The BP disaster in the Gulf of Mexico is acting like a proof of concept on economic and financial regulation. BP has had the run of the mill on oil drilling with a cosy and inhouse relationship with its regulator for drilling the MMS-Mineral Management Services. Something that Wall Street has been attempting to establish with its regulators.BP’s riches, almost unlimited access to experts and equipment, plus a near confidant status at MMS contributed to multiple lapses and dispensations granted by MMS many times to BP. The consensus is that lax regulation contributed to the higher risks taken by BP and the eventual Gulf Coast damaging spill. Its beginning to dawn on major players that little or comprised regulations now tends to have not small reprcussions [those rules are observed to keep the illusion of regulation] but are skewed towards diasater or even catastrophe – the socalled Black Swan or Once in a Hundred Year events.
So for the first time Takethe5th has seen a tough appraisal of the pending Financial Reforms in the business press that echoes this blog’s objections. Dow Jones Marketwatch headlines tell the story:
Do bank-reform bills prepare us for the next financial crisis?
Observers discouraged about ‘too big to fail’ bill approved by the Senate…..
Too Big Too Fail
“Big banks will have every advantage in the credit market to get bigger and riskier if this bill passes, and we won’t have solved ‘too big to fail,” said Simon Johnson, Massachusetts Institute of Technology Sloan School of Management professor and former International Monetary Fund economic counselor. “In many ways, you’ve moved a huge step closer to becoming Greece.” Johnson argues that the only real way to limit future crises is to break up the big banks so no bank failure can cause collateral damage to the markets….
Christopher Whalen, managing director of Institutional Risk Analytics, in Torrance, Calif., said that — like in the crisis that shook the economy in September 2008 — it would be difficult for bank regulators to differentiate between the healthy and failing institutions.
“At a given point in time they are all insolvent,” he commented.…
Richard Bove, vice president at Rochdale Research, argues that a systemic-risk regulator in the bill — chaired by the Treasury and charged with monitoring and responding to systemic risks posed by large complex banks — is a superstructure that is unworkable….
Lisa Lindsley , director of capital strategies at the American Federation of State, County and Municipal Employees in Washington, said that the Senate bill, as it stands, leaves America vulnerable to another near-disaster akin to American International Group Inc. Proponents of the new oversight have blamed credit-default swaps — a controversial derivative product sold by AIG — as central to the financial crisis, in part because the interconnected nature of CDS securities required regulators to inject the institution with a $190 billion taxpayer bailout or face an even more expansive crisis…..
Volcker Ban on Bank’s Self-serving
Much has still to be worked out. The so-called Volcker rule — named after ex-Federal Reserve chief Paul Volcker, who chairs President Barack Obama’s economic advisory panel — would bar big commercial banks from making speculative derivatives and stock investments for their own accounts.The measure, in its full form, is not in the bills. It would also cap the size of big banks and force financial institutions to divest hedge funds and private-equity units. So far, the House bill only permits regulators to impose these restrictions at their own volition. The Senate bill is slightly tougher and requires bank regulators to conduct a study on the Volcker rule and follow its recommendations.
Now dont take this rueful report as a sign that Dow Jones and the business press has had a change in heart on financial regulation. Take it more as a “We told you so piece”. Marketwatch, Wall Street Journal, Barrons and other Dow Jones companies have been running a consistent campaign against regulation under the guise of a)Government is too big
Tea Party movement, nation’s financial woes cast Washington in bad light
or b) frontal attacks citing that regulation does not work-
Having more businesses run through government isn’t going to help
In short, Dow Jones, a key player in the business press are working to discredit the notion that government can do anything right because it is growing too big. Of course it is a Tea Party message. “We have no solution to the problem but we know government is not doing it right. And we will neglect to even hint at the Senate Republican 60 vote blockade and The Supreme Court unleashing even more financial lobbyists on Washington.” Instead readers will have to go to the music magazine, Rolling Stone, to get the real story on what is happening in Financial Reform. And Rolling Stone is not nice to either Democrats or Republicans.
In sum this story is way too little and way too late. A sort of “balanced reporting” mantle piece – well after the issue is decided Dow Jones Marketwatch will see fit to wade in and show that Financial Reform, like all government, is not working. No in depth analysis on why this is happening or how it can be done better. No chastisement whatsoever for Wall Street for its Blitz Attacks on Financial Reform. Just a small sense of foreboding that the US has left itself open for an even more disastrous future financial catastrophe on Wall Street. But really, can you expect better from Dow Jones ? After all the parent, NewsCorp, also harbors the “fair and balanced” Republican Media Outlet and Attack Dog, aka FoxNews.