How Would You Simplify the Financial-Reform Bill? A Freakonomics Quorum

Last month, roughly two years into a global financial maelstrom, the U.S. Congress passed a financial-reform bill. It was more than 2,300 pages long, addressing everything from derivatives to consumer financial products to oversized banks. We asked a few clever people a simple question:

If you were writing the financial-reform bill and, instead of more than 2,300 pages, were limited to five specific reforms, what would they be?

Here are their answers.

Barry Ritholtz is the CEO and Director of Equity Research at Fusion IQ; he also writes the finance blog The Big Picture and is the author of Bailout Nation.

“Three decades of “Radical Deregulation” freed banks to engage in all manner of reckless behavior. Leaving the status quo in place guarantees? another crisis in the future. Historical patterns suggest the next calamity will dwarf the collapse of 2007-09″

The lessons of this crisis are manifestly obvious: Three decades of “Radical Deregulation” freed banks to engage in all manner of reckless behavior. Leaving the status quo in place guarantees?another crisis in the future. Historical patterns suggest the next calamity will dwarf the collapse of 2007-09.

How to fix it? Here are the first 5 ideas out of a longer list in Bailout Nation that not only would have prevented this past crisis, but would also prevent the next one:

  1. Derivatives: The Commodity Futures Modernization Act of 2000 (CFMA) exempted derivatives such as Credit Default Swaps (CDSs) and Collateralized Debt Obligations (CDOs) from all regulatory oversight. There were no reserve requirements, capital minimums, exchange listings, transparent open interest reporting, or counter-party disclosures. The easiest thing to do would be to repeal the CFMA. Derivatives should be regulated like any other financial products: they should be traded like stocks, bonds, option, and futures – on exchanges, with capital requirements, and full disclosure of counter-parties, with full open interest reported.
  2. Ratings Agencies: The Nationally Recognized Statistical Rating Organizations (“NRSRO”s) – Moody’s, S&P, and Fitch – slapped their highest triple-A ratings on paper that was actually junk. They did so because investment banks paid them to. This payola was a fatal abuse of their unique regulatory role. The conflict-ridden business models of the ratings oligopoly needs to be repaired. Eliminate the “underwriter pays” structure. Open up ratings to true competition – including open source. Randomly assign ratings agencies so “Rate Shopping” is eliminated.
  3. Leverage: Prior to 2004, Wall Street firms were limited to 12-to-1 leverage by the 1975 net capitalization rule. In 2004, the five largest banks received a waiver, allowing their leverage to go up to 25, 30, even 40, to 1. Congress should overturn the SEC exemption and legislate that investment banks conform to the pre-collapse leverage of “merely” 12 to 1.? And the SEC should lose its discretion over this issue.
  4. Restore Glass Steagall: The repeal of Glass Steagall wasn’t the cause of the collapse, but it contributed to the severity of the crisis. The FDIC-insured depository banks should be separated from the risk-embracing investment houses. Prior to the repeal of Glass Steagall in 1998, the market had regular crashes that did not spill over into the real economy:? 1966, 1970, 1974, and most telling of all, 1987.? Wall Street’s occasional bouts of madness did not freeze credit for the real economy. It’s time to return to a banking system divided into two halves: speculative investing and underwriting, and commercial taxpayer-backed depository banks.
  5. Too Big To Fail: As Nixon Treasury Secretary George Shultz famously quipped, “If they are too big to fail, make them smaller.” The bailouts have reduced competition and concentrated economic power in a few firms. More than 65% of the depository assets are now held by a handful of huge banks – and they are still less than stable. Seven thousand small and regional banks hold the remaining 35%. Bring back competition to the banking sector. Limit the size of the behemoths to no more than 5% of the total US deposits. If we have to break up the biggest banks – JPM, Citi, Bank of America – so be it.

Justin Wolfers is a Professor of Business and Public Policy at the University of Pennsylvania and a regular contributor to this blog.

“If it walks like a bank and quacks like a bank, it’s a bank. Bring all banks out of the shadows and into the glare of the regulatory sunlight.”

Financial Reform You Can Fit on the Back of a Napkin:

  1. If it walks like a bank and quacks like a bank, it’s a bank. Bring all banks out of the shadows and into the glare of the regulatory sunlight.
  2. Too often financial information is written with two pens. The small font sizes provide enough cover for a lawyer to sign off, but in larger type, they tell a story that is misleading enough to encourage a steady stream of suckers. That doesn’t seem fair. Here’s a different approach. If your firm’s marketing materials lead a random sample of 100 Americans to believe that the mortgage, or credit card, or other financial product is less onerous or risky than it actually is, then your marketing materials are misleading, and your firm is liable for damages.
  3. An old idea: a Tobin Tax-a small fee attached to every financial transaction. It won’t stop me from saving in my 401(k), but hopefully it would discourage high-frequency traders from wasting their lives hoovering up those nickels that occasionally (and fleetingly) appear on the floor of the exchanges. There’s not a single factory that was built, or a school financed, as a result of their efforts. Indeed, if they weren’t picking up those nickels, those nickels might even remain in our retirement accounts. More generally, let’s encourage the productive side of finance-the part that turns your savings into a firm’s new investment-but discourage financial parasites.
  4. Allow short sellers. When the regulators struggle to find financial misdeeds, let’s enlist the private sector for help. One approach would be bounties for uncovering financial malfeasance. A cheaper approach is to allow-indeed, encourage-short sellers. The private sector can find out who the charlatans are, bet against them, and then reveal this information to the market.
  5. Notice that these are all broad legal principles, not bright line rules? The problem with bright-line legal rules is that clever lawyers figure out clever loopholes. But the problem with broad legal principles instead is that regulators are too easily “captured,” befriending those they are meant to oversee. I’m suggesting broad legal principles, but with a twist. I would raise the pay of financial regulators by half, but in return let’s shut down the pathway from regulator to regulated: once you’ve worked at overseeing an industry, you can’t work in the industry for at least five years.

Nassim Nicholas Taleb is the author of The Black Swan. He is at work on a paper called “Why Did the Crisis of 2008 Happen?

“The captain goes down with the ship…”

Time to realize that capitalism is not about free options. The captain goes down with the ship — all captains and all ships — making everyone involved in risk-bearing accountable, no exception, none. Morally, legally, whatever can be done. That includes the Nobel (Bank of Sweden), the academic establishment, the rating agencies, forecasters, bank managers, etc.

Raghuram Rajan is a Professor of Finance at the University of Chicago and the former Chief Economist at the IMF. He is the author of Fault Lines: How Hidden Fractures Still Threaten the World Economy.

“Reduce the possibility that any financial institution will be too systemic to fail, and ensure that there are substantial classes of securities issued by each of these entities that will lose everything if the entity has to be bailed out…”

  1. Get the government and its agencies out of the business of supporting housing through tax and lending subsidies. While a cold-turkey strategy will probably be destabilizing, a steady and well-defined path of disengagement can be spelled out (e.g., steadily reduce the mortgage-interest tax deduction over a number of years). Breaking up Fannie and Freddie, privatizing the parts, and sending clear signals that their debt will not be guaranteed by the government (see below) have to be part of the solution.
  2. Reduce the possibility that any financial institution will be too systemic to fail, and ensure that there are substantial classes of securities issued by each of these entities that will lose everything if the entity has to be bailed out (these securities are more popularly known as contingent capital). In other words, let investors know they will feel the pain, and thereby give them the incentive to put more constraints on bank risk-taking. I would explore the possibility of reducing the extent to which deposits are insured as banks exceed a threshold size.
  3. If bank boards will not do it on their own, regulators should press bankers to have more long-term skin in the game (that is, money they will lose if the strategy does not pan out over the long run), and let them have more to lose if their bank is ever bailed out.
  4. Reduce the number of regulators (to fewer than the current bill suggests), let the surviving ones meet regularly in a systemic risk council (which would also have regulatory powers over systemically important financial firms), and ensure that a new Office of Financial Analysis collects timely data on systemic risks and exposures, analyzes it for the benefit of the regulators, but also puts out much of the data and analysis in the public domain so that financial markets can monitor risks directly and keep a check on regulators (I am not going much beyond the bill on this one).
  5. Get the Fed to focus on financial stability as an important element of monetary policy. The focus on employment and inflation, largely to the exclusion of financial stability (except in a panic), has been an important weakness in its policies.

Leave A Comment

Comments are moderated and generally will be posted if they are on-topic and not abusive.



  1. DaveyNC says:

    Any single suggestion here would be markedly better, in and of itself, than what we wound up getting.

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  2. twicker says:

    One thing that I’d like to see happen would be to have more types of transactions declared, by law, unenforceable.

    For example:
    Say I’m a bank, and I think that it would be good to write a loan to you of 100% of the cost of a house. Now say that only 80% of that is “enforceable” in bankruptcy, usable for foreclosures, etc., and that any loan that’s written for more than the 80% is, in its entirety, unenforceable (though the bank can report the default to credit bureaus).

    Suddenly, a few things happen:
    1) Loans get automatically split into the part up to 80% and any part above 80%.
    2) Banks only give loans above the 80% to people they are *really* sure can pay them back. Those loans don’t disappear; they’re just much harder to get (remember that it still goes on your credit record).
    3) If people fall on economic hardship, they can make that top part of the loan go *poof!*, thus reducing their payments.
    4) Housing prices don’t go up so fast, because the loans are harder to get.
    5) And, most importantly, not *one* regulator gets added. The banks have to self-regulate — or they end up with a bunch of really lousy, unenforceable loans. Now, the regulators still have to make sure the banks have proper capital available, but some of the most risky loans don’t get written.

    I’d do the same for any loan written without solid proof of income/ability to pay: you write the loan, you take the chance. If you don’t make sure someone can pay, then, if it goes south, you lose. MAJOR incentive for banks to get it right, even without more regulations.

    And, lastly, require financial institutions to insert a clause in their employment contracts that states that, in the event of a government bailout/rescue, all provisions of that contract are null and void. Sure, you may be able to assume that the government may be forced to bail you out, but you can’t also assume that you still get your bonuses/salary/etc. It’s one, OR the other — not both.

    Wherever possible, I prefer injecting unenforceability over enacting new regulations. It keeps our oversight requirements to a minimum, and still provides security against some of the more egregious risk-taking.

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  3. nnaa says:

    Fix incentives – don’t let anyone to pay out short-term incentives on long-term risks. Majority of bad decisions I’ve seen were driven by “lets make a profit today and get those nice bonuses, and lets hope we retire by the time the risk materializes’…

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  4. AaronS says:

    You don’t need a “Top Five.” You just need one. It is directed at all company executives.

    “If your company acts, as a matter of policy or general understanding, in any way that can rightfully be considered unfair, unjust, unethical, misleading, improper, illegal, less than in good faith, or immoral, and it results in damages to customers/partners/etc. who acted in good faith, AND your company cannot fully cover the damages, then you, as CEO or other executive officer, are PERSONALLY responsible. You cannot hide behind a corporation. Your personal assets, including your home, savings, pensions, and any other assets of value, here or abroad, are subject to seizure and forfeiture. Further, you are subject to imprisonment, including the death penalty.”

    Forget thousands of pages. Make the players have their own skin in the game (not just the corporation’s), and the game will change instantly. It will still be fierce competition, but no one is going to play the loopholes when they cannot only make their company go bankrupt, but can lose everything themselves, including their lives.

    Draconian? YES.

    Needed? YES.

    Otherwise, you can be sure they will do it again, eventually.

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  5. Eric M. Jones says:

    Justin Wolfers for president.

    Yes, you have to gulp at the 2300 pages. I just can’t imagine anything comprehensible in that length.

    Since the US Tax Code is from 2,400 to 1,000,000 pages depending on who you ask, I suspect that the Financial Reform Bill is similarly disposed to expand and contract like a giant accordian…depending on who you ask.

    The system is broken. Gold coins, dried beans and canned goods…that’s my advice. For those filthy-rich people who think they got away with it……?

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  6. Change in washington is what's left for the taxpayers. Loose change. says:

    The health bill is at 2400 pages, and let me guess what these 4000 pages have in common, written mostly by lobbyists.

    And that’s another reason people are unhappy with Obama.

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  7. Dan says:

    First of all this is a well-written article. I couldn’t agree more with the first 5, the snippet about using short-sellers as market regulators on this front has always appealed to me, and I like the idea of “skin in the game from the third section.

    The only change I would say is that the “skin in the game” should not necessarily only be applied to bank regulators, but some individual responsibility should be placed on homeowners or potential homeowners. To live in a house without a down-payment or proof over the ability to pay (income) is absurd; with no “skin in the game” it is too easy to walk away as the costs increase and as a dream house becomes an investment burden.

    Furthermore, this “skin in the game” applies as these securities are bundled and passed on. How should financial reform go about fixing the problem where “those securities are no longer in our hands?” It’s no wonder Freddie and Fannie were doomed as they were passed troubled assets labeled good investments… but whose fault was it? The mortgage companies selling bad loans, or the insurance companies buying them? Are we in a buyer beware world or do we call for more transparency in the books??

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  8. Oscar McLean says:

    Well have read about what has happen in the financial market before and after the meltdown I feel that Barry Ritholtz has what it takes to get the reform done right. Barry Ritholtz reform the financial market asap. Put that transaction fee in there as well.

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  9. Brett says:

    “Get the government and its agencies out of the business of supporting housing through tax and lending subsidies. While a cold-turkey strategy will probably be destabilizing, a steady and well-defined path of disengagement can be spelled out (e.g., steadily reduce the mortgage-interest tax deduction over a number of years). Breaking up Fannie and Freddie, privatizing the parts, and sending clear signals that their debt will not be guaranteed by the government (see below) have to be part of the solution.”

    Best idea of the lot

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  10. Howard Brazee says:

    I’m a big believer that delayed stock options should be how CEOs make most of their money. By “delayed”, I mean by a decade. Get our corporations working for the long term. Don’t let the CEO get wealthy by passing problems to the next guy.

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  11. Jorge says:

    It would be a very long comment going into all the proposals, although I pretty much agree with Mr. Ritholtz
    and Mr.Wolfers. But I think it is important to point out that
    our society doesn’t seem to lack the clarity, knowledge or common sense to come up with good proposals, as this blog shows. It seems more like we have lost the political
    ability to get things done properly.

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  12. GLK says:

    I believe AaronS’s solution is the least likely to be imposed but the most likely to be successful.

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  13. Bobby G says:

    I’m with Brett (#9), getting the meddling govt out of the private markets is one of the best ideas listed.

    I think there are some other great points above, of course, namely increased transparency for banks and risk-assets. Transparency is a necessary and good thing for any functioning private market. Increased accountability is also important, but not only for CEOs… it should be for the clients as well. Not having 100% transparency… that should be assessed as a risk. Putting money into something when the details are not crystal clear is a risky venture! If you are risk-averse you won’t do it. If lots of people do it, and lose, fewer people should do it in the future since it is not a wise investment… that’s a free market solution that doesn’t require tax breaks and bailouts and media jockeying and blaming things on predecessors… oops sorry went on a tangent.

    Ultimately I still think (and have thought for over a year now) that the mortgage-backed securities crisis was not caused by deregulation but by bad regulation in the first place. F&F were taxpayer backed… that’s bad. Sure we had risk limits on them to try to get them to act like a private firm but as govt officials got “greedy” for good reports, they started alleviating the risk limits, and naturally F&F (themselves accountable for nothing) would buy up anything they could, which caused everyone to think that there was value in any mortgage-backed security because F&F would always buy it. These risk limit removals were condemned as “deregulation” when in fact if there were no regulation to deregulate in the first place there wouldn’t have been a problem!

    …Hence my agreement with Brett (see I bring my comments full circle sometimes).

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  14. DrS says:

    Glass Steagall seems like one of the most logical pieces of legislation ever passed, and yet, it’s gone.

    It’s not draconian big government. IF you want the government to insure deposits with FDIC, THEN you can’t also be an investment bank. Therefore, if you do not meet the requirements, you must tell all depositors that their accounts are not FDIC insured.
    I think you could add on to that a limit of how many FDIC ensured accounts you can have, and put an end to too big to fail in a heartbeat. As far as the citizenry is directly concerned, anyway.

    How Glass-Steagall ever got repealed blows my mind.

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  15. jibe says:

    why not just remove the middlemen. Nationalize the banks and, in mr. krugman’s charming words, wipe out the shareholders including the millions who invest in IRA and 401K retirement accounts. then our smart little president will have even more money with which to choose winners and losers in his new industrial policy.

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  16. erica says:

    Change the capital gains on stocks to be highest for the shortest holding times, 30% for less than a day, 25% for less than a week, 20% for less than a month, 10% for less than a year and 0% for anything held for more than 5 years.

    Reward long term investing and punish the speculators.

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  17. Mario Bosh says:

    Most so called profit of Wall street are questionable, I would arrested the top 5 officals of Goldman Sachs as a starting point

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  18. Drill-Baby-Drill Drill Team says:




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  19. BlueCarp says:

    There is only one law that is necessary to reform Wall Street, and it already exists. It just hasn’t been enforced:

    Don’t commit fraud.

    If people are involved in a voluntary transaction, with full knowledge of all risks, the government should not be involved. If those risks bite someone in the rear, they suffer the consequences – not the taxpayer.

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  20. Randy says:

    Since high-frequency trading is opaque to regulatory analysis because of speed, timing, unclear ownership, and volume, it is certain to be largely fraudulent.

    Other than systematic fraud, how can all the big players show inexorable daily profit if they are simply playing against each other? It is either fraud, or a pointless hidden tax on the market, skimmed by the trading programs.

    1) Open source the (anonymized) trading datasets, and cut the contributing analysts (say, underemployed grad students or programmers) in on the fines generated by SEC prosecution of any abuse, including any “errors” of trade ownership. I’ll bet lots of ownership relationships will be inferred by the analysts when they see certain stable trading patterns…

    2) Arrange capital gains tax on a scale that diminishes from a very high rate on very short security holding times, to zero after 5 or 10 years. A security held for less than 100 milliseconds should have any capital gains taxed at more than 95%. Five minutes at 80%.

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  21. Frank Paolino says:

    I see a desire to reduce risk, which is good. This eventually will morph into a desire to eliminate risk, which is bad (and nearly impossible). So people making bad loans are not criminals, they just misread the market, and that is not illegal just undesirable.

    Attempting to “prevent” future market swings by itself introduces new forces that then need to be counterbalanced by laws that need to have enforcement which caused lobbyists to craft new fine-tuned laws.

    Which leads me back to the same conclusion: Reduce risk but don’t try to eliminate it.

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  22. Greg says:

    Real simple. Never bailout anyone with taxpayer funds. Tell people that a millions times. From there it will sort itself out in the long-term. Yes there will be short-term pain from time to time, but we will all be better for it.

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  23. econobiker says:

    “More generally, let’s encourage the productive side of finance-the part that turns your savings into a firm’s new investment-but discourage financial parasites.”

    This also needs to apply to banks and their negative activity fees (over draft, atm, minimum balance, etc) which engorge the banks but suck the life out of the economy. If someone over drafts then the bank needs to stop the over draft make the person pay and then close the account if the bank doesn’t want that customer.

    That the people who poorly manage their fiances became the banking industry’s ~best~ customers (ie most profitable) is symptomatic of the problems within in the system now.

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  24. Barb Gantt says:

    B.O. is owned by wallstreet?

    By not appointing Elizabeth Warren;
    BO is giving driving directions to Jonestown,Guyana.


    No Jobs and No Social Security in America because enough money is never enough money for the 2% wealthiest. The 2% wealthiest steal our social security, our 401K’s, our homes,and our jobs. What are 30 million Americans going to do without any hope of jobs? Will that 30 million turn into 250 million Americans long term unemployed? The 2% wealthiest got their obscene billions from the ribs of the Middle Class. What will all these millions of Americans do to survive? If you pay attention to all these BIG problems, you know there may be no way for 30 – 50 – 100 – 200 million Middle class Americans to survive. Social Security was stolen by Reagan and Bush W. for Tax cuts for the wealthiest. Virtual Immigration Offshore-Outsourced 50% U.S. Jobs. Internal Illegal Immigration has taken 25-30% internal American jobs. Glass-Steagall Act Repealed needs to be re-enacted. Sherman Anti-trust act needs to be enforced.

    The 2% wealthiest are afraid of Elizabeth Warren.

    The Stimulus was used to build car factories in Mexico. Foreign Aide; Invasions; Imperialistic Wars for Big Oil and Big Defense Contracts. Disintegrating Education. Lobbyists empowered by loss of State and Citizen Rights.

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  25. Tom Peters says:

    Bailout Nation is one of ten great books I have read this summer. In my run for US Senate,as independent in NH, I wanted to learn all I could. This exercise in reading confirmed many of my beliefs and enlightened me in so many ways. Thank you for the incredible amount of research and effort in Bailout Nation.

    I am just so puzzled why folks like Barry Ritholtz , and Brooksly Born have not been asked to be chief financial advisers to the president.

    Instead we have those with almost no foresight or comprehension of their actions in the long term.

    2300 pages of financial reform for wall street and not 1 page of financial reform for congress.

    I have that missing page:

    Tom Peters

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  26. Abby Tucson, AZ says:

    Yes, return Glass-Steagall to restore us to 1935, but also remove the protection of derivatives from state gambling laws, so we can shut down those bucket shops. Before 1907, the same idea as derivatives were being used to let folks bet on securities. JP Morgan used it to destroy the Equitable Life Assurance Society in 1904. The share and policy holders were wiped out, but JP got the company and a railroad in the deal. A dry run for the Panic of 1907.

    It made me shudder to hear this last crash might be over shadowed by another. The last crash was caused by the derivatives market and the manipulation and robbery that run wild in bucket shops. I ‘KNOW that massive derivatives market isn’t made of real money, just bets that have been insured without set asides and booked as earnings. I KNOW it needs to be dismantled, but can see no way to do it without the pirates manipulating who lives and dies. But it HAS to come down. Otherwise, we’re living in 1906.

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  27. Abby Tucson, AZ says:

    I wouldn’t have the balls to lend more than two times what I held in other’s deposits. But did anyone read that the Abacus deal Goldman got pinched for was leveraged over 700 to one? It’s a wonder the derivatives market, 97% of which 5 banks control, doesn’t tear itself from the foundations of the Emerald City and escape in a hot air balloon. Only direction for that circus peanut money to go. DOWN!

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  28. David Mayer says:

    I am not sure if It has been said explicityly in the above but to me transparency is a critical issue, in short we want to know: what’s in your wallet and how is it being marked. We have reached a point were not even the board of the bank itself has clarity on the bank’s exposure. Provide transparency in no uncertain terms and let the markets judge if they want to provide equity or debt financing to said institution.

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  29. Abby Tucson, AZ says:

    Our state bucket shop laws ended the betting parlors of Wall Street that caused the Panic of 1907 and were enacted in a single year. Had to go around Congress because they were not in the mood to confront the problem. NY was the last state to drive a coffin nail in the bucket shops and declared them fraudulent markets and exchanges where bald robbery and manipulation proliferated.

    Just because these 5 banks gussied their bucket shop up in complicated securities for sophisticated suckers doesn’t mean we can’t shutter the CDS market in a heart beat. Withdraw Phil Gramm’s last minute insertion in the CFMA, the provision to exclude CDSs from all states’ bucket shop laws.

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  30. tomk says:

    It’s refreshing to see the common sense of Barry Ritholtz’s prescriptions. Combined with the Tobin Tax, they would amount to a great benefit to the USA. It’s also notable that they largely amount to simply undoing the damage done by the extreme right. We don’t need a new system, we need to reclaim the old system that once brought so much prosperity to the middle class.

    Unfortunately, the financial corporations have so much power that it will take another great depression for the politicians to go along with the obvious. We may get it, too, because of the timid half-measures being taken to stimulate the economy.

    Barry for Sec Treas!

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  31. Abby Tucson, AZ says:

    So, if banks were confronting being forced to dismantle their nutty fluffy circus peanut money derivatives market, they’d be all about forgiveness and haircuts.

    How can people be so heartless?
    Easy to be hard, easy to say no.

    But when their ammo dump starts blowing up, you know who’ll they’ll look to to insure it. Am I crazy, or are each of those CDOs corporate entities that will be insured by the FDIC? Please tell me those inhuman monsters don’t get citizenship. But they must be American made, because as I recall, only America may market them and exchange these pieces of hell. Another odd exclusive protection given to these invading monsters by the CMFA

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  32. warren white says:

    the comments of Barry Ritholtz are to the point, actionable, and take way less than 3,000 pages!

    Why can’t Congress do something concrete instead of passing off a watered-down, meandering, endless bill that does little in the way of addressing the core of the problem?

    And why can’t the media shed more light on the fact that the “Financial Reform Bill” is like the Emperor’s New Clothes??

    If it was not so serious it would be a good laugh :-)

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  33. Hanrod says:

    Discredit and destroy all the “Chicago School” economists and their foolish conjecture, including the one quoted here.

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  34. Bill says:

    Ritholtz and Wolfers are right on.

    However, most of the suggestions are directed towards limiting banks in trading on their own account,, which remained the only option to really make money after Glass Steagall ended the oligopoly in investment banking.

    Perhaps applying once more anti-trust law to banking might prove beneficial. Does anyone believe that the growth in banking’s share of the economy is commensurate with any improvement in capital allocation?

    The concentration in the industry is much more than is understood – for example, it’s likely that the doomsday scenario that Paulson avoided was that 3 major clearing house banks – Chase, Citibank, Bank of America – supporting ATM and credit card transactions were about to stop providing the backbone of electronic transactions, which always carries credit risk; would have been the mother of all bank runs in what has become a cashless society.

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  35. mfw13 says:

    While most of the solutions suggested are excellent ones, none of them have a snowball’s chance in hell of being enacted in the current political environment. If they can’t get enacted with the biggest Democratic majority in decades, they are never going to get enacted.

    Until you reform Congress, the interests of Wall Street will continue to take precedence of the interests of the common citizen. Period.

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  36. David says:

    There were 2 ‘root causes’ of this financial crisis

    a) artificially low interest rates. This created excess capital and encouraged greed in the form of people borrowing too much money and banks lending out too much

    b) effective Government guarantee of mortgages as summarised nicely by Rajam

    Therefore the Federal Reserve should be abolished and home loan subsidies should be removed immediately. There were no other CAUSES of this financial crisis. Everything else flowed from these non-market policies

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  37. pwilli says:

    hilarious. I love all these comments that place the blame for the financial meltdown on poor people who could not make their mortgage payments. I guess the best thing about being rich is that it is never your fault. By the way, Bush2 could not scream enough during his tenure that historically more Americans owned “their” homes. It is clear now that he was just throwing some crumbs under the table to distract the middle class while giving the cake to his only real constituency: the uber rich. Mission Accomplished.

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  38. Steve Bradley says:

    There are several things missing here:
    1. No “connection” of any kind between Congress, the feds, and the financial markets. No federal agency, employee or elected official may receive anything of value of any kind from any financial corporation, or regulated entity. If a company wishes to advertise on behalf of a given candidate, so be it, but “special favors” are OUT. Any such proven “connection” subjects both parties to prosecution for financial fraud, and results in automatic withdrawal of one’s license. This MIGHT reduce the number of “bribes” paid to the Congress for re-election.
    2. No “implied guarantee” may be issued or discussed verbally in any financial instrument in the United States, unless that instrument offers such a guarantee in writing, on its face. Any person who offers such a guarantee, either verbally or in writing, or in any form of communication whatever, may be prosecuted for financial fraud. If a corporation does so, its officers are personally liable.
    3. All consumer debt instruments are to be no longer than two pages, in 12 point type, and be understandable by a high-school graduate. Same for all financial contracts.
    4. Loan documents may be no more than 4 pages in length, in 12 point type, and must be understandable by a high-school graduate.
    5. All risks for any instrument not guaranteed on its face by the full faith and credit of the United States are to be assumed by the buyer of such instrument.
    6. Ratings of all types (including credit) are to be made public and transparent, along with the methods developed to create them.
    7. Any bankruptcy judge has the right to cram down the value of any financial instrument to its current fair market value, including, but not limited to, notes, trust deeds, etc. by court order.
    Finally, what ever happened to the taxpayer dollars thrown at this mess, and the loss of value to the taxpayers? Institutions don’t lose money. They lose money for third parties.
    Therefore, every financial institution of the United States (including the Department of the Treasury and the Federal Reserve) must be a full fiduciary of the taxpayer and of the individual account holder whom they serve.

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  39. Eric Williams says:

    The recently passed Dodd-Frank financial regulation bill will make it more difficult to raise equity capital.

    If selling partial ownerships of small private companies, business owners must comply with Regulation D of the Securities Act of 1933. One of the provisions of this is that securities that are unregistered with the SEC must only be sold to “accredited investors”. In the past, the definition of an “accredited investor” included an individual with a net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of investment or who has an income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.

    Unfortunately, the Dodd-Frank bill makes a significant change to these criteria: it no longer allows the value of a primary residence to be included in the calculation of net worth.

    So forget about asking your friend John, who lives down the street who makes $190,000 and lives in a $500,000 home with a $100,000 mortgage who also has $500,000 in stocks and bonds, to invest $10,000 in your start-up. He no longer will meet the definition of “accredited investor.”

    This will significantly impact the size of pool of “accredited investors” which will make capital formation more difficult for many small but promising companies. When you consider that about 67% of net new jobs are created by small businesses, this is bad for unemployment, it’s bad for business, and it’s bad for the economy.

    Vote the jokers who voted for this bill and the ridiculous health care bill out of office in November. Elect adults. We are going down the wrong path quickly.

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  40. jackcb says:

    I’ve got to go with Barry Ritholtz and responders 3,4 & 18. Though everything here sounds germane.

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  41. JAC says:

    And republicans have promised to repeal any financial reform.

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  42. Geo from Jefferson says:

    Barry Ritholtz’s suggestions make the most sense, although they are incomplete. A consumer-protection agency is still needed, which is part of the new law.

    I don’t understand why the main motivation for this column is the length of the financial reform law. What an irrelevant criterion! Some of the exotic investment vehicles had lengths exceeding the reform law. I guess when private entities make something long and complicated then it is “innovation”, but when the government does it it is “too complicated”?

    It is disconcerting that the benefits of a consumer-protection agency are not mentioned at all in this article. We have a banking industry that, compared to the 1960’s, is computerized and thus should have dramatically lower costs. However, savers receive less in real terms and borrows pay more in real terms. Why? Too many customers are simply unable to calculate the true cost vs. benefit of a financial product. So the banks ask for more and give less and no market force has corrected that.

    Also note that banks were more tightly regulated in the 1960’s. Top executives were taxed more. Fanny and Freddie were not split or quasi-privatized, but were one Federal agency. Yet such “inefficiencies” did not impede growth. Why are so many of the de-regulatory suggestions above the opposite of what used to work and given without any evidence that they have ever worked anywhere at anytime?

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  43. tomk says:

    There is one “root cause” of the crash, the idiotic idea that “the free market always finds the best solution”. When the middle class was growing more prosperous every year, we had a beautiful balance of strong government regulation and strong capitalism. Gingrich, Gramm et all stripped away half of the system and let the financial sector run wild, and the results are in. As Hanrod says, the “Chicago school” should apologize and go away.

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  44. pdxtran says:

    I’m not a financier, an attorney, or an economist, but I do see what has been happening on Main Street, and I think that these measures would undo a lot of the damage that has occurred in the past thirty years.

    1. Reinstate the usury laws. Roll back the interest on all outstanding balances to these lower rates retroactively. Borrowers (credit card holders, small businesses, family farmers) must be given the option of refinancing their outstanding balances at these lower interest rates. Maintaining high interest rates keeps people in debt slavery.

    2. Any financial institution that socializes its risk (in the form of accepting bailouts) must also socialize its profits, in the form of paying out dividends to all depositors and borrowers equal to the amount of the bailout.In other words, if they receive a $1 billion bailout, they must “pay it back” by sharing $1 billion among their depositors and borrowers before ANY dividends may be declared or bonuses granted.

    3. Individuals in danger of having their houses foreclosed must be allowed to continue living in them as long as they pay fair market value rent (since the bank is the actual owner anyway).

    4. Interest-only mortgages should be banned, and no mortgages should be granted to anyone whose monthly payments (principal, interest, taxes) would be more than 1/3 of his or her monthly household income, even if the borrower is willing.

    5. Pass a Constitutional amendment stating explicitly that corporations are not persons, that the word “person” shall be limited to individual human beings, as the idea is commonly understood, and that no corporation, union, non-profit, professional organization, or other collective entity may contribute to political campaigns.

    I don’t hold out a lot of hope for these reforms, but they certainly would help the people I know.

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  45. mfw13 says:

    Mr. Williams…which “adults” would you suggest we try to elect? In case you haven’t noticed, pretty much the entire GOP has regressed to the level of tantrum throwing kndergardeners. The Dems aren’t great, but they’re a heck of a lot better than the alternative.

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  46. Per Kurowski says:

    They have completely ignored the fact that the introduction of capital requirements for banks based on ex-ante perceived risk, even though no financial crisis has ever occurred because of excessive investments in what is perceived ex-ante as having high risk, but all have always originated in excessive investments in what is perceived ex-ante as having no risk, introduced serious distortions in the financial system… and helped to cause the stampede after Potemkin AAA rates.

    Besides only regulatory zealots could think that the risk for society of a bank defaulting is larger than the risk of the bank not doing what it is supposed to do.

    My simplification? Return to one single capital requirement for any type of bank asset.

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  47. Johan says:

    I agree with most of what has been said above. The recommended ‘remedies’, however, fail to dig deep enough. Banks lend aggressively because they are encouraged to do so by the government through lack of regulation/poor laws. They take excessive risk because they see profit in it and know that they have the governments backing in case of a meltdown. The question that needs to be answered is why this is the case. Why do governments allow this? Part of it surely has to do with lobbying. (I do not quite understand the difference between lobbying and bribery…anybody care to explain?) Mostly it has to do with the wages paid to an average worker. People in the developed world have to work for 30+ years to buy a home/apartment. Why? The global model of ‘capitalism’ allows for nearly free transfer of capital but the movement of people is still very restricted. Either restrict the flow of capital so that it equals the restriction of the movement of labour or allow for the free movement of labour. The latter is not feasible so that leaves us with the former.

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  48. Andrea Psoras says:

    These were interesting comments. Barry and the others are correct this Frank Dodd legislation will not solve the problems that exist in part to facilitate US compliance with G20 agreements that arose because of the fall of the Berlin wall and our ‘alliances’ with Germany and Europe.

    While the Germans were collapsing their economy and their fear of what that would do to their society when it reunified with E.Germany, the Bushes here with their conflicted interests with Germany, the power of the Central banks including the bundesbank, germany’s power in europe and the self interests of the british had us do NAFTA. The balance of Europe did the EU and the G20 which cause the economies of western europe to contract when they under the EU and G20 agreements would offshore production to the eastern block/former warsaw pact countries.

    Notice too that the WTO went into a ‘free’ trade agreement with the PRC around 6 months before the US did in may 2001 when we into “PNTR” with the PRC. all of these need to be repealed, but the US based bigFinancials in order to continue to enjoy somewhat unfettered access to areas typically turf of the European banks, had to agree and with that a fair amount of our production was offshored into the former colonies of our allies, while our BigFinancials did anything they could to gross up their size calling it ‘global competition’ but it was increasing in mass by any means including also any way to hive away the assets of the many into the hands of the few.

    The central banks are in bed with this as well as our global corporates and the BigFinancials.

    Gramm leach bliley, while not a direct cause of the financial situation – which dont let yourself be deluded -was entirely self engineered on purpose to give them what their lobbyists lobbied for in Frank Dodd.

    Dodd also said that what was in the drafts wasnt going to solve financial crises and th ese were probably going to happen every five years or so… which given how corrupt what they’ve done is, and how much power the BigFinancials and agency abuse in general have unless reigned in – agency abuse and professional management and its power to make campaign contributions directly and/or thru lobbyists to sit with staffers to craft drafts – we’ll continue to have problems while corporates because of the supreme court enjoy 14th amendment protection.

    Given our Constitution calls for the use of indirect taxation in Article 1 Section 8, and the ability for our voters to own land, while in much of europe this isnt the case, when we also have allowed the corporates to grow in size but allow their managements to enjoy abusing power while also growing in size with the “net Capital” Rule paulson got from donaldson while the later was at the SEC, it’s not really the gramm leach bliley that’s the problem for the voters in the US. Mass moreso by way of the net capital rule, has been a bigger problem.

    Also BHC charters to Goldman and Morgan stanley and these do need to be revoked, and yes do repeal the commodity futures modernization act and that loophole that phil gramm got that permitted OTC derivatives to plume after that and trade. We’ve not seen 10 good years after phil gramm’s ambition for that Bob Ruben, goldman loophole – also to benefit the bigFinancials in general.

    Eliminate the ability for these OTC derivs when traded then when ‘marked to market’ and/or fair valued for those non cash gains to be run thru the income statement as if they’re real revenues when they’re not.

    Also reinstitution what gerald corrigan suspended upon leaving the N Y fed to work for Goldman in 1993 – to reinstitute agency examinations and strong agency oversight at those bigFinancials/agents of US treasuring dealing/broking activities. Things got worse after than and eliminating aggressive oversight that had existed hasnt been better for the financial system.

    Eliminate the voters wallet from being backstops to the bigFinancials’ derivatives writing via the sovereigns being the final backstop in all ISDA agreements and yes, constrain the power of professional management which yes, we’re suffereing from not only agency abuse and its aggressive contracting of the resources of the enterprise where they’re management while the voter has picked up the tab, with the proliforation anyway of professional management especially thru a larger number of incorporatings on wallstreet rather than partnerships, shareholders anyway are and have been at risk.

    The collapses of lehman and bear stearns however are because the bigger players didnt want to share the pie of the US economy they’ve been shrinking with the smaller Lehman and Bear stearns as they all were and have been in the same condition doing the same repo 105 transactions that lehman and bear were doing. A recent review of a Y9C of a Big financial showed that 13% of its balance sheet is tied up in repos with only perhaps 25% of its balance sheet in core deposits.

    So requiring ordinary banking regulation from earlier eras while making it also after the keating 5 affair -hold regulators also criminally liable.

    FNM and FRE look bad only because wallstreet via ‘private label’ covets that turf while the bigfinancials have had their role in shrinking the US economy. The GSEs were benign too before they were taken public, that also was a bush 1 admin way to throw money at wallstreet. GSEs weren’t FHA and GNMA.

    The shrewd creepy little guys behind the curtain like paulson attempt to play everyone else for fools and think that the ignorance of the masses is the way the insiders themselves can advantage themselves. So when the bigFinancials help enron pull of its own collapse with ‘joint ventures-SPEs and OTC ‘energy’ derivatives legitimized with Enron Phil’s CFMA2000 loophole for OTC derivs trading, when BigFinancials and insiders saw that virtually nobody understood what really happened, they went about their own.

    Thus while agency can write derivatives contracts with ISDA committing the voters to pick up the tab while agency has obligated the resources of the enterprise beyond what is economically viable except to the well paid under- supervised managements at the bigFinancials, as Dodd said and the regulators know the cash parasitic, non cash gains declared as revenues will cause further problems which can be reversed.

    But also to help to eliminate such problems then no likewise to the fair value revolution that harmonization with IFRS that the SEC and congress had had FASB pursuing, the but since it’s been a yes to the afore mentioned, then nature of OTC derivatives activity is and has been contributing to these liquidity problems.

    I’ve given you plenty as to why we’re having problems in the financial sector but as noted above there is a class of people that think turmoil advantages them .

    We attempted here in the US to prohibit such abuse by what would attempt in time to become elite, not like we didnt have elite with people like William Penn, however we had a Constitution that functioned while we were under it.

    That’s another thing we need to re install – being back under the Constitution which has been suspended since 1860. Eliminate the adhoc, provisional government that the corporates have hijacked and put us back under the constitution.

    We can eliminate central banking (which has been the european and british form of a banking system) we can eliminate fiat money and return to the gold standard under our Constitution, we can reign in agency abuse and corporate power with 14th amendment protection that the supreme court advantaged over the voters, we can get agency’s hands out of the voters wallet when the voter is eliminated as the final backstop in ISDA agreements.

    We can eliminate the net capital rule while also repealing US involvement or compliance with G20 agreements -which has been a reason the bigFinancials have wanted to get big and again under what they call ‘global competition’, as well as repealing all the non tariff’d trade agreements that have been a method used to collapse the US economy and erode the voters’ attention from problems while also eroding the voters’ quality of life and ability to have a more financially secure future.

    We need to withdraw or cease further US tracking into adopting european accounting aka, “IFRS” or International financial reporting standards’ which allow management to report an average of 12% higher profits given that reporting model, while management hasnt done a 12% better job in what they do or dont do.

    We also need to cease some ignorant and deluded rumination that we’re like the europeans or to be or become like europe and the europeans. And having an internationalist president or ones like the last admins with conflicted international alliances that are deleterious to the US voters again too needs to be cease and desisted.

    Reigning in Pay of professional Csuite at the fortune 500 level is a leaf on the tree. The bigger matter is dealing with the power of agency abuse and stemming the erosion into ‘free’ enterprise away from private enterprise and disincentivize the drive for bigFinancials to attempt to take public any sort of company also needs to be dealt with.

    It seems the more ‘free’ enterprise we idiotically have created while feeding wallstreet maggotry, the worse the problems have gotten with agency’s inability to respect a functioning regulatory framework when it’s instituted to reign in agency abuses.

    This is so evident in banking and when the regulatory arm is weakened or starved or compromised, we’ll tend to see what has happened over the last 20 years in the white house and perhaps its while the american 4th Reich has had more traction here, but the last 20 or years hasnt been that great for the US economy and the middle class while the privateers have had their hand more directly on the levers of ‘power’.

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  49. FoF Manager says:

    Seems like most of what’s being said is driven by anger at Wall St., anger at politicians, or anger at rich people. As such, many of the proposals and most of the comments to them are misguided (Ritholz proposals 1 and 3 being exceptions).

    The crisis was caused by certain banks, investment banks, and homeowners borrowing too much money. The solution is simple: limit the amount of money financial institutions and consumers can borrow. That’s it. That’s all you need.

    Everything else is irrelevant and would not have prevented the current crisis nor prevent future crises.

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  50. tomk says:

    Also, the housing bubble served as a smokescreen, disguising the damage being done to the middle class by voodoo economics. As the jobs were offshored and the tax structure changed to funnel the wealth to the top, the “house ATM” maintained the illusion that the voodoo was working. We would not have gone so far down the road to inequality without the bubble.

    Follow the money. Nobody benefitted from the deregulation of the extreme right congress and the Bush SEC but the financial sector. There is no reason to allow more than 12:1 leverage, unless you want to enable complex trading of the banks for their accounts.

    Do what Barry says and we’ll be fine!

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  51. Tom Paine says:

    I like Barry Ritholtz’s list. He also wrote a fantastic book called Bailout Nation.

    I also like the idea of getting the government out of the housing business. I, a tax paying renter, should not be subsidizing those who chose to buy a home.

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  52. Truthsayer says:

    So funny – its like no one listens to the real root cause. William Black has said it – its a failure to regulate/enforce existing rules/laws. The political process is corrupt. People hire their crony friends who have know idea on the topic they are supposedly supposed to regulate and if they do have knowledge they are looking out for their next job. Whose fault is it? Its the voting public who allow our politicians to do this and don’t hold them accountable for their political appointees. Why is it not a focus on the political campaign – because both parties do it.

    You can create all the rules and laws but if people fail to enforce them then what? Look during the S&L crisis we had many prosecutions now – nothing – why because they would prosecute their friends or their next job and the system is now designed not to enforce/regulate. Where would they obtain their lobbying money? Look during the crisis William Black noted at a congressional testimony they sent only 3 guys to Lehman whereas in during S&L they would send much more to small savings and loan bank. He has also noted the justice dept has 1/5 size to investigate and prosecute they had in S&L but the amount is 40X greater than S&L…..WHY – thats what we need to ask thats what needs to be fixed….go ahead and waste your time writing 2300 pages of rules and laws……

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  53. David D says:

    A 20% down payment for homes and autos could take this bill down from 2000 pages to one page. And do a better job. Folks we be forced to save and banks would be unable to leverage themselves so dangerously.

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  54. Srinath says:

    If any company or institution is too big to fail then it should be deemed too big to exist

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  55. AHodge says:

    my version? there are
    3 big drivers, the new “modern” financial flaws
    and 7 areas to fix
    The heart is deeper than dereg which many focus on. This train wreck credit collapse came from modern financial developments.

    1 complex financial “product” and real bad accounting of it
    2 fake insurance (AKA insured by taxpayer),
    3 downside of securitization,

    As for the legislation, you could throw it out-or not.
    and get to work on

    narrow banking-more than Glass Steagall,
    rating agency do-over-massive
    good accounting and risk management
    Fannie, Freddie and FHA,
    stable lending supply (the downside of securitization) encourage actual banks again with their credit depts?
    stable funding (not $ trillions of subsidized overnight repo)
    corporate governance, -including liability, compensation, shareholder rights and bankruptcy treatment of financial assets.

    On the last point, for now let’s just ask three questions.
    “When is eight figure termination severance for CEOs and top execs not a corrupt bargain?
    “”Why are industry execs who bankrupted their company while hugely enriching themselves still at large? Why are those who sold bad financial product still at large?” While corporations were founded over 200 years ago on the limited liability principle, committing the above in the past often resulted in fraud charges and jail time.

    two technical points
    1) the bill is said to have hundreds of pages on bankruptcy. Here is the state of bankruptcy for financial assets (quote) UPenn law professor Skeel

    “Congress has steadily expanded the exclusion of securities market operations from core bankruptcy protections (with) serious unintended consequences. The application of the special derivatives provisions … raised even more questions…. most prominently in the Lehman bankruptcy.
    (regarding) bankruptcy’s special protections for derivatives … I propose either…

    Remove the existing exemptions, imposing the stay in all cases, or…
    Stay only systemically important firms

    David A. Skeel Jr Bankruptcy Boundary Games. U. of Pennsylvania; European Corporate Governance Institute (ECGI)

    SO the umpty ump pages are the lobbyists keeping most the cap markets and derivatives special treatment. Meaning first in line, immediate liquidation with 100% recovery AT THEIR PRICES. This is version #19 of fake insurance special wall st treatment. then some of those same folks immediately turn around and scream about the turgid 1000+ page bill of REGULATION!! oooohhhh

    im sure Prof Skeel could wipe out the derivatives special favors in 10 pages if he was asked to

    2)Glass Steagall a good thing. But not good enough. It was half gutted before it was repealed. It will likely be unworkable (again) to define narrow banking by what it is not. The opponents know how to evade that

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  56. john says:

    Wonderfully articulated ideas for reform by Ritholz – a true clear thinker

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  57. Jordan says:

    The trope about the bill being N pages needs to be retired. The pages are all more-than-double spaced in a big font, often with very deep tabs for subsection blah blah blah.

    So for most meaningful sense of “pages”, it may be only a few hundred. Can we think of one or two hundred things we’d like to see change? Would each take a few pages to describe, especially since all the organizations and regulators involved have long names, job titles, etc?

    So, sure, the bill is long, and yeah, there’s probably a bunch of junk. But the “We had a huge crisis that ruined the global economy, and then our effort to fix it TOOK A LOT OF PAGES TO DESCRIBE” line is just stupid.

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  58. mark says:

    Repeal everything that Phil Gramm had a hand in passing. In the future, before passing any rules or legislation, regulators and legislators should be required to draft a proposal based on the his “insights” and then do the opposite.

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  59. MeToo says:

    Any of these are better than the charade we did get. Some more ideas. Term limits. The way the pols are beholden would get re-set each time the faces chaged.

    Open government. Just as we can have poll-watchers, let’s develop a democratic system where any constituent can monitor the govt as deeply as he or she wants.

    Any an all elected officials and employees operate as if in a zoo, with all behavior observable. And documented. In real time, and open. On the web. Want to know what lobbyists are visiting Obama right now? Just click. Want to hear their discussion? Just click.

    Bank, offshore rigs, etc., do not get “monitored” as they should per existing legislation. Set all scheduled visits on the web. Develop a program where a citizen can get training in how an offshore oil rig, basically, should get a site-check for safety, etc. THen, the person is qualified, within reason, to eyewitness the govt monitoring of these endeavors that are regulated because they pose a threat, such as pollution, nad the threat will cost us our tax dollars.

    I would love to train a crop of engineering students, or a local civic club, to go be the “poll-watchers” at a local nuclear reactor inspection, a local oil righ inspection, and so on.

    The cost? Borne by the industry. Very similar idea to putting up a bond or having insruance against a disaster.

    Then, no inspector could simply accept the bribe and click in a bogus inspection.

    The govt is supposed to monitor bank practices? Train citizens to know the range of steps of an audit, then train them to know the audit schedule.

    The secret nature of the cronyism is blown out of the water.

    Make all of govt open to civic eyewitness monitoring like this. For all of these recent disasters – financial meltdown, the gulf oil spill, all the ethics problems of Rangel, and so on, we can engineer civic eyewitness open govt systems to bring the light of day to expose the cronysim.

    Otherwise, no amount of laws and acts can suffice, since everyone will wink, bribe, strive to keep their cash-cow govt desk job, and ignore the decent laws out there.

    Also: some rule that says bills, other than omnibus budget, can only afefct one thing – so, a bailout bill cannot have special interst stuff for a tuna factory in Samoa.

    If you want to give a tax break to the tuna business in Samoa, it has to be in its own bill – the Pelosi Samoa Tuna Industry Tax Break Bill.

    She can try it if she wants. But the shameless robbery of the public coffers would wilt in the light of such open-ness.

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  60. doug m says:

    I say we need more instability.

    When the system is too efficient at spreading risk, when it does fail it fails spectacuarly.

    1) too big to fail — No one can be too big to fail. If mega-banks need to be broken up so be it.

    2) TBTF tax — Banks over X billion in assets pay a tax on their asset base.

    3) No more bail outs — if a bank goes down, everyone investor goes down with it.

    4) No more NSROs — S+P and Moody’s will still exist, but there will be no legal mandate that bank assets have credit ratings. The ratings are BS anyway

    5) Fannie and Freddie — Separate the “public mission” from the private mission.” House the pubic function entirely with the Federal Goverment, split out the private fuction as a regulate bank.

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  61. Brad T. says:

    Only 2 reforms are needed: 1) Banks should not be allowed to sell off the loans they originate, thereby making them far more likely to want higher credit standards. 2) Re-enact Glass-Steagall.


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