Obama’s Financial Regulatory Reform – Change You Can Believe In!

I read President Obama’s Financial Regulatory Reform proposal yesterday. What stood out for me was that there was no mention of the governments role in the Financial Meltdown. You can read a summary of the Report at, “Summary of Obama Financial Regulation Plan”. It is written by Matthew Rose from the Wall Street Journal.

This draft report is rewriting history to protect the guilty in government. But more that that, if they don’t admit their own culpability how do they hope to create a new regulatory framework that will actually work for the long term and for the benefit of all? No Blame, no Gain in my view.

Ignoring history almost ensures the financial crisis will just be repeated once more.

Behind the debates over future policy is a debate over history—a debate over the causes of our current situation. The battle for the past will determine the battle for the present. So it’s crucial to get the history straight.

— Joseph Stiglitz, 2009 in Vanity Fair

Read the whole Vanity Fair Article, “Capitalist Fools

The Obama Draft Report implies that the whole financial industry was guilty of causing the crisis when we know it was primarily a combination of low interest rates, investment banks taking high risks with unregulated derivatives, and Congress and the Senate failing to take appropriate action on derivative trading and on lax mortgage lending. Mr. Frank and Mr. Dodd should fall on their swords.

It is ironic to me that the greatest democracy in the world allows congressmen and senators to sit on financial committees for 20 years and then allows them to get so powerful they can prevent honest debate on the floor of Congress or the Senate on lax mortgage and derivatives practices. Worse still that legislation to regulate complex derivatives can be suspended and eventually stopped.

What price any new regulatory reform if the same people are sitting on the same financial committees. Nothing has changed or will change.

Read more on the role of governments both Democrats and Republicans who were in power for various parts of the deregulation, at “Financial Regulation Timeline“.

Ms Born who headed the CFTC way back in 1998 tried desperately to regulate derivatives but was “ganged-up-on” by Congress, the FED, the SEC and the Treasury to block any regulations.

As far back as 1998 the CFTC under Ms Born, tried to tighten up the regulations for derivative trading.

But despite the failure of Hedge Fund, Long Term Capital Management,

“…..Congress froze the Commodity Futures Trading Commission’s regulatory authority for six months. The following year, Ms. Born departed.

In November 1999, senior regulators — including Mr. Greenspan and Mr. Rubin — recommended that Congress permanently strip the C.F.T.C. of regulatory authority over derivatives.””

“Ms. Born was concerned that unfettered, opaque trading could “threaten our regulated markets or, indeed, our economy without any federal agency knowing about it,” she said in Congressional testimony. She called for greater disclosure of trades and reserves to cushion against losses.”

That’s were the rot set in.

The Web site hosting the Financial Regulation Timeline is called NetRootMass. I think everyone should read it including the Democrats in Congress and then include what they learn into President Obama’s draft report.

I especially like two posts entitled,

  1. OTC Derivatives (Which Idiot Decided NOT to Regulate Credit Default Swaps?)
  2. Too Big to Fail (Which Idiot Decided to Repeal Glass-Steagall?)

Unless the reform includes reforming the US Congress and Senator Financial committees function, role and terms served, you can be sure there will be no real change you can believe in.

One last thing. There was no mention of the incestuous relationship between the regulators and the banks. I’m talking about the number of people from Goldman Sachs and other “too big to fail” organisations that end up as heads of the financial regulatory bodies and visa versa. Surely this must be stopped?

All this means your Nest Egg is still at great risk. If the markets roar back as they seem to be doing with the massive amount of money sloshing about in the system don’t get sucked in.

If you are a retiree you should consider seriously reducing your exposure to equities, and getting more direct control of your Nest Egg. Selling into this bull market to get a more defensive portfolio may make good sense. It makes no sense having 60-70% of your Nest Egg at high risk after losing money to the markets twice in ten years.

We need change we can believe in for the financial markets. Right now it looks like it will be business as usual for the government and heavy regulations for the financial world until things go quiet again. Then the lobbyists will go to work on the same congressmen and senators to repeal, dilute, suspend or change the regulations to suit their own ends. That’s not capitalism, that’s cronyism.

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