Posted by Ron F in Obama Administration, Federal Reserve, credit-default swap, Credit Ratings, Consumer Financial Protection Agency, Congressoinal Oversight Panel, Congress, compliance, Chris Dodd, Banks, banking reform, Banking, bailouts
A conference on financial reform held today by the Roosevelt Institute really tells it like it is when it comes to what's going on in the nation's capital. And "it" isn't pretty.
I just heard Congressional TARP cop Elizabeth Warren, for example, accuse banks of "bullying" Washington into doing its bidding over consumer protection.
In the report accompanying the proceedings, Warren insisted that the proposed financial consumer protection agency should not be placed inside the Federal Reserve, as Senate Banking Committee Chairman Chris Dodd has proposed, but should be independent.
"As the current crisis demonstrates, even when they have the legal tools to protect families, existing agencies have shown little interest in meaningful consumer protection-and there has been no accountability demanding that they do so," Warren wrote in the report, entitled "Making Markets Be Markets."
More broadly, the report took Washington to task for falling short of the reforms needed to fix the system, which it called "critically flawed," and warned that the US is heading for an even worse financial crisis as a result.
"Without the reforms outlined in this report, we cannot restore confidence in the US financial markets, in the role of New York as an international financial center, and in the continuing use of the dollar as the primary reserve currency of the world economy," Roosevelt Institute senior fellow Robert Johnson observed in the introduction. "Ultimately we cannot ensure our national budgetary soundness, because we cannot rule out the wasteful and unnecessary budget burden of another crisis and bailout."
The authors, who also include economists Joseph Stiglitz and Simon Johnson, offer a comprehensive array of measures that they say Washington should take but which it has yet to do so in current proposals that are riddled with loopholes or lack teeth.
The measures proposed by the authors range from reform of government-sponsored enterprises and credit rating agencies and changes in incentives for financial regulators to the elimination of off-balance sheet financing arrangements, over-the-counter derivatives markets, and banks too big to fail.
Johnson said such banks currently have as a government guarantee that "serves as an illegitimate burden on the American people and a moral stain on the legitimacy of the market system."
He decried the lobbying efforts of Wall Street to block such changes, noting that its representatives "cloak themselves in a mantle of expertise in order to clandestinely advance their gross self-interest. " Johnson added that the industry is engaged in the very protectionism it excoriated the auto industry and other U.S. manufacturing sector for.
And he cited an observation by University of Chicago finance professor Luigi Zingales that "most lobbying is pro-business, in the sense that it promotes interests of existing business, not pro-market, in the sense of fostering truly free and open competition"
Johnson added that without serious reform, "another crisis - a bigger crisis that weakens both our financial sector and our larger economy - is more than predictable, it is inevitable."