The Dodd-Frank bill was at best a modest start on the financial reforms we urgently need. And yet multimillionaire Wall Street bankers continue to whine that the bill has too many pages. C'mon, guys! Have your chauffeurs turn 'em for you!
A modest proposal for the elimination of Dodd-Frank paperwork
A quick story: A friend of mine, who's a pretty reasonable guy, manages an investment fund with one of the biggest too-big-to-fail banks around. One day he came up to me at a social event. "Listen," he said, "I know where you're coming from, but man! You wouldn't believe the paperwork we have to fill out now!"
I said I had an easy fix for that. "Let's just break you guys up so you aren't connected in any way with traditional banking." He thought for a second. "You're right."
He can't say that publicly, of course. He'd lose that fund.
Just one more roll of the dice! We're good for it, honest!
Now Wall Street's complaining about a new rule that says they have to put up some collateral before engaging in massive swaps and derivatives deals like those which crashed the economy in 2008. Bankers insist they'll follow in Warren Buffett's footsteps and stop doing these kinds of deals if this rule is enacted.
You say that like it's a bad thing.
Banks have another option under Dodd-Frank: They can use something called a "financial clearing house." The clearing houses are supposed to provide some measure of transparency and stability, and can establish rules for these transactions which can then be monitored more easily by regulators.
Here's the thing: The clearing house concept under Dodd-Frank is a clunky, Rube Goldberg sort of contraption. They're its way of getting around the Too Big to Fail problem (and a couple of others, too). Regulators are still working out the details. However inadequate this solution may be, it'll be a lot more inadequate if those details are written by bank lobbyists under a Romney Administration.
Gambling in the dark
Here's how little we, and the regulators, know about the banking industry. Bankers say it will cost them $30 trillion -- that's "trillion" with a "t" -- to obey this rule. Peter Eavis helpfully notes in the New York Times Dealbook that this sum is nearly twice our country's GDP, and more than the total assets of the world's ten largest banks put together.
Skepticism, as they say, is warranted.
The $30 trillion figure comes from an industry group which for our purposes we shall call The Association for Making Sh*t Up, drawing on the talents of the many fine analysts in its Department of Extracting Numbers From Posteriors. What would it really cost banks to comply with this rule? They don't really know.
A study by the Office of the Comptroller of the Currency says it could be as high as $2 trillion, but they don't really know either.
Arbitraging catastrophe
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