Bill Black — Dodd-Frank Was Designed to Fail – and Trump Will Make it Worse

Here is what [out-going chairman of the Federal Financial Institutions Examination Council Daniel] Tarullo actually admitted about Dodd-Frank’s fatal flaw. President Obama and Congress did not frame it as a coherent response to the perverse incentives that cause our recurrent, intensifying financial crises. Wall Street CEOs rigged our structures to institutionalize perverse incentives. Refusing to change those structures after a catastrophe was, of course, significantly insane. President Obama and Congress failed to engage in a rigorous, honest investigation of those structural causes and then refused to fix the structural defects.

The structures that institutionalize perverse incentives have in common the creation of conflicts of interest. CEOs do this primarily by creating perverse compensation systems, but they also do it through combining investment and commercial banking. Systemically dangerous institutions (SDIs) (“too big to fail”) create another conflict of interest. Politicians dependent on their contributions and pathetic regulators treat them as untouchable. Astonishingly, Obama and Congress refused to fix any of these three primary conflicts of interest that drive our recurrent crises.

New Economic Perspectives
Dodd-Frank Was Designed to Fail – and Trump Will Make it Worse
William K. Black | Associate Professor of Economics and Law, UMKC

Clinton Vs. Sanders on Big Banks at Real News Network

Bill Black, adviser to Bernie Sanders, and Hillary Clinton supporter Paul Hodes appear on The Real News and discuss whether the Dodd-Frank legislation is effective at preventing systemic risk from Wall Street monopolies. You can view the video below or on The Real News‘ site with a transcript.

New Economic Perspectives
Clinton Vs. Sanders on Big Banks
Devin Smith

Warren Investigation Finds Taxpayers Could Be on the Hook for $10 Trillion in Risky Derivatives — Jessica Desvarieux interviews Bill Black

Video and transcript.

Real News Network
Warren Investigation Finds Taxpayers Could Be on the Hook for $10 Trillion in Risky Derivatives
Jessica Desvarieux interviews Bill Black

Peter Radford — The SEC rules on CEO Pay – Sort of

Hidden amongst the weeds of the Dodd-Frank legislation was a provision authorizing the Securities and Exchange Commission to order publicly traded companies to publish the ratio of CEO to median worker pay.

That rule was finally voted on this week. That is five years after the legislation was passed.

The delay in enforcing the rule was caused, at least in part, by the massive push back by big companies. Presumably they were embarrassed by the ludicrous differential that has opened up in that ratio.…

…throughout these past five years business has managed to install a number of amendments to the rule that will make the ratio appear less outrageous than the original rule would have: they can exclude foreign workers, they can choose the ‘sample’ of employees upon which the calculation is made, they can exclude a percentage of part-time workers, and so on.…

So take the published ratio with a grain of salt.

Real-World Economics Review Blog
The SEC rules on CEO Pay – Sort of

Peter Radford

Yves Smith — How the Republican Campaign to Gut Dodd Frank is a Huge Gimmie to Banks and Private Equity Funds

Will collateralized loan obligations (CLO) initiated or held by banks, institutional investors, private equity, and hedge funds, as well as junk bonds related investment in the US shale oil boom and falling oil prices turn out to be more financial WMD set to implode? Could the recent push to weaken Dodd-Frank be related to that?

Naked Capitalism
How the Republican Campaign to Gut Dodd Frank is a Huge Gimmie to Banks and Private Equity Funds
Yves Smith

Affordable Care Act, a Profit Center, Public Private Partnership, or another Financial Scheme??

Do we need more Financial Schemes in this Country?  Isn't it a national security risk, if only Wall Street Insiders know who the sucker is in American Deal Making??


I'm just an Everyday Guy that has lost some money and watched more disposable income disappear in the modern American Age... The Financial Battleground.  A war for your wages, your income, your savings, and your retirement.


In the US Military we have Single Point of Contact who is responsible for particular expertise, operations, and coordination.  In the army I think that is called the SPO.  The SPO is responsible he gets both blame and accolades as he guides commanders and units through transitions.   

Do you think the USA has a SPO for Insurance, Financial Instruments, & Public Private partnerships??  I don't think you will get a returned phone call from the Federal Reserve, the US Treasury, the OCC, FSOC, the Executive Office, your congressman, FINRA, SEC, FTC, the US Media, the American Bar Association, ETC.   The CFPB is supposed to be the latest in a long line of agencies to protect us.  The list of federal agencies that protect us sort of looks like the 16 powerful big budget US Intelligence Agencies, ... except in the case of protecting individuals from commerce  they seem to lose most of their power when a new agency is added.  

https://en.wikipedia.org/wiki/Consumer_Financial_Protection_Bureau  

Dobb-Frank has provided us with yet another federal agency to follow behind the FTC and all the other agencies in protecting citizens from organized corruption and fraud.  But has that agency been given the Power, Authority, Budget, Resources, and Staffing to take a look at the Affordable Care Act (AKA Obama Care)??  

Today it has become even more clear all the risks American face in what is clearly another US Financial Scheme called the Affordable Care Act. 

1) Mandatory Program with Fees or Taxes in which personal data is surrendered and shared among various unknown agencies... enforced by the IRS.  
2) Appears there is no cost controls, policies are termed Insurance, policies exclude many features that would actually be needed for personal health, there is much lawyer language involved in the contract policies for which you will not be covered.  
3) We hear that all policies are doubling in costs, figure that co-pays and fees will also increase in some cases.  
4) All Insurance is a Financial Scheme. 
5) US Health Care is one of the most expensive in the world, no one ever talks about the costs, the executive compensations, the dividends or profits shared with investors, no one is addressing the inflation and overall yearly increases in costs.  It is sort of a spin zone. Or it is a "No Mans Land".  No one seems to be bringing the yearly cost growth to a National Discussion Level.  Capitalism Rules in the land of Insurance & Finance.   
6) The Affordable Care Act seems to be another mechanism for transferring Middle Class Wealth or Savings to Investors or Financial Managers.  The money is going to come from working Americans, I'm just not sure who the money is going to go to.  The health system will expand with more health facilities I'm sure.  But as a Public Private Partnership the wealth will be a transfer from the Federal Government to Investors and executives.
7) Bubbles, Financial Bubbles... Middle Class Savings Gone, Retiree Savings Gone, Home Equity Gone, Education Debt in process, Hurricane Damage losses to the US Wealth, US Wages Down, US GINI Coefficient Wage Gap increasing, Decapitalization of US Manufacturing, Offshore Incorporation, lower investment in US R & D, lower investment in US Job Training, No Real Leadership in Investing in the USA, ETC.   
8) I predict the Affordable Care act will create another Bubble, and transfer more wealth out of the poor and middle class.   
9) We have entered "A New Era of Financial Battles & Financial Profit taking characterized by the Rentier Class".  Executive Bonuses & Salary Increases are enough to keep the game going.  There are always ways to cut costs, cut wages, go off shore, to find new resources, and to invent new materials.  This is a kind of Social Darwinism in which corporations are sovereign, but don't really have to maintain or steward the US Economy or the US Consumer.  In the Affordable Care Act the taxpayer becomes more of a cog or "Profit Center" owned by the vast corporate system to be a monopolistic kind of bubble.

After all who can understand public private partnerships??  We have no National Security in the many areas of Economic, Financial, and Social Risk.  There is no Responsibility in Washington DC OR New York on Wall Street in this Era of Financial War... If there was then we would have a SPO and we would have National Discussions in the Mainstream Media about Financial, Economic, & Banking Literacy.    And as you have notice in federal budget discussion... the real budget data never sees the light of day.  In national budget discussions only the pieces of the budget which are getting cuts and increases are touched on at all.  Most Americans have never even seen the US Federal Budget Lines, the Trust Funds, the Revenue Streams, or the Budget Outlays.    

It is a Financial Battleground with National Security importance.  There is decapitalization in the US Economy, Capital Flight, Loss of Wealth, Loss of Average Wage Rate, Loss of Social Cohesion, and Institutional & Systemic Control Fraud.  None of this can be refuted.  No sane American would want to hide National Security Issues from the Voting Public or from Public Discourse.   

The point is the Affordable Care Act makes the federal budget & citizenry more risky as it was not designed to be simple or to address all the problems.  It is some kind of monster which might help 1% of the population while putting profits in the hands of an other 1%. Emergency rooms are still going to be filled with the uninsured who freely walk across the border and are not covered and seems doubtful they will pay into the program. Drugs are not covered. Inflation is not covered. Industry waste is not addressed. The spectrum of costs, wastes, fraud, and risk are ignored... and control has been ceded to Industry Executives.

I hate to even mention the possibility of more power going to technocrats in our government.  But we should start to broadcast and listen to the personalities that run our other agencies like the FTC, Department of Labor, SEC, FDIC, and FSOC.  Maybe if our agency heads felt more like they were on the National Stage and had more of a feeling of responsibility to the citizenry ... they would take a personal stand & develop their own personal networks to oppose the stupid political clucking out of congress.  The reason I fear technocrats is because of my perception of the EU and the Austerity imposed across Europe which is grinding all middle class people down to poverty.  

Conclusion:

But in the USA we have a chance if we recognize the changes to the global economy, transnational corporations, and the financial battle against taxpayers.  We just might be able to re-institutionalize the fight against fraud, control fraud, propaganda, the dumbing down of citizens & investors, and the loss of American Liberty, the American Dream, and American Privacy.  Maybe we should have US Celebrities that Fight Fraud, that work in our Federal Government, that expose complicated financial schemes which drain the Vitality of America!

Guest Post — Ralph Musgrave: Dodd-Frank is useless, but try this…..

Dodd-Frank is useless, but try this…..

Ralph Musgrave

On the subject of Dodd-Frank, Richard Fisher, president of the Dallas Fed said, “We contend that Dodd–Frank has not done enough to corral TBTF banks and that, on balance, the act has made things worse, not better.” He’s right. So how do we dispose of bank subsidies?

Well it’s easy. In fact the way to do it is set out in three hundred words below (in contrast to the thousands of pages of Dodd-Frank and Basel III which fail to solve the problem). And, the system set out below has an additional bonus: it makes SUDDEN bank failures impossible.

Obviously any poorly run firm should be allowed to ultimately fail, but it’s the SUDDEN failures or RUNS ON banks that are the big problem. Anyway, the solution is as follows.

Bank creditors (depositors in particular) have to choose between two types of account. First there are checking or transaction accounts. Money in those accounts is NOT LOANED ON or invested. It’s lodged in a 100% safe fashion (e.g. at the central bank). And that means no interest for those depositors.

Second, depositors can put some of their money into accounts where the relevant money IS LOANED ON or invested.  Those “investment accounts” pay interest because the relevant money is being used. Moreover, depositors choose what’s done with their money. For example they could go for safety: e.g. have their money put into mortgages where the mortgagor had a minimum equity stake of say 20%. Or they could choose something more risky.

Next, the VALUE OF the stakes that depositors have in safe mortgages (or whatever they’ve chosen) varies with the value of the underlying assets (e.g. the mortgages). In essence, depositors buy into a mutual fund. Indeed Laurence Kotlikoff, one of the several people advocating this system, explicitly advocates mutual funds in this connection.
The net result is that there is no reason for any bank subsidy. The taxpayer WOULD STAND BEHIND transaction accounts, but since no risk is taken with the money deposited, there is minimal taxpayer exposure.

As to investment accounts or mutual funds, if a particular fund makes silly loans or investments, then all that happens is the value of stakes in the fund falls, just as it does at present when a mutual fund makes silly decisions. Those with stakes in the fund have little reason to run, in the same way as there wasn’t a catastrophic run on BP shares after the recent Gulf oil spill. And even if there is a run on a hundred mutual funds, that doesn’t have systemically disastrous results. As Mervyn King put it, “a sharp fall in equity values” does not “cause the same damage as a banking crisis”.

As to the impossibility of sudden bank failure under this system, George Selgin explained the reason very neatly. He said, “For a balance sheet without debt liabilities, insolvency is ruled out.”.

And that’s it. The solution in just over 300 words. And if you want to see the same solution set out by someone else, try this Bloomberg article by Matthew Klein, or this WSJ article by John Cochrane.

— Ralph Musgrave

Gary Rivlin — How Wall Street Defanged Dodd-Frank

The story of how Wall Street lobbyists worked the halls of Congress, blocking the appointment of Elizabeth Warren, Obama’s first choice to head the CFPB, or pushing bills aimed at defanging Dodd-Frank, is fairly well-known by now. But it was the stealthy work of battalions of regulatory lawyers, who descended on the private offices of regulators deep inside the bureaucracy, that has proven more crucial to the industry’s effort to pick off pieces of Dodd-Frank. There, a kind of ground war has been going on for almost three years, with the regulators waging hand-to-hand combat to defend every clause and comma in Dodd-Frank, and the lawyers fighting to insert any loophole they can to protect their clients’ extraordinary profits. This is how the miracle that was the making of Dodd-Frank—hailed as the most comprehensive financial reform since the 1930s—became a slow-moving horror movie called “The Unmaking of Dodd-Frank”: a perfect case study of the ways an industry with nearly unlimited resources can avoid a set of tough-minded reforms it doesn’t like.

The Nation
How Wall Street Defanged Dodd-Frank
Gary Rivlin

John Carney — Uh Oh: The Attempt to Regulate Swaps Is Failing

Unintended consequences.

CNBC NetNet
Uh Oh: The Attempt to Regulate Swaps Is Failing
John Carney | Senior Editor

Katelyn Fossett — U.S. Banks Too Big to Fail, or Just Too Big?

“You’re not going to win this tinkering with the rules,” Neil Barofsky, former special inspector general of TARP....

“I think as long as [the too-big-to-fail mentality] exists, the administration of justice is severely undermined in this country,” said Brooksley Born, a former chairperson of the Commodity Futures Trading Commission (CFTC), a government regulator....

Dennis Kelleher, CEO of Better Markets, a financial reform advocacy group, says that any move to break up the banks would come in one of two guises: either as a prohibition on banks dealing with more than a certain amount of gross domestic product, or government regulators using all the authority already vested in Dodd-Frank....

IPS — Inter Press Service
U.S. Banks Too Big to Fail, or Just Too Big?
Katelyn Fossett

Haley Sweetland Edwards — He Who Makes the Rules

Barack Obama’s biggest second-term challenge isn’t guns or immigration. It’s saving his biggest first-term achievements, like the Dodd-Frank law, from being dismembered by lobbyists and conservative jurists in the shadowy, Byzantine “rule-making” process.... 

House Democrats and nineteen senators, some of whom had drafted Dodd-Frank, petitioned the court to rule in favor of the CFTC, a handful of op-eds beseeched judges to do the right thing, and financial reform advocates called foul. 

None of it made a difference. In September 2012, the U.S. Court for the District of Columbia Circuit overturned the CFTC’s rule. In the decision, the court wrote that the commission lacked a “clear and unambiguous mandate” to set position limits without first demonstrating that they were necessary and appropriate. And with that, more than two years after the passage of Dodd-Frank, there were still no federally administered position limits for any commodities except grain, and the CFTC was back to square one. The muckety-mucks at the exchanges rejoiced, as appropriate.

Welcome, dear readers, to the seventh circle of bureaucratic hell....

It may seem counterintuitive, but those big hunks of legislation, despite being technically the law of the land, filed away in the federal code, don’t mean anything yet. They are, in the words of one CFTC official, “nothing but words on paper” until they’re broken down into effective rules, implemented, and enforced by an agency. Rules are where the rubber of our legislation hits the road of real life. To put that another way, if a rule emerges from a regulatory agency weak or riddled with loopholes, or if it’s killed entirely—like the CFTC’s rule on position limits—it is, in effect, almost as if that part of the law had not passed to begin with.

As of now, there’s no guarantee that either Obamacare or Dodd-Frank will be made into rules that actually do what lawmakers intended. That’s partly because the rule-making process is a dangerous place for a law to go. We might imagine it as a fairly boring assembly line—a series of gray-faced bureaucrats diligently stamping laws into rules—but in reality, it’s more of a treacherous, whirling-hatchet-lined gauntlet. There are three main areas on this gauntlet where a rule can be sliced, diced, gouged, or otherwise weakened beyond recognition....

And here’s the really alarming part: rules run this gauntlet largely behind closed doors, supervised by people we don’t elect, whose names we don’t know, while neither the media nor great swaths of the otherwise informed public are paying any attention at all....

Washington Monthly
He Who Makes the Rules
Haley Sweetland Edwards
(h/t Mark Thoma at Economist's View)

Robert Oak — Wall Street's Derivative Shell Game

Wall Street is now winding their way through the swiss cheese loophole maze financial reform is. Remember credit default swaps, those deadly, bad math, bad computation derivatives which were behind the financial crisis? These same types of risky derivatives are making a comeback masked as futures.

Wall street has found a new way to avoid regulation and continue their derivative CDS gambling casino and it is setting up the way for a new financial crisis. They are re-wrapping credit default swaps and other derivatives into futures, which are exempt from Dodd-Frank. more stringent regulations.

The Economic Populist
Wall Street's Derivative Shell Game
Robert Oak

Zombie finance? Looks like the Ponzi phase is not over yet.