In the wake of a financial crisis, the movers and shakers on Pennsylvania Avenue, Washington D.C. are reforming Wall Street as we know it. Or at least they’re trying to. Two years have passed since the financial meltdown, and about one years has passed since the swearing in of a promising new U.S. president who vowed to fight the evils of the banking industry, yet nothing has really changed.
New stories about the latest proposal being mulled over within the chambers of the White House pop up every day. Here’s some of the proposals being thrown around:
- Securitization: A proposal to limit the number of tranches allowed in mortgage-securitization transactions as well as for originators to keep skin in the game by keeping more of the securities on their books.
- Privatization of GSEs: The House Financial Services Committee plans to hold hearings to discuss privatization of Fannie and Freddie, which is a step towards taxpayers not having to be liable for funding government bailouts of too big to fail institutions.
- Bank tax: Obama has proposed a 10-year tax on the country’s largest banks to cover a projected $117 billion shortfall in the fund set aside for government bailouts.
- Bonus caps: As many of the banks that received TARP money pay back the loans and become free of federal compensation regulations, the Obama administration would like to see a more permanent, consistent way of regulation compensation.
- Other grandiose promises: forming one streamlined committee that would oversee and monitor system risk in the banking industry and have executive power over myriad government-financial agencies, like the SEC, the Fed, the Treasury, etc.
And only a few weeks ago, there was some commotion over Obama’s potential ban on proprietary trading at investment banks. Whatever came of that? …Whether prop trading will really be banned or not still remains to be seen, depending on how successfully the proposal passes through Congress.
Basically, whatever comes of ANY of these proposals depends on how successfully they get through Congress. And given the track record of financial reform proposals, it doesn’t look like many of them will. Only the other week, Senator Chris Dodd, head of the Senate Banking Committee, complained of the “army of lobbyists” being sent to Washington from Wall Street firms “whose only mission is to kill the common-sense financial reforms”. With the likes of banks like Goldman Sachs protesting every governmental effort to regulate the Street, like they did with the prop trading ban, Congress remains in deadlock. We won’t even mention Congress’s long-time incestuous relationship with Wall Street (Every election cycle, financial institutions pour loads of campaign money into politician’s coffers). Maybe, just maybe, that could serve to illuminate why financial reform simply hasn’t happened.
Senate Banking Committee head Chris Dodd (R) blames Congress's financial reform failures on the Street's refusal to cooperate
During the New Deal, when FDR created a new regime to regulate the banking system, the FDIC renewed confidence in the banking system, the formation of the SEC gave protection to public investors, and the Glass-Steagall Act separated federally insured commercial banks from the investment banks. His sweeping reforms may very well have saved capitalism, let alone the nation itself. Right now, I’m not seeing the same kinds of drastic changes that need to be made in order to protect the integrity of the national/global financial system. I’m only seeing a deadlocked Congress, and a lot of rosy reform proposals that don’t go anywhere. Until our good ol’ cronies on Pennsylvania Avenue stop bickering amongst each other and figure out a way to wiggle free from the clutches of Wall Street, I’m going to take all these proposals with a grain of salt.
