Senator Dodd and the reform of Financial Institutions (UPDATE)

First the news clip from Bloomberg.com and then my special comment.

"Senator Christopher Dodd unveiled legislation that empowers regulators to break up large financial firms, ban proprietary trading, and oversee hedge funds and derivatives, aiming to enact the most sweeping rules overhaul since the 1930s.

Dodd would let the Federal Reserve force firms to divest holdings if they pose a “grave threat” to the economy, make hedge funds overseeing more than $100 million register with regulators and require central clearing for derivatives, according to a summary released today."

Special Comment:

This crafted legislation was put together by Sen. Dodd. As you may remember, Senator Dodd of Connecticut is not running for reelection, so I wonder where he will land after he leaves the Senate where he has been in government service for over 30 years. I know he deserves to make a living doing something else if he so chooses. But he would face offers of employment from both the Banking and Insurance industry he has regulated all these years. Because I have such deep cynicism and mistrust of our leaders currently, I would hope that Sen. Dodd could put forth legislation which was based on what the America needs to avert another Financial crisis, not something which gives breaks to Wall Street and the Banking and Insurance industry. There is an inherent conflict of interest brewing here. This will be very hard for this Senator or any Senator to do, acting on the Country's behalf rather than from a vested interest. I would like to see him embrace several contentious suggestions.

First, I would like to see the Volcker Rule, (after Paul Volcker, former Chairman of the Federal reserve) included in any proposed legislation. The Volcker Rule would prohibit banks that have access to taxpayer money from engaging in speculative activities, such as hedge funds.

Secondly, I would like to see the Consumer Protection Agency NOT report into the Federal Reserve.

Thirdly, I would like to see Glass-Steagall Act reinstated. If he could get these passed, he would leave us with dignity and would cap his career in a distinguished manner and go down in history as one of the great Senators of this generation, as Sen. Ted Kennedy has on Healthcare.

UPDATE: March 16 3:00pm PST

I received this video link below from NEWSY.com and asked to Embed it here, which adds more validation over my concerns:

Executive Pay vs. Worker pay and the Tea Bagger movement

I took a look this morning at why so many Americans are mad and why this Tea Bagger's movement has gained such strong traction in light of the recent violence directed (or misdirected) at the government. In part some elected officials are responsible for where we find ourselves today, but it is simply amazing to me that the anger that is building, spawned by Republicans like Glenn Beck, Rush Limbaugh and the likes of these Republican Senators, Sen. Kyle, Sen. Jim DeMint, Sen. John Cornyn, Sen. Mitch McConnell, former Republican Congressmen Dick Armey and Minority leader John Boehner, is not placed where it should be. It should be aimed at the Republican Party and its leaders, as is shown in the chart above! (Click on the charts to enlarge them.)

From the chart above on EXECUTIVE COMPENSATION, from the NY TImes you can see the divide between Executive pay and average worker pay since 1940. It is very clear to me that around 1985 this trend skyrocketed upward. This was when Pres. Reagan had massive tax cuts for the wealthy and trickle down economics was touted as going to be a good thing for the Middle Class and the debt began to rise. It is my opinion, and I will get the facts on this, that it was the Financial sectors Executives which were primarily responsible for this move up coincidently with the invention of Credit Default Swaps and other derivative instruments created in those years. Both charts track very well.

It was also emboldened by Sen. Phil Gramm's legislation, called the Gramm–Leach–Bliley Act, to deregulate the Banking and Insurance Industry by getting rid of Glass-Steagall in 1999 tied to a bill to provide the funds to keep the government running, when Newt Gingrich threatened to shut down all government. The amendment passed in the middle of the night and was signed into law by President Clinton, who in my view didn't know what he was really signing and the implications, but that's another debate for a different time. Suffice to say he signed the legislation to prevent a government shutdown. The effect of this and those new financial instruments changed most significantly Executive compensation possibilities as the stock market had soared to over 10,000 and the Nasdaq to over 5,000.

So enough of the history and now focusing on the chart, the folks to be upset with are those who passed Banking and Insurance deregulation in the first place (Mostly Republicans with the assistance of Bill Clinton and weak Democrats and also Executives in the Financial Institutions and their Boards who approve these ridiculous levels of compensation. The Democrats should be knocking the heck out of Republicans with this issue as they have stood with the workers and trying to help them with programs such as Social Security and Medicare. But instead it is the Republicans who are getting the masses all worked up to "throw the bums out."

I agree with them on that point, but it is Republicans who should be thrown out, all of them, for creating this mess and being on the side of lobbyists on the healthcare debate and backing the Insurance company Executives from For-Profit companies. The Democrats have got to start to play hardball and reverse this inequity of pay for the middle class and help the poorest amongst us. I'll bet if you if you check donations made to Haiti for the earthquake which devastated the country, most were small donations and made by people who could little afford it compared to the salaries of those Executives. It is morally wrong and inhumane. The problem is the entitlement attitude of these people. They see nothing wrong with their compensation compared to the workers. They actually believe they deserve what they are stealing, and I use the word stealing deliberately. It's a crime and they have no shame or conscience. They want to pay off TARP quickly so they can get back to wealth accumulation. What do you think?

AIG, now what? Republicans still think derregulation is good?

The news today is that the Fed is willing to give a loan to AIG Insurance company to help it with its liquidity problem. AIG had a Balance Sheet of $1 TRILLION dollars. The Fed is going to lend it $85 Billion dollars for a 2 year period. For the loan the Fed will own 80% of AIG. I don't know about you but that essentially would be equal to $800 Billion of the company. It doesn't make sense unless the company really doesn't own assets worth $1 Trillion dollars in the first place.

All my life I have heard that we shouldn't be regulating business as the Free Enterprise system is the best in the world and regulation, they argue, constricts the free flow of capital to markets needing that capital to grow and develop for the benefit of "shareholders". So the American people bought into that line of reasoning, hook, line and sinker. We bought shares of Stock or Bonds thinking that it was a level playing field and that these markets and companies had some regulation to protect us. Little did we know the limited regulation was there not to protect shareholders and the system. With certainty, it has failed us as proven by several examples, AIG, Lehman Bros and Merrill Lynch and the forced mergers of some and the failures and bailouts of others. The same was true back in 1929. As a result of the crash in 1929, the Glass-Steagall Act was implemented by Roosevelt to prohibit the crash from happening ever again. Then with Ronald Reagan, we saw the beginning of the deregulation process that started to unwind that legislation and allowed Insurance companies and banks to merge.

We are now so integrated in a Global economy, that we have gone from a problem affecting just the US to affecting markets worldwide. Now, when a Bank or Insurance company fails, it has the additional concerns of affecting not only those companies and its shareholders, but other non related businesses, as well as Pension Plans that invest in those businesses and now become at-risk.

Let's me make sure there is clarity as to what this means overall. First, there is no level playing field. As an individual investor, you are on your own and the system is gamed against you. As long as we continue to elect Republicans, we will have little or no protection and our economy will be at risk. It is time we are willing to risk the alternative. Social Security, as a system to help retirees, was instituted by Democrats, and thank God it is still there for people. Many of our Nations problems need fresh thinking from the grip of the Republican party. Even though we had President Clinton, a Democrat as President, he had to deal with a Republican led Congress.

When the Healthcare plans formed HMO’S and PPO’S and were allowed to change from non-profit to becoming for-profit corporations, it was the downfall of healthcare. It changed everything. Now we are faced with higher healthcare costs every year, while executives reap millions and millions of dollars squeezed from us under the guise of operational cost increases. Healthcare is the next system to collapse.

We must have the courage to swing the pendulum the other direction while we still have time. Let's hope and pray that the Democrats, under the leadership of Barack Obama and Joe Biden, will seize this moment and positively change the equation which focuses back on the Middle Class and the Poor and reinstitutes policies that benefit most Americans not just the wealthy. If not, you are seeing the early stages of the Fall of the current Roman Empire, the United States of America!