You are misreading Celinas. She is proposing really radical reforms and strong forceful government regulation. She’s just not admitting that it’s strong forceful government regulation.
I checked out her article from the Motley Fool,
she suggests the following:
1) should similarly force financial firms — from commercial banks to hedge funds — to hold a consistent percentage of hefty capital behind all securitized debt, rather than giving some firms a break on AAA-rated securities and some firms a pass completely.
She is proposing increasing regulation on Banks, hedge funds, etc, to an unprecedented level. (This is a repeal of the SEC’s 2004 deregulation).
2) A second necessary measure is consistent rules on trading and clearing. If AIG had had to put down $10 billion up front on a $100 billion derivatives liability, for example, and place the cash on reserve at a clearinghouse that had collected other counterparties’ monies for the same purpose, markets would have known that some money existed to absorb losses.
This is once again, another increase in government regulation. This is a repeal of the 2000 bill I mentioned earlier.
3) A third necessary rule is a capital charge for short-term borrowing
This is a major accounting change, which we really don’t know what the results would be.
But Celinas doesn’t account for Bank Mergers, partnerships and consolidation. So Wall Street could still wind up with a too big to fail bank. Also she keeps small depositors at risk, if you allow a Investment bank (Goldman) to buy Commercial Banks (where you keep your money), the Investment Bank can use your insured deposit as part of their collateral. She reduces the opportunity of a Too Big To Fail bank, but she doesn’t account for Wall Street Creativity. I want somebody to come in there and say “Oh heck no.”
http://www.manhattan-institute.org/html/gelinas.htm
1. What is wrong with making banks and hedge funds ‘securitize’ their own debt with a percentage of capital? I would say NOTHING is wrong with it. That is the way it should be. The American taxpayers sure as hell shouldn’t ‘securitize’ their debt. If they believe that their debt is securitized by the federal government(the taxpayer), they have no incentive to be conservative in their risks because the nanny state will pick up after what ever they screwed up. No Thanks....no more bailouts.
She is not proposing regulation to ‘unprecendented’ levels. I am not sure where you get that. I understand her plan as moving us back to a free market, Perhaps it will take some ‘regulated’ steps to get there, but that is where we need to be.
2.What is wrong with making firms hold cash in reserve to hedge their own liabilities? I don’t see a problem with it if it is applied across the board evenly. That’s why AIG went belly up..they didn’t have enough collateral on their debt. Asking for 10 billion on a 100 billion liability shouldn’t be that big of a deal on a company the size of AIG. The ratings companies can be bought..so a AAA rating should perhaps get you a good interest rate..but you still should be required to have a percentage of capital pooled for the risk.
3.Not sure what the problem with number 3 is either.
On your last point...why does she need to have a seperate rule for mergers acquisitions,etc.? I don’t understand it enough to see what the problem is. I think she does deal with that by saying the rules have to be applied evenly across the board.
What do you mean by keeping ‘small depositors’ at risk if say Goldman’s buys up a commercial bank? Both use our money for all sorts of things..they don’t have it sitting in the banks...lol. They only have a percentage of it and not enough of a percentage at that! That is why we had to bail them out. They didn’t have enough capital on hand to keep the markets from going into a freefall and posing a systemic risk to the entire system. And the big fear was that the government didn’t have enough cash to cover a run on the banks either.
I am not going to pretend to know or understand the markets fully myself..but I sure as hell don’t trust Congress...lol.
We are more at risk now than we ever have been with what the democrats have done to our fiscal debt and plan to do in this new WS bill. You act as if Wall Street is some giant monolith..it’s not. They don’t all run in lockstep, nor do they think alike.