The GOP in the Senate will fight the Dodd financial reform bill, will fight it on the basis of the credit card cops and on the basis of the the too-big-to-fail special category. The Dodd bill will grind to a halt. The House has already passed its fairy tale version of financial reform. Nancy Pelosi orders no more tough votes for the House before the midterms. The Dodd legacy bill is a debating forum, no more. JP Morgan Chase reports earnings in hours, looking to be positive and healthy. The four big banks are healing with lots of Fed help. The Democrats will attack the four big banks. The GOP will attack the big Dems for attacking the four big banks. POTUS will obfuscate. Heigh ho. Citi lives, and it will probably hire Dodd. WAMU is collateral damage; so is the housing market.
Brief
Dodd Legacy
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the most insightful comment on too big to fail remains ike's, to wit "make em smaller".
the meltdown didn't have a single cause.
yield investors (pension funds, insurance companies) and spread investors (banks and stupid lazy broker-dealers) were drawn to custom engineered exotic structured instruments for different reasons. Calpers had an assumed rate of return of 8% ... in a 3% 10 year bond market. that is a catastrophe and makes otherwise sober portfolio managers get crazy desperate.
proprietary trading did not cause the banks problems- the losses were not trading losses but rather losses caused because some of the instruments in their portfolios had to be treated as 'held for sale' and marked to market. the mark to market rules went into effect in fall of 07 - coincidence? get serious!
mark to market caused the contagion to spread. it was the vector for the plague. and it was an illusion. there were so many cXo structures floating around that virtually none of them ever traded- so mark to market was a pious delusion - what really happened was mark to and extended cya inference chain assuming worst case (typical of accountants 'conservative' bias).
these products were so complicated that they required m&a scale due diligence to figure out what they were worth. when folks got nervous traders backed away and the offered items became falling knives no one was willing to catch.
mark downs lead to the need to shrink balance sheets which lead to selling the 'good stuff' in a firesale which spread the contagion further. the vicious cycle snowballed.
this says nothing about the real toxic stuff- the rmbs structures from 06 and the first half of 07.
as far as i can tell no one has really done a good job of reporting on what happened, on what the facts were. for example, with all that has been said about AIG what was the actual notional amount of cds sold as wraps by the holding company? in the trillions?
the need to do something is a trap- bad regulations are the essence of unforseen consequences. SarbOx killed silicon valley ipo's and sent all the vc's to china and india.
this is just a sample of the highpoints of this mess. dodd's going to fix it? congressional hearings going to really figure out what happened? these guys won't fix it - they will make it worse.
I like McConnell alot, but find his penchant for saying everything twice very irritating. Let me say that again... I like him alot, but his way of saying everything twice, is very irritating.
Lou, I think this clip was doctored to make McConnell sound worse than he already does. This whole thing reminds me of everything we've been doing since 9/11: trying to place blame on everybody except the actual perpetrators (Dodd and the government in general).
Goldman was the number 2 contributor in the last national election.
Did any Goldman lobbyists help write this legislation?
The legislation allows the Fed or Federal Government to take over any Financial Institution it deems necessary for any reason. Will politically connected banks get their competitors "taken out"?
Current administration wants to tax wealth, but I suspect beach and ski houses will be tax exempt, while our 401k accounts are in Jeopardy.