Nouriel Roubini: U.S. financial "reform" law is "not sufficient to stop the next financial crisis"

[Better Believe It]

See the video of the interview at:

http://audiovideo.economist.com/?fr_story=418e83e62a2bea334f2ca8ca9da3765ed3268ff4&rf=bm

So why even bother passing such a weak Wall Street written bill, much take "credit" for doing their dirty work?

To create the false illusion that something has been done to control the Wall Street sharks.

[xchrom]

1. Recommend

[jannyk]

2. k&r

[Turbineguy]

3. No law is

but enforcement by Bush appointees will not help even the most robust law.

[kenny blankenship]

4. Joseph Stiglitz, Nouriel Roubini, Simon Johnson - phhht - what do THEY know?

Chris "Countrywide" Dodd is on the case! Tim Geithner "Pump-Master of the NY Fed, 2003-2008", and Eric "don't look back" Holder will enforce the new law. Larry "the Tick" Summers approves. What could go wrong?

[PA Democrat]

6. And probably on his way to a cushy K Street job lobbying

for the banksters after his current Senate term expires.

[lib2DaBone]

5. It would have been better to re-instate Glass-Steegal

The new Financial Reform Bill, over 2000 pages.

Glass-Steegal... 23 pages.

[gratuitous]

7. Drug test him! Drug test him!

He's saying Obama's as bad as Bush! He wants to eliminate the Pentagon! He wants Dennis Kucinich to be President!

I don't know why this suddenly occurred to me, maybe because I saw the DVD set for "Masada" in the store over the weekend. It was a TV miniseries that first aired in 1981, and I think I'm the only person in the world who actually watched the whole thing (and then again when it repeated over the summer). Anyway, Peter O'Toole played a Roman general who is dispatched to the siege at Masada to find out why the legion hasn't routed the Jewish holdouts yet. He confronts David Warner, who's in charge of the siege. Warner gives him a full report, and O'Toole's dour face tells Warner he's not making a very good case. He finishes by saying "I did my best." O'Toole sneers in reply "The epitaph of a donkey!"

As I say, I don't know why that scene has replayed itself for me this week.

[ProSense]

8. Roubini also said it was a step in the right direction. Still, when one

is looking for the perfect solution, as Roubini is, he's bound to be disappointed. He mentioned that there is no insolvency regime, but there is:

Limiting Large, Complex Financial Companies and Preventing Future Bailouts

• No Taxpayer Funded Bailouts: Clearly states taxpayers will not be on the hook to save a failing financial company or to cover the cost of its liquidation.
  
  
• Discourage Excessive Growth & Complexity: The Financial Stability Oversight Council will monitor systemic risk and make recommendations to the Federal Reserve for increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity, with significant requirements on companies that pose risks to the financial system.
  
  
• Volcker Rule: Requires regulators implement regulations for banks, their affiliates and holding companies, to prohibit proprietary trading, investment in and sponsorship of hedge funds and private equity funds, and to limit relationships with hedge funds and private equity funds. Nonbank financial institutions supervised by the Fed will also have restrictions on proprietary trading and hedge fund and private equity investments. The Council will study and make recommendations on implementation to aid regulators.
  
  
• Extends Regulation: The Council will have the ability to require nonbank financial companies that pose a risk to the financial stability of the United States to submit to supervision by the Federal Reserve.
  
  
• Payment, clearing, and settlement regulation. Provides a specific framework for promoting uniform risk-management standards for systemically important financial market utilities and systemically important payment, clearing, and settlement activities conducted by financial institutions.
  
  
• Funeral Plans: Requires large, complex financial companies to periodically submit plans for their rapid and orderly shutdown should the company go under. Companies will be hit with higher capital requirements and restrictions on growth and activity, as well as divestment, if they fail to submit acceptable plans. Plans will help regulators understand the structure of the companies they oversee and serve as a roadmap for shutting them down if the company fails. Significant costs for failing to produce a credible plan create incentives for firms to rationalize structures or operations that cannot be unwound easily.
  
  
• Liquidation: Creates an orderly liquidation mechanism for FDIC to unwind failing systemically significant financial companies. Shareholders and unsecured creditors bear losses and management and culpable directors will be removed.
  
  
• Liquidation Procedure: Requires that Treasury, FDIC and the Federal Reserve all agree to put a company into the orderly liquidation process because its failure or resolution in bankruptcy would have adverse effects on financial stability, with an up front judicial review.
  
  
• Costs to Financial Firms, Not Taxpayers: Taxpayers will bear no cost for liquidating large, interconnected financial companies. FDIC can borrow only the amount of funds to liquidate a company that it expects to be repaid from the assets of the company being liquidated. The government will be first in line for repayment. Funds not repaid from the sale of the company’s assets will be repaid first through the claw back of any payments to creditors that exceeded liquidation value and then assessments on large financial companies, with the riskiest paying more based on considerations included in a risk matrix
  
  
• Federal Reserve Emergency Lending: Significantly alters the Federal Reserve’s 13(3) emergency lending authority to prohibit bailing out an individual company. Secretary of the Treasury must approve any lending program, and such programs must be broad based and not aid a failing financial company. Collateral must be sufficient to protect taxpayers from losses.
  
  
• Bankruptcy: Most large financial companies that fail are expected to be resolved through the bankruptcy process.
  
  
• Limits on Debt Guarantees: To prevent bank runs, the FDIC can guarantee debt of solvent insured banks, but only after meeting serious requirements: 2/3 majority of the Board and the FDIC board must determine there is a threat to financial stability; the Treasury Secretary approves terms and conditions and sets a cap on overall guarantee amounts; the President activates an expedited process for Congressional approval.

Roubini also discussed the Basel process, which is addressed via the Collins Amendment

The Collins Amendment, originally drafted by the FDIC staff and reflecting views held by Chairwoman Bair, imposes, over time, the leverage and risk-based standards currently applicable to U.S. insured depository institutions on U.S. bank holding companies, including U.S. intermediate holding companies of foreign banking organizations, thrift holding companies and systemically important nonbank financial companies. One of the effects of the Collins Amendment is to eliminate trust preferred securities as an element of Tier 1 capital. Implementing regulations must be issued no later than 18 months from the bill’s effective date. As with all changes in capital requirements, there are highly negotiated transition periods and grandfathering exemptions, which we describe below. Please see a more complete implementation timeline at the end of this memorandum.

The Collins Amendment also directs the appropriate federal banking supervisors, subject to Council recommendations, to develop capital requirements for all insured depository institutions, depository institution holding companies and systemically important nonbank financial companies to address systemically risky activities.

The Collins Amendment echoes changes that have been proposed but not yet been adopted by the Basel Committee on Banking Supervision in the so-called “Basel III” process and those that are contemplated in the new U.S. systemic risk regulatory regime.

The U.S. banking supervisors will have the unenviable task of implementing the intersection of Collins Amendment, Basel III, capital standards under the systemic risk regime, the requirement elsewhere in the bill to adopt countercyclical regulatory capital requirements and the capital requirements that will apply to the separately capitalized subsidiaries required for certain derivatives activities. However, at a minimum, the Collins Amendment will set a floor for the U.S. banking supervisors in the ongoing Basel III discussions.

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[Better Believe It]

9. kick

[eridani]

10. One more helpful but inadequate law

Wonder when the PTB will start listening to people who have a history of getting it right.