10/18/2011 6:37 PM ET|
What Wall St. protesters have right
Message No. 2: We need real bank reform
Bank sector reform sounds pretty wonky coming from a bunch of hippies sleeping out under blankets in a park, right? But it's actually near the top of the list of things protesters are concerned about. And they're right to be.
Three years after a financial meltdown that nearly took out our economy, we've really done very little to change the rules governing financial institutions, to make sure a meltdown like we saw in 2008-2009 doesn't happen again.
These protesters aren't the only ones to think that the Dodd-Frank financial sector reform law will fall short -- even if it's eventually implemented in full. Many analysts, even on the right, share this view. "The principal elements of Dodd-Frank turn out to be useless as a defense against a future crisis," said Peter Wallison, of the American Enterprise Institute, a conservative think tank.
William Isaac, a former bank regulator who was the chairman the Federal Deposit Insurance Corp. from August 1981 to October 1985, agrees that bank reform efforts have fallen short. "The Dodd-Frank law would not have prevented the last crisis, did not fix what went wrong and will make it more difficult to resolve the next crisis," says Isaac, now head of financial institutions at FTI Consulting.
In fact, Dodd-Frank may be worse than no reform at all. It creates the illusion of regulation and carries the downside of the wrong government rules without locking in the right rules, says Joseph Mason, a Louisiana State University finance professor. And Mason should know about banking regulation -- he used to work as an economist for the Office of the Comptroller of the Currency, one of our main banking regulators.
OWS gets into quite a bit of detailed analysis on banking reform. One big problem, says Gacuca, was that Washington missed an opportunity to break up the big banks while bailing them out, to prevent the "too big to fail" problem from biting us again.
"Too big to fail" means that megabanks like Citigroup (C, news) and Bank of America (BAC, news) remain so large that we'll have little choice but to bail them out again when they get into trouble the next time. Because bankers know this, they take greater risks than they should. Instead of letting banks fail or making them downsize, we bailed them out and encouraged some to merge and grow. "We made the too-big-to-fail problem even worse," agrees Kent Smetters, a professor of business and public policy at the Wharton School at the University of Pennsylvania. "We've encouraged larger banks. We should have allowed more failure."
Another complaint of OWS is that there's still too much "counterparty risk" in the financial system, one of the problems that caused the credit market meltdown. By this, OWS means that banks create and own so many derivatives that they're too exposed to each other.
Derivatives are complex financial creations, but they're basically "bets" banks and others make to balance their risks or gamble on trends in all kinds of markets. The fear here is that players won't be able to pay off if they lose.
No less an institution than the IMF sees the risk, concluding in recent research that too many derivatives have insufficient collateral backing them. IMF researchers believe outstanding derivatives may be undercollateralized by as much as $2 trillion.
One solution, says OWS, would be to have more derivatives trade through clearinghouses or exchanges, which would add transparency and reduce risk. This is an approach that many mainstream analysts, like Smetters, agree would help.
Message No. 3: Political cronyism ruins democracy
Another core complaint of OWS, says Gacuca, is that corporate contributions to political campaigns lead to crony capitalism, which is bad for democracy.
This is hardly a fringe issue. And despite being painted as a "leftist" group, OWS faults the Obama administration for being too closely aligned with Wall Street. It cites campaign contributions to Obama from banks, as well as the appointment of William Daley, who has a banking background, as White House chief of staff.
OWS also likes to cite the bank bailouts as examples of crony capitalism, another OWS position held by many on the right. Banks got help with mortgage trouble; homeowners much less so.
"We definitely share the same moral outrage at what happened," says Daniel Mitchell, a senior fellow at the Cato Institute. "Even if the banks paid the money back, they got breathing room for their own bad financial decisions, courtesy of the taxpayer."
Bank shareholders, bondholders and executives should have been allowed to take their losses in bank reorganizations that saved the good assets in the system, say many bank reform critics on the right. Instead, "the risks were socialized and the gains were privatized," says Warren. "It's not so much that people are upset around the top 1% getting rich. I think what angers people is the notion of crony capitalism. The hard-earned money of taxpayers was used to make a few people richer."
Is OWS so wrong in concluding that our democracy is broken because economic elites in banks with political connections were bailed out, while regular folks are still hurting? Warren doesn't think so.
The goofy messages
To be sure, many of the messages you'll hear from protesters are simplistic or just plain silly.
One common talking point is that student loans should be forgiven, because taxpayer money was used to bail out banks. But the economy probably won't go into a tailspin if students are held to their promise to pay back their tuition debt. It might have if the big banks had gone under.
Still, education costs have soared over the past few years, and student lending has been privatized at a hefty cost. So spare some sympathy for those who got educated the only way they could and still can't find a job.
Other rallying points include proposals for a $20-an-hour minimum wage, the establishment of base wages for various types of employment depending on how challenging the work is, and an entirely pie-in-the-sky proposal to simply divide the nation's income among all people, which would mean that everyone would earn about $115,000 a year, somehow eliminating "menial work" in the process.
"There are reasons why some people in some jobs get paid more than others, and the idea that some politicians are going supplant the market with their personal biases is downright frightening," says Mitchell, of the Cato Institute.
But another fuzzy OWS idea, that of "empowering people," is worth keeping an eye on, because it may foretell where this protest movement is going. This concept might well have OWS morphing into a citizens lobbying group, says Gacuca. Why? "Because both sides of the political divide only respond to highly paid Washington lobbyists."
At the time of publication, Michael Brush did not own or control shares of any company mentioned in this column.
Michael Brush is the editor of Brush Up on Stocks, an investment newsletter. Click here to find Brush's most recent articles and blog posts.
VIDEO ON MSN MONEY
If my taxes that were supposed to go to Social Security for my future retirement went to fund a corrupt war or bail out irresponsible CEOs, who should I blame?
If I voted for a president who promised to do away with lobbying and instead made deals with lobbyists, who should I blame?
If I give my absolute best to an employer, but he denys me a cost-of-living adjustment and cuts my benefits so he can have a bigger paycheck and I can no longer afford to pay my bills, who should I blame for that?
But, hey, if I can just keep my head down and convince myself that the people at the top have earned the right to do such things, I'll someday be right up there with them, raiding pensions and selling bad loans to the mentally handicapped.
One word says it all. GREED
When executives demand their bonuses even when the company has lost money, Greed
When CEO's move production to China to raise short term profits and win huge bonuses, Greed
When a departing CEO leaves a company that has been losing money and insists on being paid a bonus, Greed
When a CEO thinks more about his bonuses than he does of his companies welfare. Greed
Examples, GE, Wall Street Banks, Micron, the former Boise Cascade, and the list goes on. Greed
The Wall Street bank executives created the eventual financial disaster in September 2008 by telling our government to erase years of important regulations and the government did it! Our problems started a long time ago and this is now all finally coming to a head.
Occupy Wall Street should be no surprise to anyone, this revolt is long over due.
Lower taxes create jobs, for proof look at the fact that we have historic low taxes right now. And joblessness is next to zero! Wait... thats not right. Oh my bad, eco 101. Demand creates jobs, not taxes (or lack thereof). You hire someone to make you money by means of production. You do not fire him because the gvmt takes 5 more % of the profit he made you, you fire him if his production is not worth his salary, be he a shitty worker or just low demand on the product.
Who controls demand? Upper class. I mean they buy lots of basic items and goods right? Wait... thats wrong to. Middle and lower class accounts for 90% of basic goods sales. Basic goods sales that fuels economy. Give 1 rich person 100 million dollars=zero economical impact. He just banks it, or gives a portion to a politician to protect the larger whole of it. Give 100000 middle class 1000 dollars= Massive economical impact. THEY BUY ****, GO FIGURE.
I think we all agree that we need to take back our country because of the greed and corruption. Campaigns and votes being bought and exorbitant salaries (no one's job is worth a salary in the millions of dollars for 1 year! I don't care what you do.)
We need term limits (1 term, so the politicians are not worried about being re-elected, benefits and perks only good for the 1 term), govt benefit reform (benefits should not be any better than the American people's, no big pensions AND the American people vote on raises for the congressional positions) campaign finance reform (cap it, we could use those millions of dollars for a much better purpose), and OWS.......create a new party.......the "American Party", people like you and I, and lets vote them into office! We can cut the budget and create a fair tax system!
Things I know:
Professional Politicians are only really interested in themselves and their friends in the party (both Repubs and Dems) therefore they are not really looking out for the American people. And the easiest proof of that is the last 60 years!!! The parties main focus is the advancement of their political party and not the American people. We need to get that straight. The benefit of the American people comes after that...heck maybe even at the end of their list. We are all to blame for being dumb when it comes to what the politicians have been actaully doing rather than waht they say they are doing!! Currently their way to divert attention to themselves and the awful state they let this country come to is to both engage in class warfare. We need to see through it and throw it right back in their faces and let both the Dems and Repubs know that we are smarter than that and see through their rouse!!! And please don't watch too much TV news...it's so incomplete. Read both conservative and liberal news and you can find the truth somewhere in between.
It is about time someone started making more than the avg grumble about things. I am not saying they are 100% right but it is nice to see something happening that is reminding people congress is suppost to work for the population and is gaining some momentum. Some of the arguments are legit, don't be distracted by the look of the people or the actions of the ones who are there for the chicks and the fact that it is a large gathering, follow the arguments. Politicians need a limit on terms and the first place the government should go for money is the politicians that delay any advancement on economic crisis. They shouldn't be getting paid if they can't come to an agreement in a reasonable amount of time in times of economic devistation. And most of all they should not be allowed to vote to decide that they should get a raise. I wish the company i worked for did that! you think that if the issue of a raise comes up that everyone is not going to vote to get a raise? how about your employers decide that, the American people, just as in the real world.
I hope this thing continues to grow.
The old concept of voting for change isn't working, since neither party is working for the people who elected them.
The whole system needs an enema. Maybe this is the castor oil that will make it happen??
My fellow Americans, with the tea party and ows, they have the right idea until we as a nations come together, and stand up for what we believe in. No tax paying American believes that we should feel the pain of bad decisions by our government, who are suppose to work for us. Bank bailouts, car company bailouts, green energy scams, time to turn off the TV's and 42.6 million march on Washington. 42.6 million people are in Poverty and that number will continue to grow if we don't stop sitting around, and bad mouthing other tax payers for being fed up. Now I don't have the answers, I don't want to be rich or famous, I just want to provide for my family and want the same for All American tax payer who are hurting, because of Washington's and wall street greed. I'm sure there are many of people who will take this message and tear it a part. However, to all American tax payer, ask yourself how come the Tax payer weren't bailed out. This is not the hope and change we voted for.
Salary cap for CEO's and upper management. Polygraphs for politicians
The CEO/upper mgmt should be paid a percentage of what the lowest salary worker earns. If the lowest working only makes $20,000 a year...should top CEO pay be capped at ...say.... $400,000 a year? Is that enough?
Maybe base it on total salaries of all non-mgmt personel and then take the top pay as a % of the total average?
Corporations have become ponzi schemes with those at the top taking far more than they should.
HOW ABOUT a politician or a new Political party that would agree to a yearly polygraph on criminal, ethical or moral wrongdoing?
yeah...fat chance but how about starting a NEW party based on TRUTH.
Would you vote for me if I ran on the promise of good deeds and vowed to take polygraphs 1-4 times a year?
I think people have the feeling that everything that they used to believe in is upside down.
Institutions and corporations like banks, teachers, law enforcement, news organizations, telephone companies, airlines and even the clergy no longer deserve the respect they once had.
Labor unions have shown themselves to be as corrupt and greedy as the corporations they once fought and they have badly overplayed their hand.
The stock market behaves irrationally and is fueled by wild speculation, rather than sound investment principals. Corporations that used to have a sense of moral responsibility towards their employees and the local community are now run by accountants who only feel responsible to the stockholders and the bottom line.
The lawyers that we send to represent us in the government enact laws that have numerous and serious flaws that render them useless and lead to unintended consequences.
It seems that no one can trust in anything anymore and that has a debilitating effect on everyone, causing people to feel isolated and angry.
It can also develop into a very dangerous situation for any government.
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