Blog on the Run: Reloaded

Tuesday, February 8, 2011 9:00 pm

So, all that really bad banking stuff that happened a coupla years ago?

Filed under: We're so screwed — Lex @ 9:00 pm
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It’s a lot more likely to be back than Schwarzenegger at this point:

Regulations are put in place to see that the system runs smoothly and to protect the public from fraud. But banking without rules is more profitable, so industry leaders and lobbyists have tried to block the efforts at reform.  And, they have largely succeeded.  Dodd-Frank – the financial reform act — is riddled with loopholes and doesn’t really resolve the central issues of loan quality, additional capital, or risk retention. Banks are still free to issue bogus mortgages to unemployed applicants with bad credit, just as they were before the meltdown. And, they can still produce securitized debt instruments without retaining even a meager 5 per cent of the loan’s value. (This issue is still being contested) Also, government agencies cannot force financial institutions to increase their capital even though a slight downturn in the market could wipe them out and cause severe damage to the rest of the system. Wall Street has prevailed on all counts and now the window for re-regulating the system has passed.

President Barack Obama understands the basic problem, but he also knows that he won’t be reelected without Wall Street’s help.  That’s why he promised to further reduce “burdensome” regulations in the Wall Street Journal just two weeks ago. His op-ed was intended to preempt the release of the Financial Crisis Inquiry Commission’s (FCIC) report, which was expected to make recommendations for strengthening existing regulations. Obama torpedoed that effort by coming down on the side of big finance. Now, it’s only a matter of time before another crash.

Yeah, well, so the banks crash again, you think. Why should I care?

Because, sonny, when the banks crash, they and their owners don’t pay. You do. Through the nose (and other, even less toothsome, orifices):

So, between $4 to $7 trillion vanished in a flash after Lehman Brothers blew up. How many millions of jobs were lost because of inadequate regulation?  How much was trimmed from output, productivity, and GDP? How many people are now on food stamps or living in homeless shelters or struggling through foreclosure because unregulated financial institutions were allowed to carry out credit intermediation without government supervision or oversight?

The answers to the second question depend on the variable, but the answers to the first and third questions are easy: millions, maybe tens of millions. And here, friends, is why we are well and truly screwed:

Ironically, the New York Fed doesn’t even try to deny the source of the problem; deregulation. Here’s what they say in the report: “Regulatory arbitrage was the root motivation for many shadow banks to exist.”

What does that mean? It means that Wall Street knows that it’s easier to make money by eliminating the rules….the very rules that protect the public from the predation of avaricious speculators.

The only way to fix the system is to regulate all financial institutions that act like banks.  No exceptions.

Which, of course, is exactly the plank upon which so many of our newest congresscritters campaigned. Right?

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Monday, June 14, 2010 8:24 pm

Shorter Mitch McConnell

We Republicans screwed up the government so badly it both allowed Deepwater Horizon to happen and was unable to respond effectively to it. So no one should trust government.

Friday, May 7, 2010 11:23 pm

Events. Patterns. Systems.

OK, we know the recent economic collapse was due in significant part to inadequate regulation and government oversight. We know that the Deepwater Horizon disaster now erupting in the Gulf of Mexico was due in significant part to inadequate regulation and government oversight. And we now have a reasonable basis for believing that our environment’s role in causing human cancers has been badly underestimated — again, in significant part because of inadequate regulation and government oversight:

The prevailing regulatory approach in the United States is reactionary rather than precautionary. That is, instead of taking preventive action when uncertainty exists about the potential harm a chemical or other environmental contaminant may cause, a hazard must be incontrovertibly demonstrated before action to ameliorate it is initiated. Moreover, instead of requiring industry or other proponents of specific chemicals, devices, or activities to prove their safety, the public bears the burden of proving that a given environmental exposure is harmful. Only a few hundred of the more than 80,000 chemicals in use in the United States have been tested for safety.

U.S. regulation of environmental contaminants is rendered ineffective by five major problems: (1) inadequate funding and insufficient staffing, (2) fragmented and overlapping authorities coupled with uneven and decentralized enforcement, (3) excessive regulatory complexity, (4) weak laws and regulations, and (5) undue industry influence. Too often, these factors, either singly or in combination, result in agency dysfunction and a lack of will to identify and remove hazards.

(I should point out that while items 3 and 4 may appear contradictory, a law or regulation can be weak because it is excessively complex and therefore difficult for enforcers to understand).

The report goes into detail about a variety of environmental factors that lead to cancer (including some in the field of medicine), but unless I missed it, it doesn’t come right out and say the obvious: Preventing cancers caused in this way would be a helluva lot easier and cheaper than treating them, just as the cheapest, easiest way to “treat” lung cancer is never to start smoking. But because our legislators are bought-and-paid-for whores of industry, we keep getting cancers, we keep dying, and industry keeps profiting from all the dead people and the pain and grief of their survivors.

I suppose it’s relevant in this context to mention that we’re in the process of dumping, both on the surface and a mile under the ocean, chemical dispersants to try to deal with the oil eruption from the Deepwater Horizon disaster. These chemicals, whose composition is a trade secret, have not been tested on human beings. But here’s what we do know about them:

OSHA requires companies to make Material Safety Data Sheets, or MSDSs, available for any hazardous substances used in a workplace, and the ones for these dispersants both contain versions of a disturbing statement. 9500’s states that “Component substances have a potential to bioconcentrate,” while the one for 9527A has the slightly more comforting, “Component substances have a low potential to bioconcentrate.”

This is not what you want to hear about toxins being dumped in the sea by the hundreds of thousands of gallons. The EPA defines bioconcentration as the “accumulation of a chemical in tissues of a fish or other organism to levels greater than in the surrounding medium.” In other words, substances that bioconcentrate tend to move from water into fish, where they can do damage to the fish itself, as well as be passed on to predator fish — and on up the food chain, to human eaters.

And just how toxic is this stuff? The data sheets for both products contain this shocker: “No toxicity studies have been conducted on this product” — meaning testing their safety for humans.

Well, that’s good, then.

And the bigger picture yet is this: We’ve tried deregulating things in a big way now for about the past 30 years. Is anyone seriously arguing that the airline industry is in better shape now than 30 years ago? The financial system? Commercial radio?

And what about you? Are you better off for the changes to these industries?

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