Financial Regulation Reform, Obama Style

Go to UNIFIEDMARKETS.

Rewriting law, stimulates debate that distracts attention from whether the standing law was upheld; provides a temporary fix or excuse for not doing the important work (protecting fund and others by upholding the law) during a crisis.

Ultimately, rewriting law is about trying to escape scrutiny; masking the fact that Treasury and Fed governors have acted to violate many important laws and by this technique, gave favorable advantages to a select group of firms.

Below is a review standing law. It now appears the Administration and Treasury are seeking to write new regulatory laws in dealing with undercapitalized banks. This is done to potentially mask the fact Treasury officers have undermined the existing laws. What the existing laws show is that banks have enjoined desperate-actions of Treasury, who has ushered in a time of social irresponsibility in business. The result is a bad business model being provided to other businesses throughout the nation and world. It also results in a public relations disaster.

Americans do not need new regulatory law. They need officers and regulators, who will act with good stewardship, diligence and purpose of duty, to uphold the existing law. Important provisions and points of the existing law, as follows:

TITLE 12 - BANKS AND BANKING
CHAPTER 16 - FEDERAL DEPOSIT INSURANCE CORPORATION
§ 1831 o. Prompt Corrective Action

http://www.law.cornell.edu/uscode/uscode12/usc_sup_01_12_10_16.html
http://www.law.cornell.edu/uscode/uscode12/usc_sec_12_00001831---o000-.html

U.S. Code, Title 12, Chapter 16, § 1831 o Prompt Corrective Action (b)(2)(B)(i) and (d)(1)(A). Capital distributions (dividends) and share buy back programs restricted.

U.S. Code Title 12, Chapter 16, § 1831 o Prompt Corrective Action (f)(2)(F) The appropriate Federal banking agency shall* carry out this section by taking 1 or more of the following actions ... (F) Improving management. ... (i) New election of directors. Ordering a new election for the institution’s board of directors. (ii) Dismissing directors or senior executive officers. Requiring the institution to dismiss from office any director or senior executive officer who had held office for more than 180 days immediately before the institution became undercapitalized. …

U.S. Code Title 12, Chapter 16, § 1831 o. Prompt Corrective Action (i)(1) and (i)(2)(A)(B)(C)(D)(F) ...Restricting activities of critically undercapitalized institutions: To carry out the purpose of this section, the Corporation shall*, by regulation or order— restrict the activities of any critically undercapitalized insured depository institution; and at a minimum (emphasis added), prohibit any such institution from doing any of the following:

(A) Engaging in expansion or acquisition of competing firms
(B) Extending credit for any highly leveraged transaction
(C) Amending the institution’s charter or bylaws.
(D) Making any material change in accounting methods.
(F) Paying excessive compensation or bonuses.

*The term "shall" above is used to denote a mandate. Legal mandates denote required action and if not performed result in an attempt to defeat the laws.

When applying weightier provisions of 12 USC 1831 o Prompt Corrective Action, the law seeks to apply lessons learned after years of research and investigating Savings and Loan problems.

Weightier provisions of this law (often referred to as "shall" or "shall not"), were made into law, to protect American people from financial lapses and misdeeds of executives, boards of directors: fraud, incompetence, investment mistakes, bad faith acts, youthful experiments, guile and chicanery – emitting from large and small corporations, and specifically, financial firms. These many failures and short comings which manifest during the Savings and Loan era, were problematic because the FDIC was to guarantee depositor funds at such institutions that were being poorly managed. They were also problematic because the government did not have shielding from offenses, or repetition of many offenses.

To summarize Savings and Loan problems: offending parties acted to exploit trust sometimes given to bankers; their office. In some instances, flaunted fiduciary duty to enrich themselves, and leave Americans in a wake of confusion, while dumping debt off, in an evasive and irresponsible manner.

In U.S. History, when American regulators finished dealing with Savings and Loan scandal, they came together to present laws to deal with problems and indulgence, emitting specifically from banks and financial firms. Laws were presented that if such things should manifest in the future, regulators and our government would have a way of protecting Americans and their government.

The laws presented offered greater detail in how to deal with undercapitalized firms, all undercapitalized firms, making distinction between firms that were acting badly and firms that had made risk-mistakes. Noting that some firms are not trying to steal from tax payers, and need to be treated fairly, even though other banks might be acting dishonorable. There was a need to treat both types of firms evenly, so that firms making mistakes could possibly recover if they followed regulatory guidance and developed plans of action to become recapitalized.

The most important feature of this presentation, is that scholarly research was performed to follow all the crooked paths, and make discovery of what went wrong. Many man and woman hours went into this work and resulted in a good set of discretionary guides (to give flexibility) and mandates (to provide rigid oversight in the most essential places).

American researchers and regulators did this with benefit of hindsight. They had the lessons learned from that experience and the laws were reviewed, and later put in place during the 1980s.

A Word about Double Jeopardy (Spirit of the Law):

Having endured abuses before, Americans have a reasonable expectation that they will not be imposed on or punished, a second time, for the financial sins of banks or financial firms. Especially in short amount of time as one generation.

There was an implied promise, during that period of U.S. History … ONCE WAS ENOUGH.

http://en.wikipedia.org/wiki/Savings_and_Loan_crisis

This one page review of some cases (Midwest Federal Savings & Loan of Minneapolis, Minnesota, Lincoln Savings and Loan, Silverado Savings and Loan and Home State Savings Bank of Cincinnati), helps to describe the seriousness of the period. It also helps expand the scope of the some of the more serious problems the above law 12 USC 1831 o Prompt Corrective Action, seeks to protect Americans from.

In taking these matters into consideration, Americans should not be punished, a second time. When considering the legal concept of double jeopardy Americans merit better protection.

Double jeopardy is a Firth Amendment guarantee that protects against multiple punishment for same offense (see misdeeds of banks in 1970s-80s). Leaders can do a more diligent job, protecting Americans by invoking the spirit of the law, in debate, for better safeguard consideration. This is important during a crisis. Good advocates will remember our recent history. During that time, our parents and grandparents were already punished for the financial sins of banks.

Purpose of Above Laws - Mission Statement:

12 USC 1831 o Prompt Corrective Action:
(a) Resolving problems to protect Deposit Insurance Fund.

(1) Purpose: The purpose of this section is to resolve the problems of insured depository institutions at the least possible long-term loss to the Deposit Insurance Fund. (IE: Least expense to tax payers).

(2) Prompt corrective action required: Each appropriate Federal banking agency and the Corporation (acting in the Corporation’s capacity as the insurer of depository institutions under this chapter) shall* carry out the purpose of this section by taking prompt corrective action to resolve the problems of insured depository institutions.

The authority and might of a regulatory agency is reserved for prompt action. *Again, the term ’shall’ is used to denote a mandate. Mandates do not allude discretion, nor discretionary type action. Mandates stipulate required action.

It is important for a regulatory agency to move with power and authority. It is essential to divide the problem up into manageable parts, and compel actors to stop doing things which are hurting the bank or the industry as a whole. Mandates are helpful for this purpose.
Some things which might hurt a company, for example, are a board of directors who are electing to extract cash from a company's balance sheet, or executives who are taking money out of the company vault, and taking it home to invest in another business or to go on long vacations. A specific mandate like U.S. Code, Title 12, Chapter 16, § 1831 o Prompt Corrective Action (b)(2)(B)(i) and (d)(1)(A). Capital distributions (dividends) restricted. ...can help a regulator provide immediate relief from a board of directors who are electing to extract cash from a firm, so that it would have no cash and become undercapitalized. Such action can be prompt and authoritative. This frees the regulator up to focus on why certain executives are taking money out of the company vault, and how much money is involved.

A Word about Authoritative Command and Mandates:

When acting with power in regulating a bank or banks that are undercapitalize, or may be mischievous, prompt correction action must be performed with authority, initially. This helps to send message out that the regulatory agency has power to protect the funds first, and by extension the American people; their government. Effective action in performing mandates, are designed to help send this message.

Depending on level of authority, some discretion can be performed such as having 12 to 16 per-determined mandates and electing to perform half or three-quarters or all of them. Different bank failures, call for different levels of authority to be asserted. But initially, a standard course of action, where a regulator is seeking to exercise power correctly, a regular starts out with 8 to 12 of these mandates in hand. Discretion does not begin to factor until the most important mandates have been served out. After 8 to 12 mandates have been enacted, a regulator can then determine, to proceed with the remaining mandates or to hold off and give the company a chance to adjust. But eventually the mandates have to all be fulfilled to satisfy the desired protection of the funds and by extension, the American people.

Again, when a firm says it is undercapitalized, or when it is learned by regulators, it is important to separate that firm and apply detailed restraints to it.

When that firm is given tax payer money, a duty to uphold mandates is elevated to a more serious level, encompassing oath and work product. Allegiance is first to protect the funds, and then by extension, the American people. Mandates help to elevate the importance of this work, and help also, to manifest the importance of the work product, to supervisors, other law enforcement observers and those who are being regulated.

In the midst of a crisis, some order and decorum must be preserved. During a crisis when not all is known and when emotions are frazzled by alarm, mandates help take emotion out of the equation. Mandates provide regulators with some idea of where to start, in purpose of acting promptly. Mandates simplify the work, as the starting points are already determined ahead of the crisis.

To note regulatory mindset: any time a bank is undercapitalized, it is a mini-crisis in that community. So the mandates help a regulator come from a long way off, and still know what to do, so that it protects funds and by extension keeps Americans from being liable for mischief or mismanagement.

When many firms are found to be undercapitalized or extremely undercapitalized, it is important to put the firms in tracts, divide them for monitoring purposes, but applying a strict regimen of directives, so that it can be determined which of the unruly banks needs to be quickly brought into receivership. [U.S. Code, 12 USC 1831 o Prompt Corrective Action (e)(1)(A)(B)and (C) ...(e) Provisions applicable to undercapitalized institutions (1) Monitoring required.
Each appropriate Federal banking agency shall*— (A) closely monitor the condition of any undercapitalized insured depository institution; (B) closely monitor compliance with capital restoration plans, restrictions, and requirements imposed … and (C) periodically review the plan, restrictions, and requirements...]

A crisis of many firms: When regulating many, many dozens of firms, for example financial banks involved in self-regulating the derivatives market, it is important to act promptly in the important laws, and to not waste time, applying some of the law, and not other laws, summarily, as though on a whimsy. The crisis involving many financial institution, requires much greater force of power, than regulator might need to assert with one firm.

The mandates of the law, provide required action all around, to put the firms in an environment of

more careful scrutiny.

As mentioned above a mandate is important for the sole purpose of taken emotion and favoritism out of the equation. When dealing with undercapitalized firms on the tax payers’ dime, the law must prevail and not favoritism or emotional indecision. Tracts must be established to divide the problem in manageable parts. Mandates allow for that SERIOUS action and duty to occur.

To Review Application of Law and Why Treasury Might Like to Re-write Law:

Omissions are telling: By way of omission, Henry Paulson shows he is a charmer for favoritism. In this he does not act as a good steward or adviser, who is independently detached from firms or affiliate banking associations he used to work for.

By way of omission, Mr. Paulson may demonstrate or provide evidence, he is wearing two hats. If this were true, Mr. Paulson would be acting to favor banks, contrary to the actual needs of the tax payer, or contrary to the mission of the above laws, which is to first protect the fund. By way of omission, Mr. Paulson, provides evidence of possible intent, to compromise his Office, himself, and the standing laws: Laws which, in a genuine sense, are on the books, presently, and in 2008, for the sole purpose of protecting fund; by extension, protecting the American people and their government from exploitation and abuse.

This is where a type of Tree Doctrine, comes into play, dealing with fruit or work product, sometimes referred to as Fruit from a Poison Tree, when dealing with dishonest dictators and executives who are on the boards of directors at banks.

Many believe Mr. Paulson started out providing wrong example, and a case can be made for this, when reviewing many omissions, or pattern omissions in above law; subsequent desire to rewrite the law. Where omissions are true, subsequent desire to rewrite law, shows an intent to continue in neglect of the standing law, mask flaunt of the existing law or to manage previous pattern of omissions.

Note Fed board of directors/governors and other Treasury officers coming behind him, seeming to be very eager to re-write the law, to give themselves broader power.

In this, it can be observed from a law enforcement perspective, that others have followed Mr. Paulson, in trying to make it appear like he did nothing untoward in favoring large banks.

The effort involved in a media campaign (to show him innocent in the eyes of the media), is further evidence that somethings were done wrongly, and perhaps dreadfully so.

The board of governors at federal reserve branches are also worried, as many of these officers are coming out to give speeches in how the current law needs to be re-written, as opposed to acknowledging mistakes were made (that they were liable for approving).

Also noteworthy, the media is being used in a reverse manner, to NOT try the Treasury for favoritism. Traditionally the media is used to try a case in the public eye. In this instance the media is being used to NOT try the case of favoritism in the public.

Note also, even those who educated students to perform in the derivatives market, such as Larry H. Summers, are making the rounds talking up the need to re-write laws, as if he wants the tax payer to be liable for financial abuse and mistakes, also, in the privately run derivatives market.

By comparing media blitz to re-write regulatory law, with actual laws that were NOT upheld, it would appear that many are being asked to help in the campaign to save the Treasury and perhaps the Chairman of the Federal Reserve from prosecution.

This begs the question, what did they do wrong? The answer can be seen from their perspective, by looking down the list of important laws in dealing with regulating undercapitalized banks.

When looking down the list, they might be asking to each other, how did the Treasury and Fed Chair uphold this important law or that important law. The answer in some instances, is that they did nothing.

A sequence of omissions, help in evidence, to prove intent. By way of omission, dishonorable regulators, show they were intent to remove laws, from Americans, that if left in place and upheld, would otherwise serve to protect the fund and them.

By acting aggressively to re-write law, it may be in keeping with many omissions. Omissions serve to manage neglect of those who are being injured. Managing neglect means that no-one can come to protection of Americans, because the rules for protecting them are in a state of fluctuation. Such a political move, is more at grasping for straw, because the fact remains:

The above laws are in place. They are the standing law. As long as they are the standing law, the board of governors at the federal reserve and all persons acting in association with Mr. Paulson, are vulnerable. Irregardless, their actions of potential favoritism, merit more scrutiny from law enforcement. The American people deserve this in the least, due to the fact that they have already endured abuses, with the Savings and Loan scandal.

To put down the good work product of conscientious scholars and those who came before, making careful study of Savings and Loan problems, may appear like hubris, but there is another side. It is also a potentially damaging course. Because those people may have been diligent allies of the United States; acting in good conscience and good defense of the American people.

Rewriting law, stimulates debate that distracts attention from whether the standing law was upheld; provides a temporary fix or excuse for not doing the important work (protecting fund and others by upholding the law) during a crisis.

Ultimately, rewriting law is about trying to escape scrutiny; masking the fact that Treasury and Fed governors have acted to violate many important laws and by this technique, gave favorable advantages to a select group of firms.

Laws in question:
http://freepdfhost.com/form_page.php?id=3042

Is there no end to the incessant, ever-increasing, and enlarging scope of the Obama administration and their Democrat cohorts in Congress in meddling in every aspect of American life. The role of government is to enact just laws, punish criminals, and to protect us froom enemies foreign and domestic. There is a one-to-one correlation in the incrasing involvement of the government in all areas of life with a dimunition of freedom. Please, may those who love freedom standup against the ever increasing statist policies of this administration.

The U.S. Chamber of Commerce today welcomed the administration’s proposal to regulate U.S. financial markets, but expressed disappointment with its plan saying it unnecessarily adds new layers of regulation and does not provide comprehensive reform to the current broken system.

“Our evaluation of the administration’s plan is based upon its ability to solve three fundamental problems with our financial regulatory system: ineffective regulation, regulators that are not well coordinated, and regulatory gaps that missed significant problems that occurred in our markets,” said David Hirschmann, president and CEO of the Chamber’s Center for Capital Markets. “While the Administration has made several positive recommendations, we’re concerned that overall, the proposal simply adds to the layering of the system without addressing the underlying and fundamental problems. We can’t simply insert new regulatory agencies and hope that we’ve covered our bases.”

Lombard Street, the first eJournal focused exclusively on financial services regulation, published an exclusive issue analyzing Obama's plan. Contributors including Richard Posner, Robert Litan, Arnold Kling, and Lawrence White. Judge Posner's article and analysis was particularly interesting:

http://www.finreg21.com/content/download-lombard-street-volume-1-issue-8