Tuesday, July 27, 2010

Fannie Mae and Freddie Mac not even mentioned in Obama new "financial" overhaul. Bank bailouts still in place

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7/26, "Obama signs a bill that lets banks have US over a barrel once more," Telegraph UK, by Liam Halligan
  • "The so-called "Volcker Rule" is the centrepiece of Dodd-Frank and as such, is indicative of the entire package. It's designed to restrict the ability of universal banks to speculate with taxpayer-backed money,

Volcker places limits on so-called "prop" trading without defining what it is, so allowing banks to exploit what they claim is

  • "the grey area between market-making and speculation".

Wall Street firms will also still be able to lever up punters' money and deal in credit-default swaps – the main culprits in the AIG bankruptcy, which cost US taxpayers $182bn and counting – while also destroying Bear Stearns and Lehman. The only stipulation is that ratings agencies should classify such derivates as "investment grade".

  • Such agencies are unreformed and were at the heart of the last debacle
  • – so that's hardly reassuring.

Last-minute changes mean that banks can, anyway, use 3pc of their tier-one capital for out-and-out speculation, circumventing Volcker.

  • That doesn't sound much, but once levered up 50-times – and such a figure isn't unusual – this huge loophole in Volcker is more than enough to allow investment banks to keep destroying themselves

Adding insult to injury, Wall Street then secured delays to the introduction of Volcker – or what's left of it – that in some cases will last for more than 10 years.

The closer you look at Dodd-Frank, the more apparent becomes Wall Street's influence.

  • Limits on leverage – rejected.
  • Limits on bank size – rejected.

Restrictions on derivatives – well, some trading will go through a central exchange, allowing more scrutiny, but it's entirely unclear how much.

  • At every turn, this bill avoids decisions,

who will turn generalities into actual rules. If the banks were able to skew Dodd-Frank their way , think of the influence they'll have when the details are hammered out behind closed doors.

  • Obama put the spotlight on the creation of a consumer protection bureau – an attempt, before November's mid-term elections, to make arcane legislation meaningful to the public. Are there limits on credit card interest, ensnaring adjustable rate mortgages or predatory pay-day loans? Nope.

Some other omissions in the bill are breath-taking. There is no mention of Fannie Mae or Freddie Mac – the government-sponsored mortgage-providers that have already cost $145bn in bail-out cash, rising to almost $400bn by 2019.

  • No mention, either, of capital requirements – which means the global banking system must rely, once again, on the ridiculous Basel process for resolving this crucial issue.

Once again, Obama missed a chance to give a lead when it comes to financial reform.

  • Based on sound-thinking courageous judgment, the Glass-Steagall legislation was only 17 pages long.

Packed with wheezes and loop-holes, Dodd-Frank runs to 2,319 pages. Enough said."

  • via Free Republic

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