Sen. Kaufman brings a dose of reality to the financial reform debate:

What walls will this bill erect? None. On what bedrock does this bill rest if the nation is to hope for another 60 years of financial stability? Better and smarter regulators, plain and simple. No great statutory walls, no hard divisions or limits on regulatory discretion, only a reshuffled set of regulatory powers that already exist. Remember, it was the regulators who abdicated their responsibilities and helped cause the crisis.

Thus far, on the central aspect of “too big to fail,” financial reform consists of giving regulators the authority to supervise institutions that are too big, and then the ability to resolve those banks when they are about to fail. Upon closer examination, however, the former is virtually the same authority regulators currently possess, while the latter – an orderly resolution of a failing mega-bank – is an illusion. Unless Congress breaks up the mega-banks that are “too big to fail,” the American taxpayer will remain the ultimate guarantor in an almost certain-to-repeat-itself cycle of boom-bust-and-bailout.

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It is true that under the current Senate bill, regulators could potentially invoke the Volcker Rule, which would prohibit commercial banks from owning or sponsoring “hedge funds, private equity funds, and purely proprietary trading in securities, derivatives or commodity markets.”  I applaud former Federal Reserve Chairman Paul Volcker for his critical leadership on these issues, which the Administration has endorsed.  Unfortunately, the legislation now being considered by the Senate requires the council first to study the Volcker Rule before deciding whether to enforce it. In the end, it could issue a recommendation not to enforce the Volcker Rule at all.  Or the council might recommend simply that regulators mandate capital requirements that are adequate for any risky proprietary activities a particular bank might undertake, a power regulators already have.

The reality is that regulators have long had the authority to prohibit speculative activities at banks, but never opted to do so.  Under the Bank Holding Company Act, the Federal Reserve may require a bank holding company to terminate an activity or control of a non-bank subsidiary (such as a broker-dealer or an insurance company) if that activity or subsidiary poses serious risk to the safety, soundness or stability of the holding company.

As we all know too well, in the past, these very same bank regulators failed utterly.  Indeed, as the “umbrella regulator” for all bank holding companies, the Federal Reserve could have increased capital and other requirements for these institutions, but instead farmed out this function to credit rating agencies and the banks themselves.

Hey! Look who received stimulus money. Whirlpool! Guess who is closing down another US manufacturing plant and moving 1100 jobs to Mexico?

Whirlpool!

19 million in stimulus money to be exact.

It’s the story of Billy Joe and Bobbie Sue

I’ve always wondered when Clinton’s scheme to “reduce the welfare rolls’ would come back to bite us in the ass. It’s one thing to reduce the number on welfare by making it harder to qualify. It’s another to actually solve the  underlying reason for needing welfare in the first place.

More here:

Since she was 16, Eva Hernández has worked a string of low-wage jobs. She’s prepared chicken at KFC, run the register at Dunkin Donuts, packed and sealed boxes at a produce company, and held other similar jobs in Hartford, Connecticut, where she was born and raised. These jobs haven’t paid enough for Eva, now 28, to support herself and her two young daughters. So for almost three years in the last decade, she’s relied on welfare to supplement her income. Most of the time, though, she’s simply found another low-wage job, a task that in this economy is proving almost impossible.

Maybe Obama is starting to listen. We’ll see. I can’t imagine that many in Congress will  have the backbone or ideological predisposition to do much about reforming the financial system.

In a NYT’s editorial Volker makes the obvious point: Why would banks and financial institutions commit to any change when the deck is already heavily stacked in their favor? Why would they stop their risky behaviors when they know  the US taxpayer will backstop any losses?

I am well aware that there are interested parties that long to return to “business as usual,” even while retaining the comfort of remaining within the confines of the official safety net. They will argue that they themselves and intelligent regulators and supervisors, armed with recent experience, can maintain the needed surveillance, foresee the dangers and manage the risks.

In contrast, I tell you that is no substitute for structural change, the point the president himself has set out so strongly.

I’ve been there — as regulator, as central banker, as commercial bank official and director — for almost 60 years. I have observed how memories dim. Individuals change. Institutional and political pressures to “lay off” tough regulation will remain — most notably in the fair weather that inevitably precedes the storm.

The implication is clear. We need to face up to needed structural changes, and place them into law. To do less will simply mean ultimate failure — failure to accept responsibility for learning from the lessons of the past and anticipating the needs of the future.