Paulson's Fix for the Financial System -
Less regulation, More Power to the Fed -
By Mike Whitney /
31/03/08 "ICH" -- -It is being billed as a "massive shakeup of US
financial market regulation", but don't be deceived. Treasury
Secretary Henry Paulson's proposals for broad market reform are
neither "timely" nor "thoughtful" (Reuters) In fact, its all just more
of the same free market "we can police ourselves" mumbo jumbo that got
us into this mess in the first place. The real objective of Paulson's
so called reforms is to decapitate the SEC and increase the powers of
the Federal Reserve. Same wine, different bottle. Paulson's real
motive is to preempt the regulatory sledgehammer that is set to
descend on the entire financial industry following the 2008 election.
There's growing fear that a President Obama may tote his firehose down
to Wall Street and flush out some of the debris that has collected in
the market's dark corners.
If Paulson's plan is approved in its present form, Congress will have
even less control over the financial system than it does now and the
same group of self-serving banking mandarins who created the biggest
equity bubble in history will be able to administer the markets
however they choose without the annoyance of government supervision.
That's exactly what Treasury Secretary and his pals at the Fed want;
unlimited power with no accountability.
Paulson is expected to lay out guidelines and principles that are
intended to help regulators supervise the financial markets. According
to AFP:
"The President's Working Group on Financial Markets said the current
regulatory structure is working well despite calls by some US
lawmakers."
In other words, the failing banking system, the housing meltdown, and
the frozen cor****ate bond market are all signs of a robust financial
system? This may be the most incongruous statement since "Mission
accomplished". The system is imploding and real people are being hurt
by the fallout. Thirty years of industry-led lobbying has dismantled
the regulatory regime which made US financial markets the envy of the
world. The credibility and transparency are gone along with Glass-
Steagall and government oversight of the explosive growth of over-the
counter derivatives instruments. Now the system is prey to all types
of dodgy debt instruments, suspicious "dark pool" trading and off-
balance sheets operations which further reinforce the belief that
cautious investment is no better than casino gambling.
"The regulatory line of sight today is by the counterparties," the
official said, adding that the guidelines should be "beneficial to
industry." (AFP)
How is that different than saying, "Caveat emptor"? That's not a motto
that inspires confidence. Many people still naively believe that
planning their retirement should not have to be a Darwinian tussle
with a crafty junk-bond salesman.
Under Paulson's plan, the Federal Reserve will be granted new
regulatory powers, but whatever for? The Fed doesn't use the powers it
has now. No one stopped the Fed from intervening in the mortgage
lending fiasco, or the ratings agency abuses or the off-balance sheets
shenanigans. They had the authority and they should have used it. The
Fed knew everything that was going on---including the mushrooming
sales of derivatives contracts which soared from under $1 trillion in
2000 to over $500 trillion in 2006---but they decided to cheerlead
from the sidelines rather than do their jobs. The fact is, they were
worried that if they got involved they might upset the gravy-train of
obscene profits that was enriching their bankster friends.
Former Fed chief Greenspan used to croon like a smitten teenager every
time he was asked about subprime loans or adjustable rate mortgages.
And, as New York Times columnist Floyd Norris points out, (Greenspan)
"praised the growth in the derivatives market as a boon for market
stability, and resisted calls to use the Fed's power to increase
regulation." Of course, he did. It was all part of Maestro's "New
Economy"; trickle-down Elysium, where the endless flow of low interest
credit merged with financial innovation to create a Reaganesque El
Dorado. There are no regulations in Eden; anything goes and to heck
with the public, they can fend for themselves. Its a dog eat dog world
and there ain't no love.
Now its Paulson's job to keep the neoliberal flame lit long enough to
make sure that government busybodies and bureaucratic do-goodies don't
upset the applecart. That means concocting a wacky public relations
campaign to convince the public that Wall Street is not just a
pirate's cove of land-sharks and bunko artists, but a trusted ally in
maintaining a strong economy through vital and efficient markets.
The Times' Norris summed up Paulson's sham reforms like this:
"The plan has its genesis in a yearlong effort to limiting
Wa****ngton's role in the market. And that DNA is unmistakably evident
in the fine print. Although the proposal would impose the first
regulation of hedge funds and private equity funds, that oversight
would have a light touch, enabling the government to do little beyond
collecting information -- except in times of crisis. The regulatory
umbrella created in the 1930s would grow wider, with power
concentrated in fewer agencies. But that authority would be limited,
doing virtually nothing to regulate the many new financial products
whose unwise use has been a culprit in the current financial crisis.
("In Treasury Plan, a Reluctant Eye over Wall Street", Floyd Norris,
New York Times)
What nonsense. The house is on fire and hyperventilating Hank is still
wasting our time with this rubbish. The real problem is that Paulson
and his buddies at the Federal Reserve think of the financial system
as their personal fiefdom so they refuse to loosen their hoary grip
even though the economy is listing starboard and the water is flooding
into the lower decks.
Once again, the New York Times:
"All the checks and balances in the plan reflect the mindset of its
architect, Treasury Secretary Henry Paulson, who came to Wa****ngton
after a long career on Wall Street. He has worried that any effort to
substantially tighten regulation could hamper the ability of American
markets to compete with foreign rivals."
No one elected Paulson to do anything. He has no mandate. He is an
industry rep. who has worked exclusively for a small group of wealthy
investors who have put the entire country at risk with their toxic
mortgage-backed bonds, their reckless Ponzi-type speculation, and
their off-book chicanery. Paulson should be removed immediately and
returned to his wolf's lair at G-Sax. If Bush is serious about
straightening out Wall Street, then bring in Eliot Spitzer. He's
available. And he'll do what it takes to clean house, that is, put a
truncheon-wielding robo-cop in every trading-pit at the NYSE, and
dispatch government accountants to every office of every CFO making
sure they have a Big Red Pen in one hand and a taser in the other.
That's the only way to get the attention of the bandit-class.
"I do not believe it is fair or accurate to blame our regulatory
structure for the current turmoil," says Paulson.
Paulson is wrong. The current turmoil is all about the lack of
regulation and he'd better prepare himself for some big changes. The
pendulum is already in motion and tighter regulations will soon
follow. There needs to be an accounting process for all transactions
and capital requirements for every financial institution that creates
credit. No exceptions. All of these businesses pose a real danger to
the overall system and, therefore, must conform to clearly articulated
and strictly enforced rules; no off-balance sheets operations, no dark
pool trading, no unregulated derivatives contracts, no level 3 assets,
no "mark to model" garbage bonds where CFOs unilaterally decide what
they are worth by picking a number out of a hat. Its time to restore
order to the markets so retirees and working class families can feel
safe investing in their futures. They are the ones who are most hurt
by Wall Street's endless trickery.
Paulson's plan is a non starter. The era of sandbagging, supply-side
banditry is over. Good riddance.
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