Financial Reform? More Government Fail.

[Rohirrim]

Another complete fail by the two bought-out parties. What is the answer to the greatest robbery in history? You would think imprisonment and disgrace. But no, there's not so much as a single indictment coming from government. And no reform either. While the middle class and working Americans are coming to the realization that the American dream is dead and their kids will have it worse than they do, the CEOs and politicians are rolling in the money and doing each other favors. Our government has failed. Now, we have to wait around for the majority of Americans to catch up to the truth.

It reminds me of Lost. Somebody has to touch their hands so that they can have a flood of memories of a time when America worked and government responded to the people and pirates actually went to jail.

Objections that were, no doubt, the end product of the mother of all lobbying campaigns by every sector of the financial industry. Of course, the line between Senator, staffer and lobbyist is pretty blurry these days. A joint report released by SEIU, the Campaign for America's Future, and the Public Accountability Initiative found that the finance industry has 70 former members of Congress and 940 former federal employees on its lobbying payroll. This includes 33 chiefs of staff, 54 staffers of the House Financial Services Committee and Senate Banking Committee (or of a current member of those committees), and 28 legislative directors. Five of Senate Banking Committee chair Chris Dodd's former staffers are now working as banking lobbyists, as are eight former staffers for Banking Committee powerhouses Richard Shelby and Chuck Schumer.

And the revolving door spins both ways. As Arthur Delaney reported on HuffPost, 18 percent of current House Financial Services committee staffers used to work on K Street. All told, the financial industry has spent nearly $600 million on lobbying since the collapse of Bear Stearns in March of 2008 -- almost a million dollars a day.

http://www.huffingtonpost.com/arianna-huffington/financial-reform-a-win-fo_b_587728.html

[Smiling Assassin27]

Yes, and Dodd is no fool. He's set up the legislation so that the Dems can look like they're handing the banks their arses, while still ensuring the ongoing pipeline of financial backing for Dems from banks continues. Case in point: The bill sets up a bailout fund made up of assessments of banks in the amount of at least $50billion. Pretty cool, hitting the banks in the wallet and demanding they pre-fund their bailouts, no? No. In the bill, Dodd himself ensured that those assessments would be tax deductible for banks, essentially making their income look lower and that for every dollar they put in the fund, they'd get back 35 cents in lower taxes. A shell game, to be sure.

Finally, how the *&^%$ can you have a financial reform bill without reforming Freddie Mac and Fannie Mae? These two money pits are a HUGE reason the financial sector was so rotten in the first place. $125 billion in our money has gone to keep them afloat, yet they aren't even mentioned in financial reform. Couple that with FHA running WAY low on funds to guarantee its portfolio--yet not even acknowledged by Congress here--and this financial reform bill is just another joke that Congress expects us to point to as progress.

[Mr.Meanie]

Yes, and Dodd is no fool. He's set up the legislation so that the Dems can look like they're handing the banks their arses, while still ensuring the ongoing pipeline of financial backing for Dems from banks continues. Case in point: The bill sets up a bailout fund made up of assessments of banks in the amount of at least $50billion. Pretty cool, hitting the banks in the wallet and demanding they pre-fund their bailouts, no? No. In the bill, Dodd himself ensured that those assessments would be tax deductible for banks, essentially making their income look lower and that for every dollar they put in the fund, they'd get back 35 cents in lower taxes. A shell game, to be sure.


I'm not sure I follow. It almost sounds like the legislation is making banks put up $ to act as their own surety bond. Considering just about any corporate expense is deductible as the cost of business, why wouldn't that be viewed as deductible just like any other insurance expense?

[Smiling Assassin27]

I'm not sure I follow. It almost sounds like the legislation is making banks put up $ to act as their own surety bond. Considering just about any corporate expense is deductible as the cost of business, why wouldn't that be viewed as deductible just like any other insurance expense?

It is. It's basically taking from them and subsidizing them all at once. So money we're collecting from banks would basically be offset by lower tax revenues from them. Where's the reform in that? Factor in that banks will pass the costs of this assessment on to we consumers, and the government has just created higher costs for us while in no way implementing a plan that would prevent the meltdown we saw last year. Texbook government foolishness.

[Mr.Meanie]

It is. It's basically taking from them and subsidizing them all at once. So money we're collecting from banks would basically be offset by lower tax revenues from them. Where's the reform in that? Factor in that banks will pass the costs of this assessment on to we consumers, and the government has just created higher costs for us while in no way implementing a plan that would prevent the meltdown we saw last year. Texbook government foolishness.

2 things:

1. If the banks are passing on the above costs to the consumer, how is that a net loss of taxable income for the government? The only way it's a loss of tax revenue is if the banks absorb the expense as a loss and don't pass the costs on to the customer and at the same time decide not to cut other costs, perks, bonuses, jobs, etc in order to maintain their earnings.

2. I'm not familiar with all the details of the law, but again it sounds like they are being required to pay a certain amount in order to cover the possibility future default, almost like PMI for non-conventional mortgages. The only way I have a problem with this law is if they bail them out in the future with this fund AND throw hundreds of billions more at them again.

I guess it all comes down to whether you think the concept of having an emergency fund ready for another period of catastrophic bank failures is a good idea.

[Smiling Assassin27]

1. The way the government loses money is that the banks obtain a lower tax burden from this bill. Banks will do both. They will declare the assessments as costs--thereby lowering their tax burden--and then they will raise banking fees to us citing the newly imposed costs of doing business, courtesy of this bill. When they write off the costs, tax revenue falls because they pay less income tax, regardless of what they do with their fees. Banks are not altruistic. They exist to benefit their stockholders. Impose new costs on them and expect higher fees to consumers and cuts in both medical benefits for employees and jobs in order to maintain their profits.

2. To this point, you are partially right. The government is mandating that the banks cover the possibility of their own future bailouts. The problem is this. $50 billion won't likely cover the bill when bailouts inevitably come along, so what then? It's called appropriating more taxpayer dollars a la TARP. I mean, if Citigroup needs a bailout, it's gonna be closer to 1 trillion, not 50 billion. The other problem is that without tackling things like real estate and underwriting, you're leaving the sector susceptible to the same type of meltdown--even Dodd admitted his plan would not have prevented the last one.

Lastly, Rohirrim's point is a valid one. We've given the same jackholes who created this mess the keys to the kingdom. We've allowed them to engineer the exact same politically motivated bailouts as before, as these companies fill these guys' pockets with coin.

The CONCEPT of an emergency fund isn't all that bad. The problem lies in the details of language, assumptions, and implementation. This bill, like Obamacare, was about 20% as good as it could've been.

[Mr.Meanie]

1. The way the government loses money is that the banks obtain a lower tax burden from this bill. Banks will do both. They will declare the assessments as costs--thereby lowering their tax burden--and then they will raise banking fees to us citing the newly imposed costs of doing business, courtesy of this bill. When they write off the costs, tax revenue falls because they pay less income tax, regardless of what they do with their fees. Banks are not altruistic. They exist to benefit their stockholders. Impose new costs on them and expect higher fees to consumers and cuts in both medical benefits for employees and jobs in order to maintain their profits.

When banks raise fees to "pass along" the assessment, they pay taxes on those new fees as income. That makes it tax-revenue neutral. Like I said, the only way the government loses tax revenue on this is if the banks refuse to raise rates to cover it, and refuse to slash ANY expenses, bonuses, etc to make up for the expense and maintain their earnings.

2. To this point, you are partially right. The government is mandating that the banks cover the possibility of their own future bailouts. The problem is this. $50 billion won't likely cover the bill when bailouts inevitably come along, so what then? It's called appropriating more taxpayer dollars a la TARP. I mean, if Citigroup needs a bailout, it's gonna be closer to 1 trillion, not 50 billion. The other problem is that without tackling things like real estate and underwriting, you're leaving the sector susceptible to the same type of meltdown--even Dodd admitted his plan would not have prevented the last one.

IMO, that scenario would likely follow a another decades-long period of intense lobbying and deregulation, leading to colossal mistakes by greedy banks. Hopefully we aren't that stupid again. But I agree with you, if we are that stupid then $50 billion would be pocket change and won't really matter.

[Rohirrim]

By now you have probably realized -- correctly -- that "financial reform" has turned into a victory lap for Wall Street.
http://www.huffingtonpost.com/simon-johnson/wall-streets-victory-lap_b_590044.html


But outside of the inner White House-Capitol Hill bubble, it is very hard to find anyone well-informed about the financial system who thinks that anything substantial has changed or that risks will be better managed as we head into the next cycle.

"Business as usual" is the abiding legacy of the Obama administration with regard to the systemic risks posed by this financial system. Treasury and White House let us down repeatedly and completely in the last 18 months on financial sector issues -- just as they did (as decision-making bodies and as some of the same individuals) at the end of the 1990s.

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The 13 bankers have won, completely. Here we go again.