Holy hell this is not good v.moregovernment!!!!1 v.economy v.bushsucksdick

[6SpeedTA95]

WASHINGTON — The Treasury Department will propose on Monday that Congress give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system.

The proposal is part of a sweeping blueprint to overhaul the nation’s hodgepodge of financial regulatory agencies, which many experts say failed to recognize rampant excesses in mortgage lending until after they set off what is now the worst financial calamity in decades.

Democratic lawmakers are all but certain to say the proposal does not go far enough in restricting the kinds of practices that caused the financial crisis. Many of the proposals, like those that would consolidate regulatory agencies, have nothing to do with the turmoil in financial markets. And some of the proposals could actually reduce regulation.

According to a summary provided by the administration, the plan would consolidate an alphabet soup of banking and securities regulators into a powerful trio of overseers responsible for everything from banks and brokerage firms to hedge funds and private equity firms.

While the plan could expose Wall Street investment banks and hedge funds to greater scrutiny, it carefully avoids a call for tighter regulation.

The plan would not rein in practices that have been linked to the housing and mortgage crisis, like packaging risky subprime mortgages into securities carrying the highest ratings.

The plan would give the Fed some authority over Wall Street firms, but only when an investment bank’s practices threatened the entire financial system. (who determines if its a threat???? )

And the plan does not recommend tighter rules over the vast and largely unregulated markets for risk sharing and hedging, like credit default swaps, which are supposed to insure lenders against loss but became a speculative instrument themselves and gave many institutions a false sense of security.

Parts of the plan could reduce the power of the Securities and Exchange Commission, which is charged with maintaining orderly stock and bond markets and protecting investors. The plan would merge the S.E.C. with the Commodity Futures Trading Commission, which regulates exchange-traded futures for oil, grains, currencies and the like.

The blueprint also suggests several areas where the S.E.C. should take a lighter approach to its oversight. Among them are allowing stock exchanges greater leeway to regulate themselves and streamlining the approval of new products, even allowing automatic approval of securities products that are being traded in foreign markets.

The proposal began last year as an effort by Henry M. Paulson Jr., secretary of the Treasury, to make American financial markets more competitive against overseas markets by modernizing a creaky regulatory system.

His goal was to streamline the different and sometimes clashing rules for commercial banks, savings and loans and nonbank mortgage lenders.

“I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every 5 to 10 years,” Mr. Paulson will say in a speech on Monday, according to a draft. “I am suggesting that we should and can have a structure that is designed for the world we live in, one that is more flexible.”

Congress would have to approve almost every element of the proposal, and Democratic leaders are already drafting their own bills to impose tougher supervision over Wall Street investment banks, hedge funds and the fast-growing market in derivatives like credit default swaps.

But Mr. Paulson’s proposal for the Fed echoes ideas championed by Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee.

Both see the Fed overseeing risk across the entire financial spectrum, but Mr. Frank is likely to favor a stronger Fed role and to subject investment banks to the same rules that commercial banks now must follow, especially for capital reserves.

The Treasury plan would let Fed officials examine the practices and even the internal bookkeeping of brokerage firms, hedge funds, commodity-trading exchanges and any other institution that might pose a risk to the overall financial system.

That would be a significant expansion of the central bank’s regulatory mission.

When Fed officials agreed this month to rescue Bear Stearns, once the nation’s fifth-largest investment bank, they pointedly noted that the Fed never had the authority to monitor its financial condition or order it to bolster its protections against a collapse.

In two unprecedented moves, the Fed engineered a marriage between JPMorgan Chase and Bear Stearns, lending $29 billion to JPMorgan to prevent a Bear bankruptcy and a chain of defaults that might have felled much of the financial system.

For the first time since the 1930s, the Fed also agreed to let investment banks borrow hundreds of billions of dollars from its discount window, an emergency lending program reserved for commercial banks and other depository institutions.

But Mr. Paulson’s proposal would fall well short of the kind of regulation that Democrats have been proposing. Mr. Frank and other senior Democrats have argued that investment banks and other lightly regulated institutions now compete with commercial banks and should be subject to similar regulation, including examiners who regularly pore over their books and quietly demand changes in their practices.

In a recent interview, Mr. Frank said he realized the need for tighter regulation of Wall Street firms after a meeting with Charles O. Prince III, then chairman of Citigroup.

When Mr. Frank asked why Citigroup had kept billions of dollars in “structured investment vehicles” off the firm’s balance sheet, he recalled, Mr. Prince responded that Citigroup, as a bank holding company, would have been at a disadvantage because investment firms can operate with higher debt and lower capital reserves.

Senator Charles E. Schumer, Democrat of New York, has taken a similar stance.

“Commercial banks continue to be supervised closely, and are subject to a host of rules meant to limit systemic risk,” Mr. Schumer wrote in an op-ed article on Friday in The Wall Street Journal. “But many other financial institutions, including investment banks and hedge funds, are regulated lightly, if at all, even though they act in many ways like banks.”

Mr. Paulson’s proposal is likely to provoke bruising turf battles in Congress among agencies and rival industry groups that benefit from the current regulations.

Administration officials acknowledged on Friday that they did not expect the proposal to become law this year, but said they hoped it would help frame a policy debate that would extend well after the elections in November.

In a nod to the debacle in mortgage lending, the administration proposed a Mortgage Origination Commission to evaluate the effectiveness of state governments in regulating mortgage brokers and protecting consumers.

The bulk of the proposal, however, was developed before soaring mortgage defaults set off a much broader credit crisis, and most of the proposals are geared to streamlining regulation.

This plan would consolidate a large number of regulators into roughly three big new agencies.

Bank supervision, now divided among five federal agencies, would be led by a Prudential Financial Regulator, which could send examiners into any bank or depository institution that is protected by either federal deposit insurance or other federal backstops. It would eliminate the distinction between “banks” and “thrift institutions,” which are already indistinguishable to most consumers, and shut down the Office of Thrift Supervision.

Any effort to merge the Commodity Futures Trading Commission with the S.E.C. is likely to provoke battles.

Yet another proposal would, for the first time, create a national regulator for insurance companies, an industry that state governments now oversee.

Administration officials argue that a national system would eliminate the inefficiencies of having 50 different state regulators, who have jealously guarded their powers and are likely to fight any federal encroachment.

Arthur Levitt, a former S.E.C. chairman who has long pushed for stronger investor protection, said his first impression of the plan was positive. Even though the S.E.C.’s powers might be reduced, Mr. Levitt said, the plan would create a broader agency to regulate business conduct in all financial services.

“It’s a thoughtful document,” he said. “I’m intrigued by the fact that it puts an emphasis on investor protection, and that it establishes an agency specifically for that purpose, which would operate across all markets. I think that’s a very constructive first step.”

So now the government is wanting to restructure the federal reserve and its powers. Setting the foundation for a huge expansion of federal reserve power. Power that is in many cases based on judgement calls from a handfull of individuals who in many cases can be impacted by the political environment....sounds pretty scary to me.

[thewise1]

I saw in the news today that the Federal Reserve was going to be probing the BofA/Countrywide sale to gauge whether it was in the public interest.

Ladies and gentlemen, capitalism is on the way out.

[kombayn]

^Curious to know what the link is of the article. If this is true, this is where citizens have to start calling there local government, round the clock. Complain and criticize this outrageous decision by the Treasury Department. I don't like the Federal Reserve, never have, never will.

[WickedLou9]

that's not all bad reform...

highlights:

the plan does not recommend tighter rules over the vast and largely unregulated markets for risk sharing and hedging

Parts of the plan could reduce the power of the Securities and Exchange Commission

The blueprint also suggests several areas where the S.E.C. should take a lighter approach to its oversight. Among them are allowing stock exchanges greater leeway to regulate themselves and streamlining the approval of new products, even allowing automatic approval of securities products that are being traded in foreign markets.

“I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every 5 to 10 years,” Mr. Paulson will say in a speech on Monday, according to a draft. “I am suggesting that we should and can have a structure that is designed for the world we live in, one that is more flexible.”

[Phantom]

I'm sure the intentions are good, but unless they want to close all the loopholes (qualified purchaser rule) etc., there are guys out there smarter than the regulators and they will develop new products to skirt the rules.

The whole thing seems like a waste of time to me.

[A_C_E]

edit: After reading the entire article, none of this is really a big deal.

It's a consolidation of regulatory agencies WE ALREADY HAVE, and it calls for the Fed to be able to regulate investment banks in the same way it already has the power to regulate commercial banks. Given that the Fed is now being called on to bail out Ibanks just like it has had to bail out commercial banks in the past, I don't really have a big problem with that.

The Ibanks need to better manage the risk of their investments if they don't want the government butting in to the industry. And also, they shouldn't be begging the government to save them after fucking themselves over, and then complaining about regulation.

At least this should make my fall working for the Fed even more interesting

[A_C_E]

Originally Posted by Phantom

I'm sure the intentions are good, but unless they want to close all the loopholes (qualified purchaser rule) etc., there are guys out there smarter than the regulators and they will develop new products to skirt the rules.

The whole thing seems like a waste of time to me.

Every Ibanker is smarter than the regulator watching his practices. The guy working for the Fed is the one who didn't have the grades, the internships, or the interviewing skill to get a job on Wall Street.

[6SpeedTA95]

I thought I posted the link, not sure what happened to it, its real, straight from the NYTimes website.

[RMNIXON]

Treasury’s Plan Would Give Fed Wide New Power - New York Times


If this must go through the Congress it will be political! We all know how they define the "public interest." I don't like the sound ot it.

[RMNIXON]

Originally Posted by WickedLou9

that's not all bad reform...

I want to see the fine print, not just the selling points!

[A_C_E]

Originally Posted by RMNIXON

I want to see the fine print, not just the selling points!

It really isn't that bad. Basically, it would consolidate a few unnecessary regulatory agencies into two or three oversight groups--cut the payroll, save some money, but without any change in actual regulatory power. Just new names.

The only real power expansion would be to allow the Fed to use the same regulatory power it already has over commercial banks to oversee Investment banks. Given that the Ibanks have been screwing themselves with foolish investments which hide actual risk, and leveraging themselves up to their eyeballs, and then running to the Fed and begging to be bailed out when they screw up......I don't have any problem with the Fed being given this regulatory power.

If the banks didn't want to be regulated like commercial banks, they shouldn't have made bad investments and then run crying to the government to be saved.

[Fed Up]

From the article:

The proposal is part of a sweeping blueprint to overhaul the nation’s hodgepodge of financial regulatory agencies, which many experts say failed to recognize rampant excesses in mortgage lending until after they set off what is now the worst financial calamity in decades.

From Paulson's speech (tomorrow):

""I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every 5 to 10 years," he says in a draft of his speech obtained by the NYT."

Hmmmm....wasn't it the Fed that caused this themselves by artificially lowering interest rates (Greenspan)?

The real question is, where do you draw the line? The Fed helps bail out Bear Stearns (and probably any other bank or investment house), but what about other industries? What about the principle that individuals are responsible for themselves and the principle that the government should treat people equally? Are taxpayers the ones who will be willing to keep bailing out the Chryslers and Bear Stearns of the world? Do taxpayers have a choice? Well, we do vote in the Congress who are supposed to be our representation.

Peter Schiff has a good analysis of this (below).

One note I found interesting from a blog; "The lobbying campaign to prevent Paulson's proposed reforms from happening, or tweaking them to favor particular sectors of the financial business, will be one of the most aggressive and expensive Washington has ever seen. So while the plans sure look like a step in the right direction, the final result may not be."

So it looks like things will be up in the air for quite sometime. How will Congress react? They are already trying to bailout their "friends."

Which company will need bailing out in the meantime?

Fed Up


Bail Me Out Bernie

Now that the Fed and the Treasury Department have clumsily come to the rescue of the financial titans of Wall Street, it is now politically dangerous to resist similar pleas from just about everybody else. Populism is emerging as a dominant theme is this election year, and with so much largesse showered on Bear Stearns and JP Morgan Chase, politicians are demanding even more generous terms for consumers. In Washington, it seems that two wrongs apparently make a right. Another downside to corporate bailouts is that they provide the critics of free market capitalism with plenty of excuses to weigh down American economic vitality with even more unnecessary regulation.

In the first place, the current mess did not result from a failure of the free market, but from too much government interference. The real estate bubble, and the shaky securitized products it spawned, resulted from the Fed artificially setting interest rates too low. Had interest rates been allowed to find their market levels, rather than be set by government decree, the real estate bubble never would have been inflated in the first place.

In a nation short on savings and heavy with debt, the free market would naturally set interest rates quite high. With lots of demand for credit, but a limited supply of savings, the risk of lending and therefore the price of credit (interest rates) would be high. Although onerous to borrowers, high rates would have both encouraged saving and discouraged borrowing. In the end, these market forces would reduce interest rates and produce a more stable balance between savings and consumption. However, the Fed did not want American consumers to be subjected to free market discipline that might otherwise reign in their non-stop spending. After all, reckless consumption was falsely believed to be the engine of our prosperity.

So the Fed fixed the price of credit (interest rates) well below the rate that would have been set by the free market. This sent false economic signals to the market that more savings were available than actually existed, leading to an over-investment in housing. Also, by keeping the rate of interest below the rate of inflation, rampant speculation was encouraged, and the foundation was laid for the very type of mortgage financing that has now come back to bite us.

In the second place, no one on Wall Street should be bailed out. The effects of the bursting of the housing bubble should be dealt with by the market, despite the fact that the underlying bubble itself was a byproduct of government intervention.

Apart from the problems created by interfering with the market’s attempts to restore balance and reallocate resources, bailouts create all sorts of moral hazards. After all, why should bailouts be limited to investment banks or overstretched homeowners? What about renters who also borrowed too much money? What about those behind on their credit cards, auto or student loans? Why shouldn’t they get bailed out? How about small entrepreneurs whose start-up businesses failed -- should they get bailed out as well?

In market economies all sorts of people lose money, sometimes as a result of circumstances entirely beyond their control. While this is clearly not the case for most homeowners and mortgage lenders, some would obviously fall within that category. However, it is not up to government to rescue them. Even if some borrowers and lenders were lead astray by the false economic signals sent by the Fed, they are never-the-less responsible for any losses they might have incurred as a result of following them. The real danger is that while government interference is actually at fault, it’s the free-market that ends up taking the blame.

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.”

[6SpeedTA95]

Man this just pisses me off. It was the fed that started the snowball on this bullshit mess we're in. Now they're expanding federal powers? Worst of all republicans support it and democrats want to give the fed MORE power...

[WickedLou9]

Originally Posted by 6SpeedTA95

Man this just pisses me off. It was the fed that started the snowball on this bullshit mess we're in. Now they're expanding federal powers? Worst of all republicans support it and democrats want to give the fed MORE power...

How did the fed start it? By cutting rates too much? I'm not sure about that. That would presuppose that the market is incapable of making optimal decisions on it's own and that it merely follows whatever it's told like an unthinking robot. It requires that the market is incapable of recognizing and properly dealing with risk. It says that the market can not make any decisions without direction from the from the government. If that were the case, the answer would be more ( and better) regulation, not less.
You can't forget that the market is not a machine. It's people. It's alot of people all making decisions independantly. IMO, the problem was short sightedness in the market coupled with a bit of greed in wanting to squeeze every penny out of skyrocketing home prices. Low interest rates just made it easier for them to do it. It made it easier for banks to make predatory loans... For a long time it was a sellers market. If you put a house up for sale, it was sold in a week. So banks would sell people mortgages that they would not have sold to in the past. They would lend to people with lower credit ratings, devling into the riskier part of the market. Why? Because if the person defaulted after 6 months, chances were the home had already appreciated 10% in value and it would sell very quickly. So they forclose, and sell the property for a 10% gain, plus any fees and interest that they have already collected. Then they packaged up all of these "sub-prime" mortgages and sold them in the open market. These were the so called " mortgage backed assets" that were every where. So all of that extra risk got sprinkeld around the market, but it also made it easy for say, investment banks like Bear Sterns, who were not in the mortgage lending business, to take advantage of the sub prime lending market. So you actually had more demand for these products and pressure for banks to make more of these loans. Greed for quick profits with lack of foresight is a bad combination. Everyone knew that housing prices could not continue to go up at 20% a year forever, eventually no one would be able to buy a home. But that seemingly obvious fact that everyone knew seemed to be ignored and banks kept on pumping out these loans. When prices did finally level off and banks could not just dump the property in a week, suddenly they began tightening credit requirements. And there you have your downward spiral feedback loop that caused the crash. The fed cutting rates was only a marginal aspect of this whole disaster.

[A_C_E]

^^^^ All this is true, except you're forgetting one thing: it was Alan Greenspan, at the time Fed chief, who encouraged all the banks to go out and make these risky loans in in the first place. "Take advantage of the market as it is'" so to speak

[WickedLou9]

Originally Posted by A_C_E

^^^^ All this is true, except you're forgetting one thing: it was Alan Greenspan, at the time Fed chief, who encouraged all the banks to go out and make these risky loans in in the first place. "Take advantage of the market as it is'" so to speak

Eh. If alan greenspan told me to sell everything I own and buy shares of GM, I would politely tell him to go jump in a lake. It's one thing for the government to encourage something stupid. It's another thing for people to blindly take that advice even if it's not in thier interest. If someone gives you bad advice, and you take it... who's fault is it?

[Phantom]

I would say the Fed is at least partly to blame.

By 2005 it was obvious that housing prices and loans were getting way past what they should be. Had the fed tightened up credit a bit at that point I bet some of the suffering we are going to see could have been avoided.