to 'do what I love' as a living. But I do.
    Well done recap. :-)

  3. I had a post in the works I was going to calll "Money for Nothing" about our manufacturing base all but gone while HFMs and ceo's reap billions for basically making money for nothing. Your post covers how this has happened and some solutions to bring us back to sanity.

    Normally I'm always calling for higher taxes. In this case, I think lower tax rates for companies that manufacture in America and create living wage jobs to offset what the money for nothing crowd takes from our economy would be in order.

    Nice post Emily.

  4. 1)derivatives need to be banned.Their stated purpose is to spread risk,in fact they are among the biggest cause of bad debt.
    2)realistic capital requirements-banks should have some skin in the game.
    3)no more too big to fail.if they're too big to fail they're too big to save.
    4)volcker rule.if a bank is backed by FDIC (deposits)as well as access to Fed easy money-they can't speculate with their own $. that's called proprietary trading and the risk is implied to be backed by us taxpayers. no more. if they speculate it's with customer $ specifically invested for that.realistically separate investment/commercial banking.

    Whole system is rotten though. our real wages haven't gone up in like 30 years, but we base our economy on consumption. hence debt.We need strong unions to keep wages up. We need fiscal spending by govt to allow private sector to pay down debt and save.

  5. Truth and Oso couldn't be more right; I agree with both of you. But there is something more fundamental that needs to be done, and that's the stripping away of corporate personhood. When these criminal scum set up their shell games and fleece the rubes, what happens? The "corporation" is allowed to plead guilty to charges and some kind of bullshit fine is imposed that the thieves who are running the shell game will simply steal from the rubes as well.

    Change the law: make PERSONS responsible for corporate crime, and make every asset they have subject to attachment on conviction of a felony. You'll see a rapid decline in these shell games.

  6. JR,
    kind of an expansion on sarbanes/oxley where you make the ceo types accountable. Be nice to see something with some teeth in it.Literally in the case of Wall st.