Financial Reform Lets the Biggest Banks Off the Hook:

[amborin]

Do You Have Any Reforms in Size XL

Gretchen Morgenson

Financial reform, which had been stumbling along, suddenly got traction. Bills and proposals began flying around Capitol Hill, and President Obama chided the bankers in an appearance in New York.
Unfortunately, the leading proposals would do little to cure the epidemic unleashed on American taxpayers by the lords of finance and their bailout partners. The central problem is that neither the Senate nor House bills would chop down big banks to a more manageable and less threatening size. The bills also don’t eliminate the prospect of future bailouts of interconnected and powerful companies.

Too big to fail is alive and well, alas. Indeed, several aspects of the legislative proposals sanction and codify the special status conferred on institutions that are seen as systemically important. Instead of reducing the number of behemoth firms assigned this special status, the bills would encourage smaller companies to grow large and dangerous so that they, too, could have a seat at the bailout buffet.
Here’s an example of this special treatment: Both bills would establish a specific process to resolve big-bank failures. Smaller institutions, by contrast, would be allowed to go bankrupt without a new resolution scheme.

This special resolution system is not only unfair; it also sends a pernicious signal to the market about large and intertwined institutions. The message is this: Subject as they will be to a newly codified “resolution authority,” these institutions and their investors and lenders can expect to be rescued if they get into trouble.
This perception delivers lucrative advantages to these institutions. The main perquisite is lower borrowing costs, a result of lenders’ assumptions that the giants are less risky because they will be in line for government assistance if they become imperiled. Think Fannie Mae and Freddie Mac. And remember all those folks on Capitol Hill and elsewhere who assured taxpayers that we would never lose a dime on those companies?
It is disappointing that none of the current proposals call for breaking up institutions that are now too big or on their way there. Such is the view of Richard W. Fisher, president of the Federal Reserve Bank of Dallas.

“The social costs associated with these big financial institutions are much greater than any benefits they may provide,” Mr. Fisher said in an interview last week. “We need to find some international convention to limit their size.”
Limiting their leverage is another way to begin defanging these monsters, Mr. Fisher said. But he concedes that there is little will to do either. “It takes an enormous amount of political courage to say we are going to limit size and limit leverage,” he said. “But to me it makes the ultimate sense. The misuse of leverage is always the root cause of every financial crisis.”

snip

But regulators, eager to avoid being blamed for missteps in oversight, also have an interest in the status quo, Mr. Kane argues. “As in a long-running poker game in which one player (here, the taxpayer) is a perennial and relatively clueless loser,” he writes, “other players see little reason to disturb the equilibrium.”

snip
http://www.nytimes.com/2010/04/25/business/economy/25gret.html?ref=business

[amborin]

1. LOL! the un-rec crew is at work

[ixion]

2. This is my primary issue with these massive, so-called 'reform' bills

Like this one: They don't really 'reform' anything. Ultimately, all they do is create a new revenue stream for the beltway well-connected.

[amborin]

3. kick

[TheKentuckian]

4. Why do you think they are running scared or hiding in the house whenever

somebody actually talks about ending too big to fail?

If these banks are allowed to go on relatively untouched then it should tell you all you really need to know. They'll distract by talking about spinning off divisions and such but there seems to only be a token few that actually want to resolve the issue.