Why the Paulson Plan is DOA

Posted by: Michael Mandel on March 30

Let’s see. In the middle of perhaps the greatest financial upheaval since the Great Depression, Treasury Secretary Hank Paulson is proposing a change in financial regulations which basically amounts to a big wink to Wall Street. His plan will go nowhere, both for political and practical reasons. In fact, it does not even meet the minimum standard of improving transparency, which would reduce the possibility of a similar crisis in the future.

The main point of the Paulson plan is to make regulation more efficient. It notes that changes in the capital markets are

…pressuring the U.S. regulatory structure, exposing regulatory gaps as well as redundancies, and compelling market participants to do business in other jurisdictions with more efficient regulation.

So what does the plan actually propose?

The one clear improvement is more regulatory oversight for mortgage lenders. Otherwise everything else in the plan consists of rearrangements and clarifications of current regulatory responsibilities, at least in the short and medium run. For example, responsibility for regulating insurance companies would gradually be shifted from the state to the federal level. And the SEC and the Commodity Futures Trading Commission (CFTC) should be merged. The Paulson plan makes sure to note that the new combined agency should engage in faster approvals of new financial products. As the executive summary says:

The SEC should also consider streamlining the approval for any securities products common to the marketplace as the agency did in a 1998 rulemaking vis-à-vis certain derivatives securities products. An updated, streamlined, and expedited approval process will allow U.S. securities firms to remain competitive with the over-the-counter markets and international institutions and increase product innovation and investor choice.


I have nothing against regulatory efficiency, and I applaud financial innovation.

But the Paulson plan belongs in a fictional world where financial institutions do a good job in regulating and monitoring themselves. Unfortunately, that’s not the world we live in.

The most striking thing about the current problems is just how much money the banks and the investment banks have lost. They apparently had no idea of how risky their own exposure was. The supposedly smart guys were simply stupid.

For me, the main lesson from this debacle is that both banks and investment banks must be required to fully report what securities they are holding, both directly and indirectly. No more off-the-book special purpose vehicles, no more hiding derivatives under the table. If a bank or an investment bank is holding a security, they have to publish the amount and the basic characteristics.

This requirement may seem onerous to Wall Street, and it is. But it’s for the benefit not just of the financial system, but for the banks themselves, who appear not to be able to keep track of their own risks without assistance. Everything should be fully reported. Without this simple step towards transparency, nothing else matters. With transparency, other market participants have the chance to make their own judgment.

For political reasons, nothing is going to happen until after the presidential election. The Democrats in Congress have no reason to sign onto the Paulson plan. But the next president—whoever it may be—should put financial transparency at the top of the regulatory agenda.

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Reader Comments

JD Mensing

March 30, 2008 01:43 PM

"In the middle of perhaps the greatest financial upheaval since the Great Depression..."

Oh please - you can't really believe that can you?!?

What has been the impact of this "credit crunch" to you personally? Your family?

True, this is not a healthy, vibrant economy. We're still GROWING though for Pete's sake (who's Pete anyway?).

All of the cries of "recession!!" have not materialized. There has been no contraction - no shrinking - no backing up in US economic growth.

US Home Sales Post Surprise Rise in February:
http://www.reuters.com/article/BLDFIX/idUSN2432277620080324

If you have sub-prime credit, cannot document your income or save up a down-payment, maybe you shouldn't be in the housing market anyway... just a thought.

AgentG

March 30, 2008 01:46 PM

Transparence is anathema for power-bankers. They do not seek to participate in free markets -- they seek to manipulate them, and instransparence is a wonderful enabler. The current regulatory structure, if enforced, could actually do a much better job at providing transparency. If institutions such as the SEC are unable or unwilling to defend investor's and the public interest, how would a new regulatory structure change that?

Leslie Stockton

March 30, 2008 01:47 PM

Keep up the very good reporting this is what the pulbic needs...

RJG

March 30, 2008 01:49 PM

Mr. Mandel should be writing for the "Workers Daily "not "Business Week".

RudyFromNY

March 30, 2008 01:52 PM

It's funny how soon Paulson turned from being a Wall St guy to a politician. The country doesn't need more legislations ! The country would be happy if Paulson can balance the trade deficit. Amount you earn = Amt you spend ( over a reasonable period of time). If that can be achieved, Rest all will fall in place. If govt can't behave responsibly, then how do you expect people to ?

eugene

March 30, 2008 01:54 PM

Dismantle the Fed. Alan and Ben's raising of the interest rates have succeeded in destroying the housing sector, and the economy. Ben's are only trying to rebuild his destructive moves. Why are you letting him infect inflict more harm? This is another
incident of a Government Gone Wild!!

Garret Bergerson

March 30, 2008 01:58 PM

Would "W"'s proposed financial swat teams be contracted under Root, Brown and Kellog or Halliburton? Since the recent off-shoring of their HQ's be considered before any new contracts are signed?

Gumby

March 30, 2008 02:04 PM

Come to think about our military. Our generals could be stupid one day and be defeated by rag tag insurgents in Iraq?? Maybe there should be more transparency in our military as well, huh?

Gumby

March 30, 2008 02:06 PM

Our EPA need more transparency , since it is still doing nothing about ultra emission firewood and charcoal and cigarettes . Also, there is the stenching open sewage gases escaping through manholes. EPA should measure how much gunk our home chimneys and stove pipes spews out from burning firewood... C'mon gimme more transparency... Me malicious comment?? hahahahah you are funny

Gumby

March 30, 2008 02:09 PM

One thing will never change or stop is that Wall Street will continue to funnel money to Washington DC Beltway and vice versa... No matter how transparent.. most of us are still incapable of decphering the nuances of financeing reporting... We are bombarded with so called expert advices that is usually self serving or self duped ...

Gumby

March 30, 2008 02:10 PM

You dont want abusive comments to upstage your abusive reporting...

Robert

March 30, 2008 02:10 PM

I hope they don't let the Fed run even more rampant with corruption then they already do today...

Most people have no idea that the Fed is
a private corporation that charges us money to print money.
If people knew the truth about the Fed they would know that its because of the Fed that America is suffering.
That truth is coming and the days of the Fed are numbered, treasonous bastards!

Rick Crago

March 30, 2008 02:15 PM

If everyone in this country would CASH their paycheck and pay all their bills in cash for 90 days, you would see a correction, and elimination however painful, of the needless profit taking by Wall Street and others....

Dominic

March 30, 2008 02:18 PM

Mike

I could not agree more with what you said.
In absence of full and clear disclosure, all this "change" in financial regulations is hogwash....just wait for the next crisis...
Absolutely excellent, keep up with the good work!!!

Ciao

Pete Kusnick

March 30, 2008 02:21 PM

Sarbanes-Oxley or rewrite the Tax code or just start a nuclear war. It all comes down to the people who own the votes have the wealth. No change is coming except in increments so small no will notice. It's blowing in the wind.

J W Collins

March 30, 2008 02:22 PM

Absolutely right. A re-org is exactly what this ineffectual administration does when it has no answers or proposals of consequence. It did it with Homeland Security and made a mess of some venerable departments, and now that it has run up a ten trillion $ debt with a trillion $ a year deficit, no plan for energy, no plan for war, no plan to pay upcoming entitlements except to turn the mess over to the next guy, it wants to re-organize. I might suggest that the LAST thing we want a Bush Administration to tinker with is the already diminished and battered U.S. dollar.

don mcgoldrick

March 30, 2008 02:35 PM

i so agree, nothing more than a political smoke screen. wall street will love it. they say, they're yelling at me because they have to but i know they won't punish me. where did paulson work before?? oh! yeah, wall street, it's pathetic but this is the american way!!!!!!!! thanks

Steve

March 30, 2008 02:37 PM

As one of the response mentioned this proposed new regulations is a wink to the hedge funds and investment banks. The problems, as I see is is simple, you've got to have very strong and independent regulatory bodies unencumbered by political influence and lobbyists. Don't buy into the concept that these companies operate in States must have the responsibility to regulate companies that operate within their sphere Consolidating power under one regulatory agency is not the way to address these problems. Remember a lot of what we see happening in the financial sector today is a result years of consolidation within the industry.

Thomas C. Inskip

March 30, 2008 02:41 PM

New World Financial Leadership

For twenty years, the subprime management methods infected World commerce. In that time, in almost every nation, finance organizations created subprime note generator organizations. Unnoticed, these peculiar organizations were held off-the-books to protect parent owner organism.

It is unfortunate that USA finance organism first originated the UML models that spread into World finance. In addition, as the new models generated immense returns, non-USA financial organism felt obliged to cooperate or mimic USA models.

In a short time, non-USA financial organisms surrender their USA toxic paper to their Central Bank for redress. Every Central bank sees subprime note funds that exited their nation; and in redress, they expect full refund, interest, and penalties.

At this time, the FBI investigates financial criminal activities. Racketeer-Influenced and Corrupt Organization (RICO) charges seem not coming.

Unless the USA acknowledges international law and courts, sanctions placed upon the USA bring financial debacle to all USA commerce.

Unless the USA demands and applies hardened ISO Standard bookkeeping with real-time functional active transparency, recovery seems beyond reach.

Some nation will lead international finances into and through this international subprime management affair.

Given that the USA recognizes international law and courts, then with functional ISO Standard bookkeeping (in sorting many international subprime management affairs) the USA may re-model international finances in a new and inter-active dynamic World commerce.

Thank you for your time and labour in my agendas.
Anthony Maxwell Taylor Fokker


bob morrison

March 30, 2008 03:13 PM

It is unfortunate that the end result of this is that the banks and investment banks will prevail with their own plan which will be inimical to the interests of our country. There are too many high powered lobbyists in this country for the kind of plan outlined above to be put into action. It is a tragedy.

Lance Newell

March 30, 2008 03:19 PM

I am just stunned,as to the truth coming out about Paulson's plan.As I read about his plan,some yesterday,more this am,I was really surprised at how little it really did to control the possibility in the future of another crisis as we have today.
It really makes me feel much better,that someone else see's what is really at the heart of Paulson's plan for the future.Nothing.
The congress,which of course will have to sign off on any plans,all the way thru,should rip the regulatory process in pieces and make sure,as best as can be expected,to never let this happen again.
I for one,do not want to hold billions in bad paper,just to bail out companys that made terrible decisions.

Kevin Herbert

March 30, 2008 03:29 PM

As A CPA, it seems to me that the FASB also dropped the ball as well in the reporting of off balance sheet investment vehicles. I work in healthcare but it just seems to me a basic proposition that if there is any transaction or arrangment that could impact the liquidity of a an entity in the future, it needs to be part of the accounts of a business and not buried in the footnotes.

Donald

March 30, 2008 03:38 PM

I agree. Without complete transparency all the other stuff is just pseudo-regulations.

I would like hear much more from the presidential candidates about complete transparency in all securities held by all financial groups. However, I realize that even though enacted, transparency will take time for those involved to re-adjust their operations so that public scrutiny is not overly embarrassing and damaging. So I gratuitously suggest a 12-month window in which these generously self-paid groups can make their investments surface in daylight from the self-serving covertness and into common view. Any candidate-takers?

As the current financial mess unfolds it appears to be nothing more than a cabal of the greedy enhanced by weak regulation and complicit politics creating a none too surprising panic.

Untamed secrecy in public affairs will ultimately destroy our form of democracy or, for that matter, any orderly government. Out votes for agendas and people will never really count unless we can see clearly all the details no matter how uncomfortable it makes us feel. This nation was not founded on comfy. Nor will it survive global competition by remaining or becoming complacent by secretly shuffling worthless aggregated paper values around the world.

To quote a common phrase: "My fellow Americans...."

Let's get off our shallow patriotism that often blinds us and get to work.

dh

Philip G. Patch

March 30, 2008 03:47 PM

WHAT ABOUT THE RECOMMENDATION FOR A "PRUDENTIAL FINANCIAL REGULATOR" TO MONITOR AGENCIES WITH EXPLICIT GOV'T GUARANTEES, A "BUSINESS CONDUCT REGULATOR" TO MONITOR DISCLOSURES, BUSINESS PRACTICES,CHARTERING AND LICENSING, AND A "CORPORATE FINANCE REGULATOR" COVERING CORPORATE OVERSIGHT IN SECURITIES MARKETS...SEEMS TO ME THAT COVERS THE MOST IMPORTANT ASPECTS OF TRANSPARENCY. IT MIGHT VERY WELL HAVE PREVENTED THE STUPID DESIGN OF THE MBSs AND ABSs THAT RESULTED IN THE HOUSING MESS!!

Xira

March 30, 2008 03:51 PM

The problem with all the whineing going on here is that it all basiacally amounts to people being responsible and truthful.

People are not responsible and truthful.

Gumby

March 30, 2008 04:07 PM

Still, none of you care to add on my comment about EPA. Really, I think firewood smoke and cigarette smoking on the streets are costing us the most by far in health related expenses. Nurses and doctors in self vest interest aside, every one of you should have started paying much closer attention to firewood and cigarette second hand smoke than normal. The government is still ahead of you.. The government is more interested in saving smokers' health than to tell them to butt out or move out of our faces... Ditto for firewood and charcoal users .... If you still not impressed, then all the talk you are making are not getting nowhere fast... we will still be carted off to ever bulging hospitals and keeping asking doctors how the hell we got cancers and feeble mindnesses.. Doctors already knew that many patients are dying from firewood smoke and cigarette second hand smoke and sewage stench.. Why are millions popping in Advils, Aleves and old fashinoned aspirins?? because we are breathing gunk coming from local people not the powerplants and the jets in the sky... We are fooling ourselves into thinking that we must deal with climate change first and above of all... we are dying anyway... Our minds are constantly clouded by firewood smoke, charcoal fumes, cigarette smokers and sewage stench coming out of manholes.. We are tired and sick not from hard work but those common local stinks that are being allowed by EPA and many other alphabet departments. Our economy depends on all of you sick , weak, tired and lastly IGNORANT!!! Ignorance is bliss for health industry. Lawyers are busy doing sideshows and carryingout lawsuits against far away sources of air pollution rather than against local people ourselves.. Basically, we have ourselves to sue against ourselves... Sue our ignorance1!

Gumby

March 30, 2008 04:09 PM

Still, none of you care to add on my comment about EPA. Really, I think firewood smoke and cigarette smoking on the streets are costing us the most by far in health related expenses. Nurses and doctors in self vest interest aside, every one of you should have started paying much closer attention to firewood and cigarette second hand smoke than normal. The government is still ahead of you.. The government is more interested in saving smokers' health than to tell them to butt out or move out of our faces... Ditto for firewood and charcoal users .... If you still not impressed, then all the talk you are making are not getting nowhere fast... we will still be carted off to ever bulging hospitals and keeping asking doctors how the hell we got cancers and feeble mindnesses.. Doctors already knew that many patients are dying from firewood smoke and cigarette second hand smoke and sewage stench.. Why are millions popping in Advils, Aleves and old fashinoned aspirins?? because we are breathing gunk coming from local people not the powerplants and the jets in the sky... We are fooling ourselves into thinking that we must deal with climate change first and above of all... we are dying anyway... Our minds are constantly clouded by firewood smoke, charcoal fumes, cigarette smokers and sewage stench coming out of manholes.. We are tired and sick not from hard work but those common local stinks that are being allowed by EPA and many other alphabet departments. Our economy depends on all of you sick , weak, tired and lastly IGNORANT!!! Ignorance is bliss for health industry. Lawyers are busy doing sideshows and carryingout lawsuits against far away sources of air pollution rather than against local people ourselves.. Basically, we have ourselves to sue against ourselves... Sue our ignorance1!

zach garica

March 30, 2008 04:15 PM

Any and all loan officer and company(s) approving rate adjustable loans they know consumers can't afford on rate change should be left to fail, their own fault for approving them.

Everyone's forgotten the 1930's and why nobody trusted the markets until the 1980's.
A world wide finical crisis, calls for change otherwise let the markets crash so nobody trusts them for another 50 years.

Donald

March 30, 2008 04:17 PM

BUT, we have to ensure we don't assign the fox(es) to guard the hen house(s).

dh

POP

March 30, 2008 04:18 PM

what seems to be the main thrust of the fix compares to a reverse pyramid game with the poor ole taxpayer at the top pouring money into an endless hole.

Donald

March 30, 2008 04:19 PM

BUT, we have to ensure we don't assign the fox(es) to guard the hen house(s).

dh

willisj

March 30, 2008 05:15 PM

Sir Paulson also stated "the united states believes in a strong dollar"...sure gave the world a good chuckle.

Mike Mandel

March 30, 2008 05:32 PM

To JD Mensing..

The ramifications of the financial crisis are still spreading. If you are a prime borrower with good credit and money in the bank, you should be fine (roughly one-third of the population). But if you are someone who needs to borrow to keep up your standard of living, you are already being squeezed

Dano

March 30, 2008 05:35 PM

The Fed is obviously feeling the heat and getting pressed into the political world. I think that a focus on transparency for all investors and some better recourse for investors from situations of gross mismanagement is really all I would like to see done. It feels an awful lot like the banks that steered this country into this mess are pulling the strings at the Fed. The market will all correct so long as the investor can again properly see what he is really buying.

rich m

March 30, 2008 06:41 PM

not that long ago 20% down, 25% of take home pay, and a positive impression on a mortgage banker were the norm..if lenders want to gamble with my deposits on lesser criteria, i ought to know....if the smart and unregulated geniuses at bear, lehman ,et al want to gamble on oil futures, currency valuations, or the weather with my money, i ought to know..there are plenty of villains in the current crisis...i hope we get serious about some common sense reregulation

madmilker

March 30, 2008 07:00 PM

dang! the Rothschild wealth was estimated at over $6 billion US dollars in 1850 and with just simple interest and 158 years later....over $500,000 trillion....duh! that's about 1000 times the Derevitive Market of the World that put the US in such disarray. Just think ...all that ther money sitting on less than 678 acres and located right in the heart of the 610 square mile 'Greater London' area. With only 6 nations of the World left without a Rothschild controlled central bank: Iran; North Korea; Sudan; Cuba; and Libya....where will the next war break out....cause Afghanistan wus #07 before US attack them.
So! y'll can talk bout Mr Bernanke get'n p^ssed, Mr Paulson stupor look and even that Bush guy that comes over like a large monkey on steroids....but none of these people are no larger than a hair on a gnats a!! of what this is all about.

JungleJim.com

March 30, 2008 08:04 PM

Mike,
The OZ is with you on this one!

Andre

March 30, 2008 08:10 PM

Imagine making public and transparent all the investment banking trading positions in the market. That is the same as Coke putting out open in a Web site the formula for the Coke syrup it sells to the bottlers. It's NEVER going to happen. IBs spend a huge amount of money in trading technology and hire the best minds to rund and build their trading platforms. This is why they have an edge.
The could certainly let only the Fed see the books, but absolutely not the public - and for that matter this is a proposition that could bring a lot of benefits - assuming the Fed is capable to develop efficient risk metrics to measure and regulate IB's market positions and leverage.

Hyeong jun cho

March 30, 2008 09:12 PM

I am very wondering how could effect after the change of financial regulatory, and what's going on next step? Global financial institutions and banks did writdown lots lof loss. Because of the subprime in U.S.. So those happening made the recession as well as the credit crisis. Who has responsiblity of that? NO ONE, just waiting for the goverment reactions.
I do not think changing regulatory will help U.S. economy very efficiently and improving transparencies.
Anyway I totally agree with Micheal Opinion that banks ans investment banks have to represent and publish the amount of basic characteristics. And do not have to hide. Those will upgrade U.S banks and economy.

Anyomous Coward

March 30, 2008 09:35 PM

"Dismantle the Fed" = Shoot Eugene

johnroger

March 30, 2008 09:45 PM

Eugene - you win the grand prize for haveing the best Comment. You hit the nail on the head.
Mensing - a dumb, uninformed response.

Matt

March 30, 2008 09:46 PM

Mr. Mendel

The last thing this economy needs is more regulation. Regulation is what got us into this mess in the first place. Your reporting for business week is surprisingly simplistic and lame. You need to brush up on your economic fundamentals.

Novista

March 30, 2008 10:22 PM

'Asset securitization' originated in 1970 from the Department of Housing and Urban Development and ultimately went on steroids.

One has to ask: where were all the guvmint experts analyzing this trend? What do the congressional banking committees spend their time on? You don't necessarily need regulations if conclusions can become public information.

Well, of course, everyone was turning a blind eye to the growing perfect storm. Just as the SEC approved the crazy accounting practices for Enron and the ratings agencies still had "the smartest guys in the room" as a Buy only two weeks before Enron tanked.

The MSM were effectively cheerleaders for a flawed financial system.

Let's not forget the GSEs played in the toxic mortgage pool.

And the ratings agencies don't deserve a pass.

Holly Garfield

March 30, 2008 11:09 PM

The stockholders are the owners of the company, including the finance industry. Lack of transparency amounts to keeping information from the owners of the company, a policy that cannot and should not be supported or tolerated. It is patently unfair to the business customers who rely on the financial industry to run their own business smoothly. It is unfair to the investors buying the debt vehicles. It is finally unfair to the taxpayers who have to bail out the opaque financial industry to keep the rest of the economy from collapsing.

The federal regulation structure certainly needs to have a major overhaul. One key point is that the Congress, and not the Fed chairman, should set the federal financial policy. Other federal agencies, such as the FCC, FAA, FTC, etc. all have to go through Congress for major policy changes such as deregulation. I was in broadcasting when it was deregulated in the 1980s and every step went through Congress. The Fed needs emergency powers in the short term, and can fine tune the direction of regulation, but should never have been given the power to execute the de facto deregulation of this decade. Executing the existing regulations should never be an option, it must be a mandate. Financial policy setting ishould be in the realm of Congress, not an appointed agency head, nor the executive branch. Congress is the branch that was set up specifically to handle the day to day concerns of the voting public.

C Kennedy

March 30, 2008 11:18 PM

The JD Mensing gentleman is 1 of 4 things ............or possibly all
1. Very very stupid
2. Very very rich
3. Smoking dope
4. Close to brain dead
I opt for #1

To Andre: The Fed is the problem not the
cure

To Gumby: The U.S. economy AND the dollar are going up in flames and you wanna talk about charcoal, cigarette smoke and sewer gases.... wake up buddy and smell the flames. Also you should try to organize your rants so your not looked at as lunatic fringe

To Xira: Duuhhh

To:RJG: You need to get outta your cave more often guy.

Robert and Donald nailed it
Eugene and NY Rudy's got it
Garret B obviously has done his homework
and knows just how deep the tip of this iceberg goes.He also realizes just how many tentacles this mess has.

Most everybody else sorta get it

donald

March 31, 2008 12:04 AM

Don't care about Coke's proprietary formula, only its investment portfolio.

Wamt to find the truth? Follow the money trail. This is the Golden Rule for CPAs, IRS, and FBI.

Let's follow some really big money- and find out what the IBs have to hide. Surely it is more than the Pantone color formula for their corporate logo.

dh

donald

March 31, 2008 12:05 AM

Don't care about Coke's proprietary formula, only its investment portfolio.

Wamt to find the truth? Follow the money trail. This is the Golden Rule for CPAs, IRS, and FBI.

Let's follow some really big money- and find out what the IBs have to hide. Surely it is more than the Pantone color formula for their corporate logo.

dh

Ted

March 31, 2008 12:52 AM

Hey.. the way these guys make money is because the lack of transparency gives them the advantage.

Once the playing field is level, the large gains disappear.

As for the lack of control in spending, garbage in garbage out. If you don't teach financial responsibility at a young age, the habit never dies when you age.

pat

March 31, 2008 06:14 AM

Get real. Wake up and look at the reality.

Sridhar

March 31, 2008 06:28 AM

Ok so nobody wants to create a panic. There are millions of people who have put real money into the markets and the last thing they want is for 'experts' to go over the top about what's happening in the American credit and housing markets. They sure dont want people hitting the panic buttons. But somehow I do not think it is an overstatatement to say that Amarica is in the middle of a monstrous monetary crisis. It may not be yet the worst since the Great Depression. But it is bad enough. And the shockers really are: 1. 18 months and more into the crisis, there is still no clear number to how much money banks and those guys who bought the bundled securities are down by. Mr Mandel is dead right. If these 'smart' guys haven't been able to assess their own risks and get a clear fix on how much they are losing, fat chance of their being able to do it for you and me. But its a lot worse clearly. Not for a minute will anyone other than the most gullible beleive that the banks haven't yet totalled up their losses. The fact is that there is nothing in the regulations, including the latest Paulson perorations that forces the banks to come clean. Yes its the opacity more than anything that is causing the havoc. If its not the worst since the Great Depression then believe it: it will be the worst if transperancy remains a mirage.

Tsais

March 31, 2008 07:11 AM

wow, who would have thought so many reader comments would be outright flames! Some people apparently don't know that the basis of a discussion are different opinions.

Even more people seem to lack all understanding for anything beyond their personal little section of the entire complex subject.

a few responses did make it worth being subjected to the rest of the mud slinging though.

random

March 31, 2008 07:50 AM

"The last thing this economy needs is more regulation. Regulation is what got us into this mess in the first place."

So wait... unregulated, off-the-books securities being traded with no paper trail and accountability are a symptom over over-regulation? Isn't that kind of like saying that racketeering is a result of overzealous police action or that an increase in teen pregnancy is a result of wide availability of contraception?

Methinks somebody else should be brushing up on economic fundamentals. And causality.

Mike Mandel

March 31, 2008 08:44 AM

Ted writes

>Hey.. the way these guys make money is >because the lack of transparency gives >them the advantage.

You are absolutely right. That's why I said that this requirement is onerous for Wall Street.

But transparency has to be legislated, not just for our good but for theirs.

james Anderson

March 31, 2008 10:09 AM

Just to give everyone some recent history as perspective, I remember when CFO magazine had ANDY FASTOW as its cover story, lauding his "special investment vehicles" to allow Enron to become the company of the future. Basically, when I read the article, I was able to identify that he was recommending HIDING liabilities in off balance sheet entities with these "sale and buy back" agreements. I was only the stupid lawyer and could identify this was fraud, pure and simple. Now, take this simply concept (which seemed beyond the capacity of these high-powered investment banking firms and their LEGIONS OF LAWYERS to understand), and take the assets into the securities industry, in bulk. The major feature? I bet there is BIG MONEY AT STAKE! Ergo, they spent the years after the fraud of Enron developing their new money making venture. And they get another pass from the regulators. Fraud is fraud, if any of the big boys gave back their fees and commissions, then I would believe in their additional self-regulation.

Karl

March 31, 2008 10:49 AM

'So', what is the 'ROOT' to ALL of the problems? Answer: FRAUD, CORRUPTION, DECEPTION, GREED, MANIPULATION & the PURSUIT TO FINANCIALLY INJURE THE INNOCENT!! Why are things 'collapsing'? Answer: All of the above are now being EXPOSED!! It's the exposure that is creating the collapse! Example: In February of 2008, Mrs. Spitzer probably thought that her marriage was intact, correct? However, in early March, her husband (Governor Eliot Spitzer) was EXPOSED, wasn't he?? It's the EXPOSURE that triggers the collapse! The USA & its economy is now being EXPOSED for what it really is!! A country & an economy based (for the most part) on all of the above!! Guess what? "The grand facade, so soon will burn." - Peter Gabriel, song #5, from the CD- 'So'

purebushit

March 31, 2008 12:26 PM

It bears repeating; the entire government structure has been corrupted by both Parties, to install toady, boot-lickers in ALL agencies. Im thinking, Attorney General @ DOJ, FBI, FDA, FAA, USDA, SEC, and let's not forget the Poster Child; FEMA...haven't we been FEMAed enough? Congress is noteworthy, for they control budgets and other critical measures. Congress and both the RNC and the DNC, love controversy, were Rules & Regulations need to be 're-written.' It's called 'Shake the Money Tree.' Especially valuable prior to every election. Industry coughs up much more money to insure loopholes and plenty of opaqueness, for industry to hide it's rapacious behavior. Clear now?

Larry Beattie

March 31, 2008 12:56 PM

This is a typical response to failure. Panic. Don't hold anybody accountable. Call it a "systemic problem," which is a way of saying nobody is responsible. Then create a "new" organization to "fix" the problem, which means more cost to everybody, including the tax payers.

The 911 response was the same ... panic, call it a "systemic problem," create homeland security to aviod holding anybody accountable and improving on existing systems.

Mahagwa

March 31, 2008 01:12 PM

Can anyone say "Glass-Segall"? This is the act that intended to keep commercial and investment banking seperate activities. Can anyone say "RTC -- Resolution Trust Corporation" -- this is the entity that shelled out billions when the savings and loans went belly up in the '80s. Remember when airlines were regulated and tickets were 'reasonable' and service was 'reasonable'. The problem is not over-regulation or 'under'regulation'. When you minimize regulation, you expect that 'intelligent' people will make 'intelligent' decisions. Unfortunately, these companies are not run by 'intelligent' people (well, they are intelligent -- intelligent enough to make millions when there companies are tanking--- just like bush and company are making billions while the economy is tanking). But by 'intelligence' i mean people who will do what is best for the company; people who have a basic understanding of business and the products they move. People running these companies do not fit that description.
Hence, until we have some intelligent people running these companies, i propose we bring back glass-segall; we re-regulate the airlines, we re-regulate the utilities; we get the insurance companies and lawyers and legislators out of the bed they all lie in and bring forth some true insurance regulation...i propose that these problem industries be tightly regulated and their executives every move be placed under a HUGE microscope.

Michael Blomquist

March 31, 2008 01:17 PM

What is going to take for people to wake up!

1) Paulson should be arrested for aiding and abetting loan and bank fraud. While he was at the helm of Goldman Sachs most of this toxic debt was originated. Without GS, BSC,et al. this crisis would have been "contained" and much more manageable.

2) The constant blame placed on state regulators is false and only conceals the real problem. See Eliot Spitzer
http://www.washingtonpost.com/wp-dyn/content/article/2008/02/13/AR2008021302783.html

3) Karl Denninger writes:
http://market-ticker.denninger.net/2008/03/articles-of-impeachment-bear-stearns.html
please sign petition

4) The Executive branch issued a directive to the FBI to NOT prosecute fraud for housing. Under the United States Constitution our President is charged with caring for the faithful execution of law. As alleged by Spitzer, Denninger and myself (FBI directive); this is not a question of negligence, but obstruction of justice.

You must get up off your butt and demand impeachment, restoration of our constitution and rule of law.

A different regulatory structure will not solve the problem. Lack of law enforcement and fraud is the real problem.

John Quincey Adams

March 31, 2008 02:07 PM

Come on all you spoilers. This is the Federal Government we're talking about. How much can you expect - 1.Once your in they can't fire you (no matter how bad you perform), 2.guaranteed COL pay raises (whooopeee!), and 3. retirement. Just put up with it all long enough and the rest if gravey. The oxen may be slow but the earth is patient. My suggestion is to start stuffing you mattress with worthless currency, like the US dollar.

A Different Eugene

March 31, 2008 02:15 PM

Before you give more power to the "Fed" skim or read the book -- The Creature from Jekyll Island: A Second Look at the Federal Reserve (Paperback)
by G. Edward Griffin (Author)

http://www.amazon.com/Creature-Jekyll-Island-Federal-Reserve/dp/0912986395/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1206986330&sr=1-1

The Fed chose its name to appear to be part of the US government, when in fact it is a small group of the largest banks.

BTW the Fed is the third central bank in our history. The previous 2 destroyed our curency of the day as well.

Someone said (I wish I remembered the source) All fiat money systems are doomed by Democracy. The voters will elect people who will ease the pain in the short run and ultimatly fail in the long run.

Pennys have cost more to make than they are worth, for years.

The Dollar is Dead, Long Live the Dollar

dennis

March 31, 2008 03:07 PM

This is not a Tsunami where you don't get enough time to run and save yourself. There were warnings, triggers, indications etc. What have we learnt at the end of the day? The trail directly ends at the way we were measuring and approving credit! FICO scores were all archaic based upon some research done almost decades back, a lot has changed since then but did anybody took any action? No!
The recent McKinsey Quarterly on finance says that there would be a -ve 40% earnings in 2008 which would again add to this whole debacle. The point here is to admit your mistake and plan out some fallback or corrective plan. We are all still thinking that we are not in recession. Get out of your virtual world and see the real problem, accept it and collectively correct it!

Adam Mileikowsky

March 31, 2008 03:13 PM

This is just another guise for deregulating wall street. What they really should be doing is giving the SEC more power NOT the fed. The fed is only there to regulate itnerest rates and the broader general economy. They are not there to regulate financial statements and markets. The government should comine the SEC with the Commodities Futures Trading Commission and not elect SEC commissioners based on party politics!

Greg

March 31, 2008 03:50 PM

Transparency is not necessarily a desirable trait to all things.

Transparency of bathroom stalls? Bad.

Transparency of clothing? I'll let you decide.

In American business, we protect things called "trade secrets." A core trade secret of the financial industry is, for example, an institutions current holdings.

If transparency is pursued, it must be done in a manner that respects financial institutions' trade secrets. Imagine if we demanded all of a software company's source code be viewable at any time by a regulatory agency. Granted, financial institutions' trade secrets -- alternatively, their holdings -- have associated risk/reward profiles. This built-in risk within the assets of financial institutions may indeed require regulatory oversight; however, it certainly does not necessitate complete transparency into a given institution's holdings at any time.

Ludwix

March 31, 2008 06:17 PM

SEC was designed to make the sale of questionable stocks more difficult.
Where is the necessary counterpart for bonds and/or derivatives?

Bill

March 31, 2008 08:24 PM

The Federal government has essentially given for free back up insurance to investment bankers. These are risks that have hithertoo been insured in the private market with bond insurance and other devices, whether or not one can count on the other party honoring its agreement. We should fund the "cost" of this insurance by taxing the windfall an insurance company made when the government stepped in to serve as an insurer. There should be no free lunches, and no windfalls to those who assumed there was no federal backup. In fact, I would argue that the investment banks should bid for government insurance...the riskier they want to be, the higher their premiums...or if they do not wish to disclose and pay...let them suffer the consequences without coverage and answer to their shareholders.

dph

March 31, 2008 09:09 PM

My, my, my! Aren't we all just shocked and horrified that a private central bank with a legalized monopoly on the creation of money and credit would lead to abuse of the financial system! We should really, really make them promise most sincerely that they'll just be ever so good now. Otherwise, we'll get our Congressional, professional lickspittles to say some really harsh stuff before they give the bankers even more control. That should fix 'em good!

Oh, and don't forget to marginalize and label as a kook the only statesman with the brains and courage to warn you about it in advance.

Lord

March 31, 2008 09:15 PM

If anything, this proposal seems to enshrine private profit, public losses as a matter of principal.

Robert Laughing

March 31, 2008 11:02 PM

Wall Street has peeves with Washington? How many ways CAN you screw, rob, rape, pillage, indenture, violate, and totally eviscerate the investing public? How can either political Party - Republican or Democrat- GIVE more generously to Wall Street thugs? And, you're just going out in November and vote your 'Party' ticket? Stupid... but then you GOT, and will GET MORE, of what you so justly deserve! Gawd, how the Money Lenders must love their flocks of sheep!

PB

April 1, 2008 12:45 AM

JD Mensing - it affects all the people who lost their jobs who had nothing to do with this mess, and all the people that got less of a bonus, you stupid ass. hah

Rance

April 1, 2008 09:48 AM

Paulson’s (Bush’s) proposals are a thin frosting on a cake that represents giveaways and bailouts for the bankers. If naïve and foolish people borrowed too much from greedy bankers, how much more naïve is it to believe that Goldman Sachs’ mole in the federal government is likely to impose transparency on Goldman and their friends? Note that regulation will be up to the Fed, which is a private bank owned by the very banks that have sold us out, and independent agencies, which Congress has been historically negligent in supervision. And historically speaking, independent regulatory agencies inevitably come to serve the industries that they are supposed to regulate rather than the public interest for which they are ostensibly set up. As for the Fed, I concur with those who believe the decline of the value dollar since 1913 (birth of the Fed) to 3 cents in 1913 dollars today is primarily due to the Fed and fiat currency, which, of course, is created by the Fed. Of Course, FDR, Nixon, and a host of other politicians were there to assist. And, by the way, I guess the 3-cent dollar is really only worth 1½ cents in Euros.
Query: Do we know what happened to the reported $800,000,000 in Goldman stocks owned by Paulson? …Other than the slide he got on taxes by joining the government? Do you really think these people are going to put the public interest first

Brandon W

April 1, 2008 09:56 AM

I'm giving up on my Libertarian ideals because it's obvious to me that greed and privilege will trample honesty and integrity in a completely free system. Sorry, theory is nice but it isn't reality. It's time for some serious regulation of our financial system (and probably health care, and a return to some regulation of flight infrastructure). However, I don't think it should come from the same administration that ran FEMA after Katrina, created the monstrosity that is Homeland Security, or fumbled a war in a small country for 5+ years. (We were in and done with WWII in less than 3 years!). I don't care if it's a Republican or Democrat that takes over next, but please keep this administration away from touching anything else.

Bobby Dylan

April 1, 2008 01:06 PM

Forget all the political talk, let's talk manhood here. Face it, Wall Street guys brag about being Masters of the Universe, but run like schoolgirls to Mommy Fed whenever they start losing.

Yep, Gordon Gekko is hung like a second grader. Little tiny shrunken testes. That's the real truth we have to face folks. Next time you see a big bad Wall Streeter, laugh in the little schoolgirl's face.

Wall Street says, "socialism -- it's a good thing!"

Joe Cushing

April 1, 2008 09:50 PM

If you got a whole and truthful answer from the fed chairman, past or present, he would tell you that his job should not exist. A computer has proven to do a better job in Germany. The Fed chairman doesn't make the decision of what his job is to be though. He only does what he is told to do by congress. Listen to Ben Bernanke respond to Ron Paul's criticism on Ron Paul's youtube site. He basically says that he is only doing what he is told and it is up to congress to change the rules. I believe he is right. Somebody has to be the chairman as long as congress says we have to have one. We can't blame him for trying to do a job that is not doable.

Joe Cushing

April 1, 2008 10:08 PM

I think Ludwix made an excellent point about the SEC and bond/derivatives.

L A Ogren

April 1, 2008 11:00 PM

I have seen and appreciated the benefits of a streamlined bureaucracy, but there seems to be considerable confusion about the difference between that and the open invitation to rampant abuse. There also appears to be widespread misunderstanding of the marketplace fundamental that if any can do it then all must do it, or die. Note Rubin's comments in his role at Citibank. To hope that organizations will take the high road and accept lower results than competitors is just dreaming -- it took me a long time to decide, but I now see that regulation with teeth is the only prudent approach if you want to maintain market vitality. By the way, the first commenter obviously hasn't saved a cent -- otherwise there would be some recognition of how much is at risk -- hidden in so-called ultrasafe, ultrashort bond funds that have already dropped 25-30%, possibly in money-markets, probably yet to be revealed in pension funds, 401K's, fixed income, etc. so those who did not knowingly gamble on real estate or mortgages are already suffering or may yet suffer the pain.

Joe

April 2, 2008 11:53 AM

The system is broken. The dilemma is that our leaders (not the average American) benefit from the current system and their first priority is to preserve it. Why would a Wall Street insider whose wealth and power is tied to the current system seek fundamental change?

Ultimately, it is about power and until the average American is willing to take power from the American elite (private and public sectors) things will not change.

john lazarin

April 6, 2008 11:57 PM

I'm sick and tired
of this country sticking it to the middle class! Lou Dobbs is right, this is "War on the middle class!"
Were doomed when this country continues its ways and people are getting more and more
numbed by crisis after crisis. We're turning into animals at the slaughterhouse of the market. Literally! The government plays a shell game with the market and hides everything under the rug! We're turning into a nanny state(Utopia) whereby nobody loses!
Is'nt that called lala land. I'm going to get my last $20 and bet it on the stock market. It's heads they win and tails I win. Uncle Sam will pick up the tab for us and everyone else in the WORLD!

Jeremiah

September 23, 2008 01:39 PM

It is now September 23 2008 and Paulson sits before the Senate trying to sell his bailout plan for the banks that engineered all these securities that Paulson sought to deregulate. Paulson tells us that we face immediate collapse of the financial system if we don't provide 700 BILLION DOLLARS.

I hope the wingnuts that commented here back in April who poo-poo'd the idea that this crisis isn't anything like the Great Depression are laughing at Paulson's "Chicken Little" testimony now. I hope you still believe in the complete lack of regulations regarding debt securitization. Because otherwise, you're partisan hypocrisy is on clear display.

Raman Gosala

September 25, 2008 09:59 PM

It’s just the litmus test that is going around the financial Institutions and we are panic.
Once we get a deeper dip and see the plan we will have to add another 700B + are we ready for that, say for example we get the toxci asserts an uplift by paying the tax $$.
Shall we get a share of the profit making companies around we have about 200,000 large scale companies that makes profits do we get a pie of it, then why us ?, It’s an on going corporate game let them handle it.

Peace

September 26, 2008 04:25 PM

What are the slices indicating percentage wise divide in the 700 billion dollar pie ? Need visuals ! Do you believe that a technical solution exists for every social and economic problem ? The Great Depression ? Volunteer efforts and government action,none of which produced economic recovery.How will 700 billion dollars be sliced ? Let's not forget the FBI and CIA are investigating for fraud! The Principals of Fairness ? 1.over sight 2. Tax payer risk/ reward 3. executive compensation at tax payer expense ? 4. accountability 5. Foreclosures 6 Federal Insurance Corp. 7. Private 8.CFTC 9. SEC 10.Regulating Insurance Companies and efficiency ? Lots of visual pie graphs needed for evaluation for we the people! By the way, the people in Texas need help!Don't panic !

Nachael Foster

September 30, 2008 12:08 PM

American was founded by leaders who refused to allow the rich and powerful to threaten the average person into paying for the spending mistakes of the rich and powerful.

The rich and powerful threatened the founders of America with more than just job cuts and the loss of credit. The leaders who founded this country knew that opposing the rich and powerful and refusing to bail them out of their spending mistakes could cost the average person in America their livelihood, their homes, and even their lives.

The American people who have not forgotten their heritage and refuse to be blackmailed into bailing out the rich and powerful are telling Congress to vote no to the bail out of Wall Street.

The leaders of today who are rushing to find a way to give the rich and powerful the money that they have threatened the average American to get are not following the bold example set by this Nation’s founding fathers in standing up to this type of intimidation.

If the leaders that founded our country had been fearful of a few people loosing their jobs or their homes would America exists today?

The American people do not want leaders who will merely try to protect them from threats; the American people want leaders who will fight for them when they are threatened.

Thank you for your interest. This blog is no longer active.

 

About

Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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