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Financial Regulation Reform: Give Us Your Talking Points

Ever since the financial collapse, we have been looking at factors that created the disaster. We know that the financial elites are desperate to maintain their stranglehold on the privileges they have arrogated to themselves, and that they are pouring money into keeping Congress in their pockets. As one congressional staffer said to Chris Hedges of The Nation about the forces of non-regulation vs. those of regulation: “Dude, there’s just no comparison." We will lose if we can’t figure out a strategy, and even then, it is a tough problem.

On healthcare, we got our message on the public option down to three simple points. We must do the same thing with financial regulation. What are our three simple points? Can this stuff be made simple enough?

1. Restore Glass-Steagall. The point of this is to require the separation of investment banking from commercial banking. The short pitch is that commercial banking is supposed to be boring. If it’s exciting, you’re doing it wrong. Investment banking is supposed to be interesting, at least and maybe exciting sometimes. They don’t belong together. Link1.

2. Security Transactions Tax. One of the major ways Goldman Sachs and the rest of the giant financial firms game the stock market is with High Frequency Trading, what we used to call program trading. Link2. Link3. We need to put a halt to this. It’s cheating and everybody knows it and no one is going to jail for it. Since those responsible aren’t going to fix it, we should tax it. At least that way, we can get something for the cheating.

3. Limits on the size of financial institutions. Too big to fail is too big. AIG was a $1.1 trillion entity. That made it possible to gamble huge sums of money on credit default swaps. People thought that AIG was a responsible counterparty for those swaps, and it turned out that it wasn’t. Rather than eat their losses, the capitalists frightened Congress into bailing them out of their foolish beliefs. Limiting the size of these entities is easier than it looks. Install a graduated income tax on them, and don’t allow deductions for compensation in excess of some wildly unreasonable figure, say, $5mn, including stock compensation. That will encourage the “best” traders to leave and start their own firms. Then we’ll see how good they are when they aren’t backed by billions in technology and the implicit guarantee of the government.

4. Serious restrictions on financial innovations. Just because some whiz quant can think of an instrument doesn’t make it a good idea. That is particularly true of instruments used for risk abatement. People who deal in finance will have to be forced to keep risk on their own books, because they won’t do it on their own. Although this is not a simple matter, it will encourage prudent investment decisions. Link4. Link5.

5. Major consumer protection enforcement. One good proposal from this administration is the establishment of a financial consumer protection operation. The Fed was charged with the responsibility of protecting consumers from predatory lenders, but it is owned by the banksters, and failed on purpose. Restoring the power to regulate banks to the states would make a difference. A separate agency with real enforcement powers, for example, special deputy U.S. Attorney status, would make a real difference.

6. Some kind of industrial policy. An economy that only benefits the rich has no moral basis. Link6. There must be good jobs for people willing to work. The economy may recover, but it won’t matter unless we can create jobs for people who need them. The Humphrey-Hawkins Full Employment Act is supposed to guide government in dealing with the economy: it establishes four goals, full employment, growth in production, price stability and balance in trade and budgets. One plausible thing to do is to make full employment the primary goal of government economic policy.

Please put your ideas into comments. I would also like to see short pitches that we can use with Congress and staff when we call, and your thoughts on the politics of the situation, especially with your Congressperson, and what can be done to get traction for serious reform in your area.

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I read a lot of books.