Televised debate on how to make the "Restoring American Financial Stability Act of 2010" seem tough began today.
But understand that backroom negotiations famous for moving decision-making in Congress and heck, any power structure, still rule the roost. But okay people, back to the point:
Know this: In the the great spectacle that's passing as THE BIGGEST FINANCIAL REFORM IN NEARLY 80 YEARS! - The Street is empowered to win; some might say they already have.
Why? Because it's already been worked out: The basic nodes of what's contained in the 1,974 pages of the "Restoring American Financial Stability Act of 2010," the working text Congress is using to craft a final bill to be voted on by the Senate and the House before it's sent to the President for signing in July, were worked out over a year ago: http://www.financialstability.gov/docs/regs/FinalReport_web.pdf
This original blueprint was created to ensure that whatever rules that resulted from it would be politically tenable, which means to critics, harmless enough to The Street's bottom line: It was issued to guide Congressional debate so that whatever legislation resulted, The Street could not only stomach, but gain from, it could be argued, while enabling Congress enough political cover to assert they did something aimed at preventing another steamrolling of the global economy by a capital markets system cratered swiftly and nearly completely by its own, biggest players. The latter under status quo, standing rules bought cheap. Word.
Financial reform is the perfect medium for such theater, goes the reasoning, since the public will mostly be none the wiser as the language involved is 'just, like all too legal-y, finance-y and stuff,' and therefore just too dang hard to understand.
Be sure, there is reform in the bill under debate. But much of it could be said to be nearly completely non-dilutive to the overwhelming market share, systemic structure and interconnectedness of the world's top investment banks, which - and no one's really arguing otherwise - is the same money-linked structure in which these same institutions were found by many analyses to have risk managed themselves and hence our economy into oblivion or near. Something like "brain death" might serve to describe both cause and effect here. This brings up a whole other debate over where the appropriate line is to be drawn when applying rules in our market democracy. To wit: When do rules that could help prevent further financial foibles overstep and risk thwarting private industry from free market pursuits and risk taking? Extremely difficult question to answer. The "street" (lowercase "s") version of what the world's liquidity (cash engine) providers - "The Street," capital "S", the globe's biggest banks - what they essentially say is that (sometimes calamitous) volatility is the price you pay for us bankrolling your asses[!] on what they claim will be an ascendant ladder of historical growing value that tracks continually upward to the promise land of rising, float-all-boats wealth. Veracity to be determined. But, they would ask, who currently do you go to when you want to capital raise to the optimum in wild America? Them with the biggest spigot: The hosebusters: The banks. (Those who control the ride, motherfucker!)
But the debate over whether the blind euphoria of easy money creating the mortgage bubble was a top-down, or opposite, phenomenon: If the argument is that we are all to blame, certainly that blame differs by degrees? As far as who turns the spigot of froth in this world (discounting for a moment the Fed as the water god in this structure and the primary dealers as anointed overlords enjoying the real foamy happy endings), those storefront salesman selling subprime loans to folks who could never pay them back wouldn't be allowed to do so if the companies that employ them were made to keep these loans on their books, or some similar tied-to-consequences incentive. Otherwise, it's a sort of debtor-induced Ponzi scheme. That the storefront salesman could transfer that risk to investors in a trillion dollar game of hot potato called securitization (where these and other loans are pooled and transferred to the world's biggest banks, who for big fees then structure, pool and underwrite [sell] them on in packages to investors) makes it nary any skin off the loan salesmen's nor the banks' noses. Not seeing the chain but for its links, risks too narrowly localizing or atomizing the laying of responsibility for fucking people over. Or if we're fixing it, the laying of responsibility for NOT fucking people over. But where some may see enabling, others might see the American way: Growth, ascension, as long, that is, as the hot potatoes keep getting tossed. Victims when those pomme frites go cold? Well, there are always victims. There, at least, goes a simulacrum version of what it seems is the behind-closed-doors rationalization when official shit gets fucked up. And dammit if it always does.
But I digress.
Mind you, my thoughtful readers, the devil is in the details. And that what you DON'T know CAN hurt you:
In our next post, we'll explain precisely why the ‘‘Restoring American Financial Stability Act of 2010’’ will be REALLY AWESOME[!] for The Street and why government will always be The Street's BFF!
Quickly though, before that, first understand the greater context: That what appears to be THE BIGGEST BATTLE EVER[!] between regulators and bankers, is really a fairly typical consensus-building exercise between government and industry, that almost always goes like this:
Someone fucks up. The Congresspeople these fuckups have been paying have to get tough with said fuckups 'cause,... well: they fucked up. So the fuckups, the Congressperson's patrons, their little hands begin to get bitten. Just a little.
First each rails against the other publicly, which involves both industry and government making the most outlandish antithetical claims about how the world needs to be - that said world will end if, on one side, something isn't banned, and on the other, how, flick and flack, they will take their toys away and move to another country if barred from riding on what they say is a Triple Crown contender called American As Apple Pie, but others will describe as a greased palm, lucrative free and easy ride on a hobby horse stationed in a cash-grab wind tunnel. One that, before all the hubbub spot-lit its bare ass, was meant to stay way on the down-low, save for those deliciously discreet assignations in which that most beloved of American gimps - the policy loophole - was gifted or freed briefly from its pitch black box to move the glands of anyone special enough to be assembled for said power imbalance quickie: Ahhhhhh... the feel of supple, ample, unrestrained liquidity: It always makes those so disposed c... so quickly!
The raising of various straw men is done so that debate starts from such a wide berth of opposing views that the scope of what ends up negotiated cannot be narrowed enough to do any real harm to either side, so that whatever interests are being threatened are protected. Natch! But behind closed doors, the legislation is actually being negotiated in terms of 'what can you bear?' and 'what's politically tenable' by any involved possessing such dealmaking talent. Easy measuring the temperature of the government and industry's secret marriage: The more flaccid the resulting policy - regardless of the arch-sounding threats that seem at first to define the debate - the hotter their secret coupling really is/was. What appears loveless on the surface is actually a steamy, illicit offstage affair. Politicians' thirst for money required to stay in power, of which Wall Street has tons, should make one very skeptical of anyone claiming that Street reform truly has teeth. It's a claim that, regardless of outcomes, would not be unreasonable to deem a pockmarked, gap-toothed, hillbilly notion, given who's in charge and what's at stake: Let's be real. In the battle between the Masters of the Universe (those in charge) and their mothers (the government), mommas toe the line. The lawyers are just paid to yell until it's over. It's like rubbernecking the tackiest, most dysfunctional family ever while they contest a will - the trust of the people - who are shunted from the political process due to their increasing bestowed roles as powerless zombies, whom to confuse is to win over and control. Natch! Health care, terrorism. It's all done this way.
Also, understand this truism: Proposals tagged as "radical" by those in legislative battles typically never are. They are plausible enough solutions that will nonetheless work as flash-points of distraction, or the fulcrums over which more soluble, negotiated, agreed upon language is debated, worked out, further watered down, and then put into place and deemed "fixes." Often, what is truly radical is exactly what could fix the problem in question, but deemed so "insane" that it is never even debated. That's typically because the industry in question is too powerful, read: monetarily generous to Congresspersons, for said proposal to ever get a serious hearing or enter official debates. The finest system money can buy? Have we all agreed on the general truth of that? We're a market democracy and that's the way it is? Fuhgeddaboudit.
Maybe. Maybe those payoffs are keeping us from going off the rails. It's just... funny 'cause... it seems... we're always... going off... the rails.
Know also that legislation is watered down thusly: Congress often refuses to define language in its bill, leaving those interpretations and explanations up to regulators, whose close interaction and ultimately, critics say, friendliness with industry increases, as rule-making is passed down the regulatory chain. In the case of finance, that chain looks roughly like this: Power descends from Congress to the Federal Reserve or the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC), depending on which financial instrument (security [SEC] or commodity [CFTC]) and type of firm (bank [Fed], broker-dealer [SEC], systemically important trade settlement mechanism [odds favor Fed]) is involved. Regulation of firms and exchanges involved in securities trading ultimately lands in the lap of the private, industry-funded Financial Industry Regulatory Authority (FINRA), the closest to the front lines of monitoring the capital markets for mischief, but the weakest in terms of regulatory authority, but the most powerful in terms of interpreting and therefore enforcing financial law. Let's review once more so you understand well the regulatory chain - the meat-grinder that tenderizes legislation that seemed once like hearty meat into something more like chopped liver: The regulators closest with the industry own the most interpretative power of the law, even though they are considered too lowly or perhaps too close to those they regulate, to shape it, the very law they have the most power to interpret, implement and enforce. As direct interaction, which some critics bluntly render as friendliness, between regulator and industry rises, so increases the specificity of the interpretation, ultimate implementation, rulemaking and enforcement of the law. Said another way, regarding where the rubber hits the road, the regulators closest to the industry wield the most power. (How, when and whether they wield it begs scrutiny.) The aforementioned is generally true of most companies and their regulators.
Again, this begs debate on whether this is in fact how our beloved democracy is supposed to function. After all, one would argue, something more direct, such as rule by fiat, is not just a slippery slope: Hell, by then, one's already fallen off the cliff. Meaning: The tendency or desire to quickly right a wrong, perceived, actual or fake, can be as ugly and as unjust as the real, perceived, or fake, injustice. Such a mind-numbing gauntlet of lawyering as described above may then be precisely the thing preventing us from filling our republic's tank full of bananas after all. Maybe.
Anyway, in summary, the financial reform being debated in response to the unfettered greed and unchecked stupidity that led to the greatest financial crisis since the Great Depression is probably not nearly such a big deal as advertised: The battle royal for the very future of the capital markets is already won on odds, in fact. The Street: take your bow (at least on probability!). It's good to be king!
Anyone telling you otherwise (we wager) is full of bunk.
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