lobbyists Archives - the patient investor

August 16, 2015October 5, 2017

Anat Admati: Regulatory reform effort is an unfocused, complex mess

Telling it like it is. Anat Admati is Finance and Economics Professor at Stanford GSB and coauthor of The Bankers’ New Clothes.

Anat Admati

The financial system is not serving society well right now, certainly not as well as it can. It is a drag on the economy. Finance is fraught with governance problems. Free markets don’t solve these problems. Effective laws and regulation are essential.

……the regulatory reform effort is an unfocused, complex mess, both in design and in implementation. Some regulations end up as wasteful charades. They provide full employment and revolving opportunities for numerous lawyers, consultants, and regulators without producing enough benefits for society to justify the costs. Some of the complaints from the industry about these regulations have merit. In this category I put living wills, stress tests, risk weights, TLACs/cocos/bailinable debt (whatever the term for today), and liquidity coverage ratio. I am also concerned that, as implemented, central clearing of derivatives does not reduce, and may even increase, the concentration of dangerous risk. In all these contexts we see the pretense of action, the illusion of “science,” a false sense of safety, over-optimistic assessments of progress, and counterproductive distortions [emphasis added].

Lost in this mess are simpler, more straightforward regulations that would counter the incentives for recklessness and bring enormous benefits to society by making the system safer and healthier, as well as reducing unnecessary, unproductive risk that is a key source of system fragility, and the many distortions……..

Banks are not acting in society’s interests but their own. Not even primarily in the interests of shareholders but those of senior management. And they are doing their best to frustrate, obfuscate and capture regulators.

Finance is about money and power. Money and power can corrupt. So unlike in the airline business, in finance it is possible for the industry, regulators and politicians, to harm and endanger, to spin narratives and cover up the harm, and to be willfully blind, without any accountability. DoJ and the SEC must do their job, but they can’t deal with nonsense and capture.

So the biggest challenge in regulation is political. The details hardly matter if there is no political will. Unfortunately, most politicians put other objectives ahead of having a stable and healthy financial system. Ordinary people, meanwhile, may not be aware of what is going on or get confused by the spin. Not enough people understand why regulation is essential and what type of regulation makes sense.

What can be done? Here are some concrete ideas. First, increasing the pay of regulators may reduce revolving door incentives. Second, effective regulators might be industry veterans who are not inclined to go back. Third, we must try to reduce the role of money in politics.

To fix this, we need to break the feedback loop between Wall Street and government — the revolving door between regulators and the financial sector and between lobbyists and elected representatives. Otherwise the system will remain hijacked to enrich a few at the expense of the many.

May 28, 2013

Congress Still Puts Out For Wall Street | Robert Scheer – Truthdig

Robert Scheer quotes Democrat Jim Hines on the corrupt relationship between Wall Street and Capitol Hill:

“I won’t dispute for one second the problems of a system that demands immense amount of fund-raisers by its legislators,” Jim Himes, a Democrat from Connecticut who supported the bankers’ recent bills and conveniently heads fundraising for House Democrats, conceded to the Times. Himes, who worked for Goldman Sachs before pretending to represent the people’s interest as an elected representative, is one of the top beneficiaries of Wall Street payoffs but claims to be distressed by the corruption that is his way of life. As he told the Times, “It’s appalling, it’s disgusting, it’s wasteful and it opens the possibility of conflicts of interest and corruption. It’s unfortunately the world we live in.”

April 30, 2013

How Wall Street Defanged Dodd-Frank | The Nation

Gary Rivlin gives us an insight into the machinations of Wall street lobbyists on Capitol Hill:

As he prepared to sign the Dodd-Frank Wall Street Reform and Consumer Protection Act—the sweeping legislative package designed to prevent another spectacular financial collapse—into law, the president [Obama] first acknowledged the miracle of having a bill to sign at all. “Passing this…was no easy task,” he told the crowd of hundreds. “We had to overcome the furious lobbying of an array of powerful interest groups and a partisan minority determined to block change.”

Indeed, some 3,000 lobbyists had swarmed the Capitol in hopes of killing off pieces of the proposed bill……

That sense of victory barely lasted barely the morning. …..After Dodd-Frank’s passage, lobbyists for the big banks and industry trade groups divided themselves into eighteen working groups, each organized around a different element of the new law. “That’s when the real work began,” Talbott tells me……

April 28, 2013

Two Senators Try to Slam the Door on Bank Bailouts – NYTimes.com

This is a show-down between Wall Street and the voting public. Gretchen Morgenson at NY Times writes:

THERE’S a lot to like, if you’re a taxpayer, in the new bipartisan bill from two concerned senators hoping to end the peril of big bank bailouts. But if you’re a large and powerful financial institution that’s too big to fail, you won’t like this bill one bit.

The legislation, called the Terminating Bailouts for Taxpayer Fairness Act, emerged last Wednesday; its co-sponsors are Sherrod Brown, an Ohio Democrat, and David Vitter, a Louisiana Republican. It is a smart, simple and tough piece of work that would protect taxpayers from costly rescues in the future.

This means that the bill will come under fierce attack from the big banks that almost wrecked our economy and stand to lose the most if it becomes law.

For starters, the bill would create an entirely new, transparent and ungameable set of capital rules for the nation’s banks — in other words, a meaningful rainy-day fund. Enormous institutions, like JPMorgan Chase and Citibank, would have to hold common stockholder equity of at least 15 percent of their consolidated assets to protect against large losses. That’s almost double the 8 percent of risk-weighted assets required under the capital rules established by Basel III, the latest version of the byzantine international system created by regulators and central bankers.

This change, by itself, would eliminate a raft of problems posed by the risk-weighted Basel approach……

The outcome is far from clear. The financial muscle of Wall Street can buy a lot of influence on the Hill. But my guess is that they are too smart to incense voters by meeting the bill head-on. Instead they will attempt to delay with amendments and eventually turn it into an unwieldy 1000-page unenforcable monstrosity that no one understands. Much as they did with Dodd-Frank.

If they win, the country as a whole will suffer. Maybe not today, but in the inevitable next financial crisis if this bill does not pass.