Some random observations on the recent news about "financial reform:"
Here as in health care, reform is needed. New news of excess and shadiness continues to bubble up daily. Only the banks themselves (or some of them) fail to acknowledge this.
Perhaps it is true, as analyst Steven Pearlstein asserts, that the whole structure of the market has changed from a focus on "raising and efficiently allocating capital for businesses and households" to reaping profits from high-frequency trading and sales of purely speculative instruments. Bankers have said that if the profits so realized are taken out of the financial system, there will be hell to pay. But those profits represent no real growth of the value of anything; building a nation's financial system on them is like constructing your house on a foundation of those airbags shipping companies use to fill empty space in a box.
The politics of the situation can't be ignored. It's tantalizing to watch nervous Republicans, with one eye on the Democratic initiative and the other on the "tea party" movement, charging one way and then another on the issue, like a bunch of sheep or cattle being driven into a corral and finding no way out. Unlike their opposition to health care reform, in this case they haven't yet found the right hook on which to hang a tissue of semi-truths and outright lies that would appear convincing. Talk of "bailouts" hasn't caught on; apparently the public isn't dumb enough to be led down that path. Could this become the issue, the one we've been waiting for, on which Republicans and Democrats vote together, if not work together, to produce legislation that will be popular all around?
More politics: Is it purely coincidental that the Obama administration decided to break this issue into the public domain, rather than continuing to work behind the scenes out of court to pursue some type of arrangement with Goldman Sachs and other big banks? Almost certainly not; clearly the opportunity to whip up some public outrage to get new regulations in place was overwhelming. It matters not whether the government wins or loses its case; that decision could be years away but the effect occurs now. Like the GOP, big banks may have thought they could stonewall against reforms they don't like, but they may have even outdone the Republican Party in the degree of their failure to read the tea leaves correctly.
Whatever bill is passed will almost certainly have some of the drawbacks of which bankers and financial professionals are warning: unintended consequences, loopholes, some loss of traction among the big financial powerhouses, declines in their stocks. Not just banks, but some investors, "little people" who have bank accounts or pensions, may be hurt in various ways. That unfortunately is the nature of our political dynamic; Newton might say that every excessive action has an even more excessive and opposite reaction. It could be avoided is the excesses were avoided in the first place. In any event, setbacks to banks will be temporary, until they figure out how to game the new rules.
Finally, speaking of the legal soundness of the government case, reports yesterday noted that a couple of SEC officers had counseled against proceeding, on the grounds that the evidence of lawbreaking wasn't strong enough. My question: Were these the ones who were spending hours at work watching pornography, or were they the ones who weren't? Maybe they just weren't paying attention.
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