At the risk of being tiresome, I am linking to yet another post by former Secretary of Labor Robert Reich. In it, he discusses the new Bush plan for fixing the regulation of Wall Street. (It wouldn't surprise me if, once again, Secretary Paulson had to work over the weekend.)
The remedy that has been most often proposed by those in the know is that we regulate the non-bank investment companies just the way we do commercial banks. I should think that would be a good, if minimal, start. But the new plan doesn't do that: "But the Fed would not routinely examine the books of investment banks
and hedge funds the way bank examiners now scrutinize regular banks."
One of the key regulations that govern banks is the need for maintaining capital as a percentage of holdings (one of the great problems during the Depression is that banks became very leveraged, lending out most of their deposits; the lack of backing deposits created the famous bank runs that bankrupted many financial institutions). The imposition of capital requirements created a confidence in the banking system that persists today.
"Even though 80 percent of all lending today is from unregulated banks that hold almost no capital assets," the Bush plan does nothing to lay capital requirements on the hedge funds and investment banks that are the source of the current crisis.
And the least surprising thing? This plan won't be implemented by next January, so the Bush administration won't have to deal with it. So, as you're spending your fiscal incentive check on gas, milk, and eggs, and your neighbors are losing their homes to foreclosure, you'll be happy to hear that the high-rollers will be able to continue their free-wheeling ways, at least while Junior is still in office.
The remedy that has been most often proposed by those in the know is that we regulate the non-bank investment companies just the way we do commercial banks. I should think that would be a good, if minimal, start. But the new plan doesn't do that: "But the Fed would not routinely examine the books of investment banks
and hedge funds the way bank examiners now scrutinize regular banks."
One of the key regulations that govern banks is the need for maintaining capital as a percentage of holdings (one of the great problems during the Depression is that banks became very leveraged, lending out most of their deposits; the lack of backing deposits created the famous bank runs that bankrupted many financial institutions). The imposition of capital requirements created a confidence in the banking system that persists today.
"Even though 80 percent of all lending today is from unregulated banks that hold almost no capital assets," the Bush plan does nothing to lay capital requirements on the hedge funds and investment banks that are the source of the current crisis.
And the least surprising thing? This plan won't be implemented by next January, so the Bush administration won't have to deal with it. So, as you're spending your fiscal incentive check on gas, milk, and eggs, and your neighbors are losing their homes to foreclosure, you'll be happy to hear that the high-rollers will be able to continue their free-wheeling ways, at least while Junior is still in office.
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