From a NY Times article about an investigation by the Office of Congressional Ethics into eight congressmen who held fundraisers and collected over $140,000 from banks in the 10 days before voting on the new Finanacial Services bill. (no points for guessing how they voted.)
“This is really a redefinition of the law,” said Kenneth Gross, a Washington ethics lawyer who is fielding some of the document requests from ethics investigators. “To pick eight members and say they voted on legislation and political contributions came in around this time is really going places that no regulatory authority has ever gone.”
"Going places no regulatory agency has ever gone?" By this I guess he's refering a regulatory agency that actually investigates things?! Rather than, say, letting the people you are supposed to regulate regulate themselves and then doing lots of crystal meth and having sex with them? I don't even see what there really is to investigate; obviously these Congresspeople are conscienceless scumbags. I miss the days when people at least had the shame to slip money in brown envelopes under airport bathroom doors.
Many in the financial services industry appear to forget that the entire economy nearly collapsed, requiring the infusion of government money to prevent a meltdown. I enter a Twilight Zone whenever I read yet another industry association head or lobbyist suggest that banks will stop doing business if they can't risk their solvency on derivatives whose risks they don't understand.
ReplyDeleteI am glad that light is being shed upon these fundraising practices.
I saw this study from Common Cause, which shows that oil industry political spending crossed the 5 billion dollar mark over the past several years: http://www.commoncause.org/site/pp.asp?c=dkLNK1MQIwG&b=6132717
Instead of a grassroots movement to seek congressional accountability, however, we are faced instead with a grassroots movement seeking to dismantle regulation altogether. It's a curious time.
I learn a lot from one aspect of the AIG situation. AIG Financial Products, which did the ruinous swaps trading, was not considered to be in the insurance business when it issued credit default swaps, and thus was exempt from state insurance regulations. This happened because of an act of Congress basically said that credit default swaps would not be treated as insurance. A summary explanation of the history of swaps non-regulation is contained in testimony by the head of the Commodities Futures Trading Commission here: http://www.commodityonline.com/news/History-of-derivatives-regulation-culprit-OTCs-29636-3-1.html
Insurance regulators had long ago
imposed limits on some forms of derivatives trading by insurers. A company called Investors Equity Life Insurance Company of Hawaii had managed around 1991 to lose 90 million dollars in a short time (a considerable portion of its asset to support its reserves), which led to insurance regulations which limited some forms of derivative investments by insurers.
This created an interesting comparison:
AIG Financial Products--not subject to effective regulation of its derivatives, assumed far more risk than it was capitalized to handle, and crashed (even as its employees earned massive bonuses for "successful" trading).
AIG's insurance subsidiaries--far less troubled. There were some real issues with the appropriateness of some reinsurance arrangements for at least one, but investment regulation largely kept the insurance subsidiaries from the massive credit default swaps crisis.
My conclusion is that companies that do the business of banks and insurance companies should be regulated, while companies that
do intense speculation should not be doing so with the benefit of federal deposit insurance or state guaranty association coverage for their failures. Yet the new bill, as good as it is in some respects, still theoretically allows banks to take risks they ought not be able to take. Never mind that the AIG situation shows just why we need those regulations--it's a great recession, but not a recession for lobbyists.
A sensible system can exist with meaningful regulation and a robust market--and it's necessary for all of us to insist upon it if we are to achieve it.
typo: the oil industry contributions hit near the 3 billion dollar mark.
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