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Fixing 'Too Big To Fail'
Treasury Secretary Timothy Geithner (left) gets ready to testify before the House Financial Services Committee in Washington on Thursday, Oct. 29, 2009, as the Committee's Chairman, Rep. Barney Frank (D-MA) presided over the hearing. (AP)

Treasury Secretary Timothy Geithner (left) gets ready to testify before the House Financial Services Committee in Washington on Thursday, Oct. 29, 2009, as the Committee's Chairman, Rep. Barney Frank (D-MA) presided. (AP)

One year ago, the U.S. government and all of us were over a big, ugly barrel. Bail out the mega banks, or they would crash and take the whole economy down with them. “Too big to fail.”

And so we bailed and bailed and bailed. Billions and billions in taxpayers’ dollars to save the banks that had driven the crisis. And the cry went up: “Never again.”

Well, now the tools for “never again” are on the table, and there’s a huge debate over whether they will work, or bring Wall Street running back for more.

This hour, On Point: How to fix “too big to fail” on Wall Street.

You can join the conversation. Tell us what you think — here on this page, on Twitter, and on Facebook.

Guests:

Joining us in our studio is Kenneth Rogoff, professor of economics and public policy at Harvard University. His new book is “This Time Is Different: Eight Centuries of Financial Folly.”

Joining us from Washington is Rep. Barney Frank (D-MA), chairman of the House Financial Services Committee.  He’s spearheading the Financial Stability Improvement Act of 2009.

Also from Washington we’re joined by Rep. Brad Sherman (D-CA), member of the House Financial Services Committee. He calls the Financial Stability Improvement Act of 2009 “TARP on steroids.”

 


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  • http://www.richardsnotes.org Richard

    Summers and Geithner must go. If investment banks are as precarious as ever what good have they done? Just like their protege, Rubin, they’ve pushed the problem further into the future and it’s worse than it was with fewer banks that are bigger than ever. These guys should have let the banks, the auto makers and AIG all fail and get parted out long ago. They’ve failed and Obama should dump them ASAP and get some real reformers in there to clean house.

  • wavre

    Why can’t Obama Administration piss off the Bankers?

    Blue Girl. it’s because The bankers and the corporations are the true power behind the government.

    “The public have no option”, democracy have been kidnapped and killed long ago. It’s resting in peace in the mind of some of us Liberals

  • Gabrielle

    Can the representatives discuss why breaking up the banks is politically difficult when it seems that a majority of the House and Senate find this be of importance to our country’s financial health, both now and for the future?

    Thank you,
    Gabrielle

    Brooklyn, NY

  • Putney Swope

    It’s pretty simple in theory. It’s called anti-trust laws which bank os this ilk have been exempt from. They all need to be broken up. To big to fail is well to big.

    This should be a good show, we now have CTI on the chopping block of bankruptcy. This is the perfect example of a huge banking and investment firm failing and thus creating more havoc in the system.

  • Michael

    Can you ask Congressman frank why he feels the need to exclude car dealerships for the consumer protection agency?

    Pretty sure many can agree that car salesman arent very trustworthy and some type of recourse would be great to have.

  • Michael

    Can you also ask the congressman that if we have close to a 10% unemployment rate. If lowing bonuses to the banks we bailed out and the top talent leaves for another place for more money why there wouldn’t be someone in that 10 % unemployment group who could do the job better and for less?

    Also how can someone be considered top talent when they have loss so much for there company?

  • http://peinturedemarion.canalblog.com/ Marion

    I have 3 questions about the huge wages of Wall streeters :
    - I am French and when I moved to the US, 8 years ago, my good republican friend explained to me that there is a big difference between French and American, between socialist and capitalist. We both agreed that our developed countries have the duty to help and provide support to the poorest and the weakest. But, he told me that for the socialist, this has to be through the state and for the capitalist, this has to be through private fundings.
    Well fair enough, I think this idea is good and very respectful of the American tradition. Indeed the Americans have a lot of private funding organizations. So If I understand well, when the Republicans deregulated the financial market, it was like a tacit agreement, that the people who make a lot of money would give a much bigger share on private fundings to the needy.
    Here is my 1st question : which percentage of his wealth, does Goldman Sachs International vice president Brian Griffiths, who gives speech at church, donate ?
    - Here is my second question : Once the top executives have spent their money on several beautiful houses, several private planes, vacations, luxury food… and saved enough money for their children and grand children. How much money stays in their bank account not helping the economy ?
    - And my last question is : Even if they build beautiful houses and luxury planes, they don’t build castles, like in the middle ages, that provided jobs for countless of artisans for decades. At the best their luxury houses are build in 5 years. So my question is, how many jobs did they created with their wealth ?

    thank you
    Marion

  • Ellen Dibble

    Geithner was interviewed at some length I think by George Stefanopolous on ABC on Sunday, and my take was that the next big agenda item for the administration is to get more private money (i.e., from banks) into “small business.” I heard he was saying big businesses (corporate America) is on track, but small business (new and current) is in not doing so well.
    I could have told him that.
    So now we have CIT going down the tubes, since yesterday morning, and CIT we are told specializes in supporting Small Business.
    It seems to me we need a new Small Business bank. And I am afraid the Feds (Geithner et al) will instead delegate this job to the huge banks with the TARP money, because the taxpayers sort of own those banks.
    But those banks are supposed to be shrinking, not expanding their responsibilities.
    Whatever share CIT had in domestic business startups, we badly need someone to shoulder that share. What’s up, Barney Frank? Any ideas?

  • Ellen Dibble

    Marion wants to know how many jobs the Big Bankers have created with their Big Bonuses (and how much have they done to aid the disadvantaged).
    I am not a Big Banker. (I respect far more those who manage with a modest salary of say 40 grand to live responsibly.) But I do have investments in retirement funds, and what she asks Big Bankers to do I ask my retirement investments to do. I want to at least set a model with my resources for what Big Bankers should be doing. I figure I don’t know much of anything about what my investments are doing, so I want to trust the fund managers to be doing this.
    Are retirement investments taking the lead, showing the Rich Among Us how to manage Extra Money?
    Any ideas from Frank about retirement investments and their role in this crisis?

  • Putney Swope

    The other thing Marion forgot is a lot of the deregulation happened under Clinton who had Robert Rubin for Secretary of the Treasury. Guess who worked for him, Geithner and Summers.

    The question I have is what is better for the common good of the nation as a whole? How do we proceed after this mess? Going back to business as usual is not going to work and will only mean we will repeat this kind of collapse and it might be even larger nest time.

  • Ellen Dibble

    “This is an issue that every dollar that is spent on imported oil is a dollar potentially that can go to the enemies of the United States and Israel and as good Americans and as good Jews we are concerned about that.”
    That is a quote from Neil B. Goldstein, American Jewish Congress executive director in a 10/3/06 post at israel21c.org, pursuant to a 2003 conference. An energy research Cooperation Act, sponsoring Israeli-American cooperation to the tune of 20 million a year till 2012, a Manhattan project (see the site for great discoveries under way), according to another Congressman, was co-sponsored by Brad Sherman (out of Sherman Oaks, near LA). I don’t usually pry so much into guests, but I clicked and clicked.
    This sounds like a super initiative, and I hope it went well. It’s the sort of Small Business that should be possible WITHOUT the $20 million annual push that apparently was achieved — AND UNDER BUSH! Or maybe he vetoed it.

  • Brian

    During markup on financial reform legislation in the House Financial Service Committee two weeks ago the chairman of the Committee, Rep. Barney Frank, was calling voice votes in which the yea or nays against certain weakening provisions are not recorded. A pattern emerged in which committee members were not forced to go on the record to vote for key amendments that weaken financial reform.

    Two of these weakening amendments have been particularly in the banks’ favor. One amendment, the Miller-Moore Amendment to HR 3126, the Consumer Financial Protection Agency bill, exempts 98 percent of banks (8,000 of 8,200), all of which were covered by the President’s plan, from the oversight authority of the proposed new CFPA.

    On a vote on the regulation of derivatives. A key weakening amendment, passed by voice vote in committee, would ban the Securities and Exchange commission and the Commodities Futures Trading Commission (the regulators in charge of overseeing derivatives) from stopping derivatives that seem abusive or risky to the markets.

    Please ask Mr Frank why he is letting the banks have their way when they are they ones who brought this economy to the brink of economic collapse and now they want to do more of the same?

  • Michael

    alittle off topic but check out the properganda going on in the NPR Thread 2000 and running

    http://www.npr.org/blogs/thetwo-way/2009/10/in_white_house_vs_fox_news_war.html

    Politically any posting against fox is buried in posting by simple minded, and often entirely repeated statements, same paragraphs, and same sentences.

    Can you ask the congressman the role of fox cable with helping wall street?

  • David

    Citigroup has come under fire for the 2009 $100 million payout pay package for Andrew J. Hall, the leader at Phibro, their energy-trading unit.

    Hall has made a personal $250m killing from oil futures as well as generating 10% of the bank’s total net income last year.

    Hall, 58, was paid more than $100 million in 2008 and is set to earn about the same this year. Citigroup, the third- biggest U.S. bank by assets, received $45 billion from the federal bailout program that comes with rules that include curbs on pay.

    Citigroup and Hall agreed to defer his compensation until 2010, when it will be paid by Occidental who Citi sold Phibro to in October so Hall could kept his $100 million.

    Citigroup negotiated on behalf of Hall, whose compensation now won’t be subject to administration review now.

    If the American people ever realize – if they ever comprehend – that those soaring energy prices were driven in large part by the speculative plays being made by divisions of the banks themselves, why…

    Do you see how the game is played people?

    He helped cause the crash and now he walks away with his $100 million for one year’s oil price manipulation free and clear.

  • Bernard B

    1. Barney Frank is one of my favorite politicians and a very smart guy. What was he doing and saying 2003-7?
    2. If you look at the massive, massive growth of derivatives and the growth of the economy, it is pretty clear that these things are not needed, and, so far, contraproductive and disasterous.
    3. Where I think congress is going is patching the derivatives system, and the outcome will be that it will be less dangerous in terms of bubble creation, but still a waste of human resources and a support for the massive overgrowth of the financial system and financial system profit. And an additional way of shutting out the little guy (me). Legalized gambling.
    4. I think the “to big to fail” actually becomes a distraction from fundamental issues such as this. We look at the obvious flashy (and important) things to the detrimaent of a balanced approach to reform

  • Mark

    Let’s at least be accurate about what drove the financial crisis. It was the Federal gov’t that continued to try to increase home ownership by requiring the 2 GSE’s (Fannie Mae & Freddie Mac) to have a certain percentage of their purchased loans to be for low income folks. So the federal gov’t made a major push during the Clinton Administration to do just this. Since the banking industry was not writing enough of these risky loans, The Fed. Gov’t then broke down the wall between investment companies (Merrill Lynch, Lehman Brothers, etc.) and banks. So, between the investment companies and the GSE’s provididing a huge market for these loans, the banks then did exactly what the gov’t wanted them to do.

  • Sam

    Mark

    The government wanted this market?

    How about Wall Street and China and the rest of the world?

    Securitizing these mortgages was a way for them to make lots and lots of money.

    People who got mortgages were just the tools.

    That’s why they took out the Credit Default Swaps because they knew these mortgages would go under and they would make a further killing.

  • Mark

    One more thing, true deregulation means that the government gets out of the way of business so that the free market can succeed with minimum regulation. What happened during the housing bubble was that the gov’t wanted to influence the mortgage market. They weren’t letting the free market work. So, when the word “Deregulation” is used in this way, it is a violation of the true spirit of what the word stand for.

  • Mark

    Sam,

    Once again, the lesson here is that the gov’t should stay out of areas that they don’t understand. They completely distorted the market and left it in ruins, then they point fingers at the very people who were doing what the gov’t wanted them to do. If the gov’t had not done what they did, these loans would never had been made because the people making the loans would have been responsible for collecting them.

  • http://shulmandesign.net Alan Shulman

    On what basis would the majority of the American people want to summon any confidence in any plan the Federal Government developed to prevent a meltdown repeat? Consider CIT, the recipient of billions in taxpayer bailout monies, now in bankruptcy and likely not to pay back any of that money loaned to it by TARP: Does this give anyone confidence in the musings and decision-making ability of the executive or the legislative branches?

    I see no one discussing the anti-trust option seriously.

  • D B Lightstone

    This is directed to Rep Sherman.
    You have suggested that the investor beware approach be taken. This is investors should avoid firms which take on too much risk.

    Great idea, but naieve. Most investors are mislead into accepting excessive risk. So are you prepared to belly up to the bar and define the boundary between civil penalties for such deception and criminal?

    The alternative is to allow the regulators to perform their function, something which can not be done while they are part of the Executive Branch. Are you prepared to offer legislation which serves to make them independent of Executive influence?

  • David

    We need to tie short term compensation to long term consequences. Most Americans are familiar with simple mechanisms that could do this.

    Why not require that Pay-for-Performance compensation be deposited in some kind of savings account that is similar to a 401K. Early withdrawal could be tied to very high tax disincentives, and Pay-for-Performance savings could be tied to claw-back provisions that are tied to long term measures.

    Escrow is another mechanism that most Americans are familiar with.

  • DonaldB

    Mark: Just look at the RELATIVE volumes of the derivatives use: Wall Street used “underground” lenders like CountryWide to generate the loans that they sliced and diced to some 80% or more of the derivatives market (CountryWide at one point was not selling “enough” to the “Fannies” and told them it would not sell any more to them if they did not relax their standards; it is unfortunate that the Fannies relented, but their not joining in the feast would NOT have stopped it).

    And then on top, you have AIG’s outright speculation in insuring these Wall Street derivatives (they were invented by JPMorgan).

  • ray

    How many state governments are currently surviving on stimulus money and have unsustainable tax structures? To big to fail? Are states to big to fail? I think the next crisis will be a broken bond market. Once a state government defaults on their bonds then what will happen?

    I would regulate wall street with a tax on flow. Every trade pays for regulation. Slow the velocity of the money with taxes. The reason our congress won’t do that is it would slow money into campaign and PAC accounts. We have the best government money can buy.

  • Mark

    Does anyone know when the taxpayers will see their money paid back from Fannie Mae or Freddie Mac? Does anyone know exactly how many millions of dollars the folks at these two GSE’s made during this crisis? Where is the outrage over this? These folks were the most responsible for providing the market for the loans that drove the bubble. I suspect that this is not talked about due to the politicians that were signing off on these actions. I know it does not rile as many people up as railing against the “greedy bankers”, but it was THE sourceof the problem.

  • Jan Unruh

    To Barney Frank,

    In regard to political influence, what kind of fire wall will be established between the regulating agency and the coorporations they are to be regulating?

  • Mark

    Donald,

    The main thing that needs to be done is to reconstruct the wall that existed between mortagage co’s and investment co’s. Then you will have people making loans that must eventually collect those loans. Many of these crazy instruments that were developed would drastically be reduced or go away. The last thing we need is the gov’t to be getting even MORE involved in a market that they screwed up.

  • DonaldB

    One way to remove the incentives to excess risk taking would be to create a new tax bracket (or two) for those making more than $2 or $5 million of say, 50% and then one of %60 at a higher income. People making these kinds of salaries do not use the money to create jobs; they speculate at the gambling table. To see this, look at the slow job growth since the “recovery” from the 2001 recession.

  • Ben

    In regards to Rep. Frank’s assertion that the problem is not that banks are too big, but too overleveraged: huge businesses and banks have always been able to hide their true balance sheets (Enron, e.g.). I think they will continue to evade oversight by the Congressional risk panel he’s proposing. Isn’t …having a bank be so big just like having a company becoming so big that it constitutes a monopoly? That’s why we have antitrust laws. Laws breaking up mega-banks should exist, based on the same logic.

    Ben
    Boston, MA

  • Sam

    Mark

    I would have to suggest that you are very, very naive.

    This housing bubble wasn’t created so that low income people could own houses.

    It was inflated so that rich people could make money off of giving these people loans they couldn’t afford, (the small fry collected lots and lots of fees that was their payoff for making these loans) and collecting when they defaulted.

  • Ellen Dibble

    I thought Ken Rogoff was talking about caps on short-term loans meaning the overnight loans between banks which caused the great fiascos a year ago. Barney Frank asked what he meant, and Rogoff said he meant 3 or 6 month loans, which are much more vulnerable. As a very small business person I know exactly what this means.
    The banks are all telling me they will make 3 or 6 month loans. They have very good rates up until the 3 or 6 months, and AFTER THAT, you get charged 20%, and after that, any money you had PREVIOUS on loan, will ALSO go to 20% but only IF you haven’t paid off the short-term loan.
    What that means is a small business can only borrow money if they are pretty darn sure they will have it ready to pay back in 3 months.
    That is an unrealistic window for small business projections.
    I can only imagine that for a whole bank, if the same situation applies, it must be vastly worse. Meanwhile, I borrow from my retirement accounts. And mourn for the lack of options for many younger Americans.

  • Todd

    Barney Frank states that Greenspan advocated unregulated, “free market” policy while chairman of the Fed? Ha! The sole raison d’etre of the Federal Reserve is manipulate the market! End the Fed, and all of these problems being discussed also end.

  • DonaldB

    Mark:
    The big banks went around the separation by using “off-financial” institutions like CountryWide to generate the mortgages they could play (speculate) with; in the summer they started speculating in oil futures to the detriment of all regular citizens. But separating the banks (Glass-Stegal) is REGULATION! It is the government getting involved in the Market.

    The point was made on NPR this morning that an unregulated market will ALWAYS eventually go off the rails if only because of the human “herd mentality.” So the trick is to get smart about the kind of regulation!

    Even the executives at the big banks who knew what they were doing could not last kept quiet because they would loose big if they spoke up. They must be given the incentive to speak up and the forum to establish their credibility.

  • DonaldB

    That was the summer (and spring) of 2008.

  • Mark

    Who is saying ahything about “unregulation”? Please don’t try to create a false argument. I am saying that the gov’t tried to direct the mortage market in a certain direction. Deregulation was meant as keeping regulation at a minimum so that consumers would be protected while commerce is allowed to flourish. But that is not what the gov’t did or meant to do when it came to the mortgage industry.

    I have yet to hear anyone say anything that comes anywhere close to having an unregulated industry.

  • DonaldB

    Todd:

    Then what you want is for abubble and (small, hopefully) crash every few years rather than a smoothed out growth path. It was the “success” of the FED in smoothing out the growth spurts that gave some conservatives illusions of grandeur to think that the market was self-controlling, thereby NOT stepping up to slow the housing bubble or the dot-com bubble.

    Right now we are looking at $2-3 trillion of LOST earnings because of the great recession. Getting rid of the FED will only spread this out and leave a lot of people reluctant to invest and thereby cost as much or more from lost opportunity!

  • Mark

    Donald,

    For once, I agree with you when it comes to the value of an effective Fed Bank. But, you cannot possibly believe that the housing bubble was created by the Republicans. There is no doubt that both the parties were equally culpable. This is a fact that is proven out by looking at various votes in congress and by what bills presidents have signed off on. Also look at speeches given in the 80′s and 90′s. I really don’t understand why we can’t be honest about it.

  • DonaldB

    The government did try to redress the wrongs of bank “Redlining” by setting incentives for (mortgage) BANKs to find and lend to QUALIFIED borrowers. The big banks needed some financial instruments that they could securitize and then slice and dice in a sort of Ponzi scheme to generate sales and income. They did it to THEMSELVES, without the help or, thanks to Phil Gramm, the hinderance of the government.

  • http://members.cox.net/davemcnab davemcnab

    An off topic, but important point: As Rep. Brad Sherman suggested the false religion of Wall Street, he chose the image of a prayer rug facing toward Wall Street. As a Christian I would surely be disturbed by an similar image based on a cross. While I surely hope that Rep. Sherman did not set out to offend anyone other than perhaps the financial industry (OK with me!), his choice of words was at best unfortunate and he would do well to apologize.

  • Steve

    No matter what they do, they wont be able to fix man’s GREED for the love of money.

  • DonaldB

    The housing bubble did not become cancerous until 2000 or later. The Republicans refused to consider measures to reign it in, unless you consider the move to hamstring the Fannies, on which the Bush administration could have got a more modest bill if a (any) Republican Senator had pushed for it. But as I noted above, that would NOT have stopped the bubble. George Bush was beaming with pleasure as he took credit for the growth in the number of homeowners, which has now dropped below where it was when he started. The Republicans were in charge of Congress, and even in the few years when the Democrats had the Senate, what the Republicans did not want did not happen.

    But the big problems where Greenspan’s libertarian impulses and those of the heads of the SEC from Harvey _______ to _______ Cox, both of which were too ideological to do the practical and mind the store.

  • jeff

    The White House finally released its visitor list. Yes, Lloyd Blankfein visited the WH twice early this year when the crisis was percolating. But Jamie Dimon visited seven times and Mo Greenberg, ex-CEO of AIG visited three times. But SEIU chief, Andy Stern, visited 21 times. No wonder the far right has been screaming about the influence of the Service Employee International Union on Team Obama.

  • Arnold

    Hillary Clinton recently shed some light on tax policy Obama-style: “The percentage of taxes on GDP [in Pakistan] is among the lowest in the world… We [the United States] tax everything that moves and doesn’t move, and that’s not what we see in Pakistan….You do have 180 million people. Your population is projected to be about 300 million. And I don’t know what you’re going to do with that kind of challenge, unless you start planning right now.”

  • Mark

    Donald,

    Please look at Barney Frank’s comments and speeches. Even since 2006 when the the Dem’s had the power to do something, he was continuing to defend the policies of Fannie & Freddie. Meanwhile, John McCain and even the Bush administration was tarting to sound the alarm years before the bubble burst.

  • DonaldB

    Then why didn’t Senator McCain stop the Fannie/Freddie “problem” in 2005? As I have pointed out before with facts, that “problem,” as nasty as it was, did not cause the great recession. And Representative Frank was defending against the blame being put on them. There are comments he made excoriating their conduct, but not for causing our financial mess today.

    Back in the period 2002-2004, Representative Frank did try to get Congress to force Fannie and Freddie to get their houses in order, but the Republican committee heads would not hear of it; they wanted to bring those institutions down so their friends, the big banks, could take their business.

  • Mark

    Donald,

    This has been fun.

  • http://onpointradio.org Valli Power

    I may be too late for the first hour, couldn’t get to a computer in time, but am wondering about who is responsible for actually defining what is “too risky” in all of this. Are the agencies that do the rating of the investments free from influence? Weren’t they a big part of the problems that brought the downfall? What are the metrics and parameters for deciding whether an investment is okay under these proposed rules, and who has authority over the decision?

  • Brett

    I think, as Putney mentioned, that there needs to be antitrust laws put in place for large banking institutions, but also, as Rep. Frank mentioned, there needs to be more regulation of small lenders, one such regulation would be toward derivatives. I agree with Frank’s point also that innovation always has been, is, and always will be, ahead of regulation; hence, the need for continual re-evaluation of regulations. I also believe, in a related topic, that there needs to be antitrust laws put into place for the insurance industry, particularly in these times of “health-care reform,” times when the insurance industry’s “innovations” will try to manipulate and stay ahead of regulation. Of course, antitrust laws for agribusiness wouldn’t hurt, either!!!

  • Brett

    For that matter, the political process itself needs a complete overhaul with respect to lobby groups’ involvement in the legislative process and in campaign finance.

  • Brett

    Marion,
    You see the problem with the way Europeans think is that often you are too reasonable, logical and thoughtful! And you often can see a bigger picture than we here in the states! :-)

  • Brett

    ‘One more thing, true deregulation means that the government gets out of the way of business so that the free market can succeed with minimum regulation. What happened during the housing bubble was that the gov’t wanted to influence the mortgage market. They weren’t letting the free market work. So, when the word “Deregulation” is used in this way, it is a violation of the true spirit of what the word stand for.’ -Mark

    Well, that sounds good and clean in an armchair discussion, and there is some truth in some elements of that statement, but Mark Twain once said that a half-truth is as good as a lie!

    I bought and sold a couple of houses between 2000 and 2004…you make it sound as if lenders were doing what they did because the government was regulating them to do so (which is that aforementioned thing Mark Twain was talking about). Lenders did what they did because they saw opportunities, made on the backs of lower income people, to manipulate the system, then slice and dice, and re-bundle, what they knew were bad loans. Many lenders also shrewdly insured against those same loans defaulting. This was stated, accurately, by Sam @10:58am. Complete deregulation would mean these kinds of practices would run amuck to the power of ten.

  • jeff

    How many banks are there in the US? 3,000
    How many are there in Canada? 100

    US banking is not an anti-trust problem; it’s a leverage/loan book problem.

    See redlining re Fannie and Freddie. Sure banks made bad loans, but non-banks made more. Some problems don’t fit in your simple all banks bad analysis.

    Logical, reasonable, thoughtful: sucking up to Europeans is so presidential.

    Please see “It’s a Wonderful Life” for explanation of velocity of money; that is, what banks do.

  • Brett

    “Small lenders,” as I termed that which is not a large bank, would be a general term for non-banks.

    Such cynicism and knee jerkiness…that’s so easy. You reveal a mentality that presumes problems can only be one thing or the another. I’m sure someone will be impressed.

    Of course, one can see how you’ve developed your views: by watching sentimental movies…

  • jeff

    Small lenders would be a term for small lenders; non-bank lending was a multiple of commercial bank lending at its peak; hardly small. I suggest you research the shadow banking system. You need to understand the scope of the problem before suggesting solutions. Otherwise you only reveal how little you know.

    You and Marion don’t appear to comprehend the role banks play in our economy; at least at the simple deposit taking / loan making level.

  • Brett

    Yes, Yes, Jeff, and mutual funds, hedge funds, investment banks (large and small), etc., would all be part of the “non-bank” problem. The types of transactions in the shadows is what matters, no matter what organization is engaging in such practices. If small lenders are not regulated than these practices will continue without oversight, but you’re not interested. You have all the answers.

    You see, Jeff, there are good transactions and then there are bad transactions…credit default swaps would be an example of the latter.
    Your “argument,” as terse as it is, likely comes from someone who paid close attention in his Economics 101 class, so he thinks he knows something. How loans are leveraged is certainly a problem. It is the regulation of those practices/institutions that was my point, in addition to large institutions being too much like monopolies. I was making a general point that included both concepts. But again, all points but what you wish to make are invalid.

    Your view of the “Velocity of money” concept:
    Using your purported reasoning, if someone were killed in a car accident going 120mph, you’d protest that they were not killed from excessive speed and you’d cite a “fact” that you drove 120mph once and weren’t killed, and you’d say going 120mph wasn’t the problem, because that’s what cars do. You’d say that it was cars manufactured to go 120mph that was likely the cause. So, Jeff, it is not simply banks having money change hands, it’s how many times the money changes hands and under what conditions.

  • Cory

    In a wealth driven culture such as ours, I will assume regulation on banks isn’t likely to be increased. That way, if anything productive is done I’ll be pleasantly suprised.

    Sorry, Bubba.

  • david

    Barney Frank, now there is someone who is an expert on who or what caused all this financial chaos. Freddie and Fannie, especially Freddie is an area where Barney has been neck deep in concern. He has come to the rescue of Freddie many times in the past, almost to the point you would think he was in bed with them. He is the perfect person to have on the show as an expect advice giver on fixing things. Joe blow liberals love Barney, he is squeaky clean and honest to, always able to make a good excuse. My question to him and to the rest of you is, Who is Herb Moses???

  • Fireman1979

    I was told a long time ago do not trust anyone who talks to fast. Sprinter ears could not keep up with Barney Frank.

    Did anyone catch Barney Frank’s comment on the advisory panels who would give advice on the pay for executives. Advisory has no teeth, no standing, no vote. The lion in the Wizard of Oz had more power than this foolish idea. Everyone of his mentioned requirements is little more than window dressing so he can fool the voter.

  • Brett

    On the regulation-deregulation argument: historically, if one takes a broad view of the US economy from the late 19th century through now, those times when strict regulations have been in place, the economy has been strong and stable. The trouble is when whatever administration is in power decides everything is fine or the economy would better benefit from regulatory changes/deregulation (that strong regulations need to be relaxed and bad regulations are imposed to give free markets free reign), then a “boom-and-bust” phenomenon occurs. So the analysis would be more productive as a good vs. bad regulation discussion rather than regulation vs. non-regulation.

    If large financial institutions are broken up and replaced with a series of small institutions, and those small institutions are highly regulated, it makes sense that trouble will be kept to a minimum. The “shadow” practices in lending/investments are not bad in and of themselves, it’s whether those practices individually are good or bad, whether or not an individual practice has a fundamental strength and value or has a huge potential for corruptibility/predicated on a precarious foundation.

    George Bailey’s little Building and Loan engaged in what would be considered “shadow banking”……and it’s a good thing Potter never got a hold of it!

  • roger

    if the so-called “free market” had its way, GE would still be dumping PCB’s into the Hudson River. no morals, no conscience, no ethics, no humanity.

    too big to regulate is too big to exist.

    big business is bad for little people (meaning the bottom 99.5% of us). problem is, the stupid little people love their “brands” (created by the big businesses). little people in action once again voting against their own self-interest.

  • http://davidvielmetter.com David Vielmetter

    Kudos to Barney Frank. This guy really knows what the heck he’s talking about. I think I’ve learned more about proposed regulatory changes by listening to his responses than by any of articles on the matter I’ve read so far. Additionally, I think Mr. Frank’s concession that there is no “magic” approach to preventing future innovations from outrunning the current proposed regulation is important. While I do think that it is important that specific regulatory changes be made to prevent situations like AIG while there is still enough momentum for them, I also think that implementing too much regulation in an attempt to prevent any future crisis is just plain naive.

  • Larry Horowitz

    If we had a “public option” to provide loans to qualified individuals and companies, we wouldn’t have to worry as much about failing banks. The US Treasury sells 12-month notes at a yield of 0.35%. Sales of these notes could be used to finance loans of longer duration at market rates, with the profits going to reduce our national deficit. The system could be administered by the IRS, together with taxes. Banks that made bad decisions could be permitted to fail, with FDIC coverage for the depositors. Shareholders and bondholders of the banks would take the loss, as they should.

  • Todd

    @DonaldB

    Go study the history of the Federal Reserve Bank. What you fail to recognize is the fact that deliberate market manipulation via Fed monetary policy is the very cause of ALL of these “boom and bust” cycles. When the entity whose deliberate and continued actions have caused these economic crises, then it’s rather easy for that same entity to occasionally appear to “rescue” the economy by taking a counteraction!

    The Fed has followed this pattern since its inception in 1913: create an economic bubble (“rescue”), allow the usual selection of insiders to profit on the way up (“growth”), let the bubble bust as the same insiders profit by shorting the market on the way down (“crisis”), then, of course, create another bubble (“rescue”) and repeat the process!

    And all this time you thought the Fed has been working to stabilize the economy? Uhhh, no. The Fed banksters discovered long ago that creating a system of planned economic DEstabilization, via manipulative monetary policy, is infinitely more profitable for themselves. As always, follow the money if you want to find the problem…this money trail leads directly to the Fed.

  • Brett

    Mister, we could use a man like Andrew Jackson again! Jackson, Hoover, now those were real Americans! Under their administrations, everything stayed solid! And everybody knows Washington was just Hamilton’s puppet!

    Aww, what’s a few bank runs, anyway! Back in the day, when a company tried to corner the market and failed, private citizens who were billionaires would come to the country’s rescue and we loved it!!! J.P. Morgan used to do it; Bill Gates and Warren Buffet can handle the job very nicely now, thank you! I know Doris Buffet (WB”S sister); she loves my home town, giving us money for public swimming pools, parks, and everything! I’m sure she’d give up some money if the economy crashes and burns! The Walton family would be only too happy to help out, too–and they’d put a chicken in every pot, to boot! And if those billionaires don’t want to save nothin’, then t’ain’t worth savin’…shame on it!

    Let the money flow with the agricultural cycle like its supposed to, and let the each of the states control their own monetary systems! Better yet, let’s go back to trading pigs and chickens for other goods and services! I never liked Texas, anyway! They want to secede, and this is as good a time as any, and any other state that wants to can go too! Mob rule is the best, especially if you’ve got a big gun! Who wants the government to control things when a bunch of lawless thugs can do the job just fine! That government… [spits] with its single-minded, monolithic, omnipotent, omnipotence! Everybody knows it is responsible for everything from JFK’s assassination to the Linbergh baby’s disappearance to UFO’s! We all know who controls the weather: the government! I mean corporations! I mean the rich! I mean Liberals! I mean Republicans! I mean….meteorologists!!!

  • Todd

    @Brett

    Some heads prefer sand, others hyperbole.

  • Brett

    @Todd,
    And others, still, put all of their eggs in the Fed blame basket. :-) Humor can be a valuable thing, if one can understand the processes of humor, e.g., satire, irony, and so on. Humor can also be misunderstood by someone who is gullible.
    -

  • Vincent T.

    AAnd now the SEC Requests copy of financial film spotlighting naked short selling and stock market manipulation–especially focused on SIRI shares.

    http://www.chrismartenson.com/forum/sec-requests-copy-dvd-stock-shock/21622

    
I saw “Stock Shock” and it was eye-opening. DVD is at Amazon.com and http://www.stockshockmovie.com

  • MIchael

    maybe starting back at the collages may help

    What is Capitalism?

    “We think the answer is markets and the invisible hand, but our guest Bruce Scott says we’ve been getting it disastrously wrong for a long time now. Capitalism, as he defines it, is a form of governance, in which rules and rule-making are the system as much as the market. When you look at it closely, says Scott, it’s really the visible hand of regulators and regulation that make it capitalism. Bruce R. Scott, Professor Emeritus at Harvard Business School, is writing a book on capitalism. A key chapter from the book, “The Concept of Capitalism,” has been published independently”

    http://www.hereandnow.org/2009/11/rundown-113/

  • Todd

    @Brett

    Oh, not just all the eggs, but the chicken too—’cause that’s right where the blame belongs!

    Regarding humor. Let me know as soon as you’ve made an attempt at being humorous, and I’ll be sure to let me know if I’ve misunderstood you. Fair enough? ;)

  • Todd

    @Brett

    LOL…rrruh-roh! Change that to “…let YOU know if I’ve misunderstood you.” Maybe my egg’s are cracking.

  • Brett

    Well, Todd, that explains the omelette you’re trying to make out of the idea that sarcasm=hyperbole! :-)

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