Tag Archives: Chris Dodd

Thanks for the Too Big to Fail Memories – Sandy Weill

After raking off three quarters of a billion dollars, Sandy Weill now says it may be time to separate commercial banking from investment banking.

On Wednesday Weill said, “What we should probably do is go and split up investment banking from banking,” He continued, “Have banks do something that’s not going to risk the taxpayer dollars, that’s not too big to fail.” “There is such a feeling among people, among regulators, among the political system all over the world, against the banking system, and I don’t think that’s going to change so soon.”

This is the same Sandy Weill, who was the one time CEO of Travelers Insurance, one of the world’s largest insurance companies. He cooked up a scheme in 1998 to merge his company with Salmon Smith Barney, one of the largest investment banks and John Reed’s Citicorp, one of the world’s largest commercial banks. The result was a super-bank called Citigroup. In 1998 Federal Reserve Chairman Alan Greenspan, President Bill Clinton and Treasury Secretary Robert Rubin approved the merger, even though it violated prohibitions enacted in the Glass-Steagall act of 1933.

In 1999, under the leadership of the Clinton administration, and with the encouragement of then Treasury Secretary Robert Rubin, the repeal of key provisions in the Glass-Steagall act by the Gramm-Leach-Bilely Act of 1999 gave legitimacy to the Citigroup merger.

The Glass-Steagall Act of 1933, also known as the Banking Act of 1933 (48 Stat. 162) was passed in response to the stock market crash of 1929 and the subsequent failures within the banking system. Essentially the Act’s purpose was to prohibit commercial banks from engaging in the investment business. The Gramm-Leach-Bilely Act of 1999 removed many of the barriers that Glass-Steagall had erected. Finally Gramm-Leach-Bilely set up the ability for banks, investment houses and insurance companies to become hopelessly intertwined and to grow so large as to become “too big to fail.” It was signed into law by President Clinton.

Gramm-Leach-Bilely blurred the line between investment, insurance and lending, and weakened the enforcement provisions against sub-prime and predatory loans. After the law’s passage, sub-prime lending skyrocketed. In a paper for the St. Louis Federal Reserve System, Souphala Chomsisengphet and Anthony Pennington-Cross point out: “the market share of the top 25 firms making sub-prime loans grew from 39.3 percent in 1995 to over 90 percent in 2003. Many firms that started the sub-prime industry either have failed or were purchased by larger institutions.” Such purchases which would have been prohibited before the Gramm-Leach-Bilely Act.

When asked if he would re-instate Glass-Steagall in 2007, Barrack Obama said, “Well, no. The argument is not to go back to the regulatory framework of the 1930′s because, as I said, the financial markets have changed substantially.”

Today former senator Chris Dodd, co-sponsor of the Dodd-Frank Act which is an attempt at renewed banking regulation, and though intended to reduce the chance of another banking crisis, actually exacerbates the problem by piling so many onerous regulations on small community banks that they are giving up and merging with large commercial banks, told CNBC’s “Squawk Box” “When I first heard about it (Sandy Weill’s comments) it sort of reminded me of Paul Bunyan becoming an ecologist.” He went on to say that forcing all large banks to downsize was “too simplistic,” saying that Citi’s former chief was wrong to call for an end to financial supermarkets. “Just breaking up the banks is not the solution,” Dodd said. He insisted the tools of Dodd-Frank could, in extreme circumstances, be used to break up a systemically risky institution.

“The legislation allows for that Draconian step to be taken if necessary, not just with banks but with institutions that pose substantial risk to the country. They have the power and authority under this legislation to actually do that.”

So while Sandy Weill is calling for a return to the type of regulation and banking system he himself destroyed, we will once again have to live with the unintended consequences of laws passed by those who know little about the subject of those laws.

Dodd-Frank “Cheat Sheet” Released by InformationWeek Financial Services

NEW YORK, March 28, 2011 /PRNewswire/ — InformationWeek Financial Services, the leading media outlet focused on helping senior executives in banking, capital markets and insurance navigate the fast-changing world of financial services IT, has released the industry’s first Cheat Sheet for the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Dodd-Frank Cheat Sheet, developed by the editors of Bank Systems & TechnologyWall Street & TechnologyAdvanced Trading and Insurance & Technology, provides financial services professionals with an easy-to-read synopsis of the new law’s rules and definitions. Coming in at just under 40 pages, the Dodd-Frank Cheat Sheet provides layman’s definitions of the rules, outlines the law’s impact on technology organizations and highlights key deadlines. The Cheat Sheet isn’t a substitute for reading the entire 1,000 pages of the original legislation, but it will help financial professionals get their minds around Dodd-Frank.

“Dodd-Frank touches on virtually every part of the financial services business,” says Greg MacSweeney, Editorial Director for InformationWeek Financial Services. “The law contains new rules for derivatives clearing, mortgages, executive compensation, credit cards, proprietary trading, consumer protections and more. Technology leaders and their IT organizations will certainly be pressed to help the business comply with the law and they will be tasked with launching new technology accordingly.”

The InformationWeek Financial Services Dodd-Frank Cheat Sheet is available for download, free of charge, to all subscribers at www.banktech.com/dodd-frank.

 

Dodd-Frank: A Nightmare On So Many Levels

Barney FrankSenators Barney Frank and Chris Dodd put together yet another progressive nightmare for our marginally free-market system. Granted the thought of those two alone in a dark corner is nausea-inducing, that’s not where I’m going. The Dodd-Frank bill, otherwise known as the “Wall Street Reform and Consumer Protection Act” neither reforms Wall Street nor protects consumers (who should really need no protection from anyone but themselves).

This is yet one more instance of self-aggrandizing, big-government bureaucracy all wound together to hopefully get another pair of party-line idiots re-elected. It’s populist in nature but elitist in execution.

Chriss DoddOne of the less analyzed provisions may very well serve to push jobs oversees – yeah, really. The problem begins in the quizzically-utilized math in the bill. Section 953(b) of this monstrous affront to free-markets:

    (A) the median of the annual total compensation of all employees of the issuer, except the chief executive officer (or any equivalent position) of the issuer;

    (B) the annual total compensation of the chief executive officer (or any equivalent position) of the issuer; and

    (C) the ratio of the amount described in subparagraph (A) to the amount described in subparagraph (B).

Basically, the average pay of all workers in a company, the wage of the CEO/President and a ratio comparing the two.

The intent of this bill is to show income inequality, which is only so great because of liberal initiatives.  Unfortunately, it will cause more inequality, but their stats will look better.

Understand the mindset of the American business leader.  If this regulation is truly enforced, the only course of action for them to take is to make sure this ratio does not end up higher than their competitors.  To do that, they will simply lay-off every single one of their lowest wage earners.  They will then outsource that work (the easiest to outsource by far) to Mexico (take a gander at what GM is doing with your bail-out money), China, or India.

This also means those companies won’t have to deal with oppressive health care mandates, ridiculous corporate taxes or whatever new populist garbage comes out of Washington.   You have nothing to worry about, heck, 1 in 6 Americans rely on the government for income as it is .. this will just add a few million more.