Bloomberg news has an article on Wall Street pay revealing that the CEOs of many large banks have taken big pay cuts in the past year or two (CEO pay at the 50 largest financial firms has fallen 37% in the past two years). Buried in the story was a revealing comment from Obama Administration “Special Master for Compensation” (Pay Czar) Kenneth Feinberg who declared that pay cuts for the CEOs of big banks “demonstrates better than anything the political impact of what I’m doing.” Feinberg goes on to suggest …
Senate Democrats secretly agree that Sen. Blanche Lincoln’s (D-AR) proposal to attempt to impose a complete separating on credit default swaps and credit providers (i.e. banks) makes no sense. But they’re too embarrassed to say so while Lincoln uses the proposal to wage a populist campaign for re-nomination against liberal Arkansas Lt. Governor Bill Halter. Now that Lincoln has been forced into a June 8 run-off against Halter, Lincoln’s Senate colleagues are looking for a quiet way to kill her swaps proposal. Banking Committee Chair Chris Dodd (D-CT) first proposed, and …
As debate on the Wall Street “Reform” bill winds down in the Senate, Sen. Byron Dorgan (D-ND) is still pushing his ban on “naked” credit default swaps. We warned that the idea wouldn’t work. Now we have some real world experience with just such a proposal: Germany banned the practice in German financial markets Tuesday night, and stock prices fell in Germany and worldwide. Observers called the German ploy “an act of desperation and a refusal to address the fundamental problems at hand,” and warned that the move could cause …
Senators Kerry and Lieberman have introduced their “compromise” climate change legislation that relies largely on a “cap and trade” scheme to reduce carbon emissions. Even assuming there was a need for carbon limits, the Kerry-Lieberman bill gets the mechanism all wrong, apparently because the Senators either don’t understand or don’t trust markets. Kerry and Lieberman propose that the government manage a carbon market because controlling pollution is really important. This will work about as well as the government running grocery stores because everyone needs food. The insight underlying the use …
It makes a future market melt-down more likely. Today the Senate takes up Senator Blanche Lincoln’s amendment to regulate over-the-counter derivatives. The Lincoln bill is very, very bad, but don’t take out word for it, ask the Federal Reserve. Fed Staffers released a four page, seven point critique saying the Lincoln bill would “impair financial stability and strong prudential regulation of derivatives; would have serious consequences for the competitiveness of US financial institutions; and would be highly disruptive and costly, both for banks and their customers.” The first point of …
The Wall Street Journal reports that Barack Obama’s favorite capitalist, Warren Buffet, is seeking an exemption from Obama-endorsed derivatives rules for his insurance-and-everything conglomerate, Berkshire Hathaway. Derivatives are risk-shifting financial contracts that Buffet infamously described as “weapons of financial mass destruction.” After the 2008 financial crisis, Buffet decided to join the nuclear club and Berkshire has amassed a $63 billion derivatives portfolio. At issue is a proposed new rule in the Senate financial reform legislation requiring everyone who buys, sells, or trades derivatives to post collateral: cash or cash equivalents …
Sponsors of derivatives “reform” legislation claim it will reduce costs to derivatives users. Just how more government regulation is supposed to reduce costs in the private sector has never been exactly clear, but discussion at Wednesday’s Senate Agriculture Committee mark-up of derivatives reform legislation revealed that the “reform” will cost taxpayers big time: a 50% increase in staffing (and other costs) at the Commodity Futures Trading Commission (CFTC), the agency that would enforce the new regulations. CFTC Chairman Gary Gensler, announced at the mark-up that the bill would require 250 …
One of many bureaucratic boondoggles in the Senate financial “reform” legislation is a “Bureau of Consumer Financial Protection Protection.” Just how exactly would the proposed new bureaucracy protect consumers? The same way bureaucrats do everything: with more paperwork and fewer choices. A few years ago, a TV commercial showed a man in a trench coat slinking through a grocery story, slipping items into his pockets. He glided past the registers without stopping to pay, only to be stopped by a friendly security guard. “Sir, you forgot your receipt.” This sort …
So now President Obama is threatening to veto financial reform legislation Democratic leaders in Congress are working to pass if it is not tough enough on derivatives. There is really no disagreement between Obama and Congressional Democrats on the issue, just a bizarre attempt to make non-news. Obama is in high dudgeon because his advisors claim derivatives caused the 2008 financial crisis. The problem is this claim is false, and the proposals Obama offers would make future crises in the derivatives market more rather than less likely. There is actually …
Senator Chris Dodd’s monstrous 1336-page financial reform draft includes a whopping 217 pages devoted to “improving” over-the-counter derivatives markets. Dodd the derivatives section may be replaced by a yet-to-be-released bipartisan compromise from Senators Jack Reed and Judd Gregg. But the Dodd draft suggests that legislators are focused on bureaucratic imperatives rather than improving markets. The biggest blind spot in Dodd’s draft is the assumption that only command and control regulation can improve markets. In fact, beginning even before the financial crisis, an international cooperative effort of derivatives market participants led …
