The Public Plan : Break up the banks

Rep. Barney Frank released a proposal for the failing banks but got a lot slack from reform advocates like us. He responded to this criticism by saying, "People say break 'em up. I don't anyone who can tell me in the abstract how to break them up."Today, we're launching the Write Them" Center because we have the policy plan and everyone, including Barney Frank needs to know. Our front page has the public plan. It's already the most popular -- it has 50,000 signatures already.

We need everyone to write the bloggers, Congressmembers, and communities they love or read or just belong to and tell them that there is something they can do to restore the economy and create a better political economy - sign onto the pledge to break up the banks. Our Write Them Center is an easy tool to send these letters to Congress and to your local papers - try it.

Also, Richard Castonon, a recent ANWF volunteer has made a FOIA request draft that you can use. It requests our senators and reps give us all the documents, memos, etc. that justify the bailing out of the largest banks rather than have them go through a bankruptcy process as they should have, as any failing company does.

Go to the Write Them Center and get Congress, your favorite bloggers and organizations on board!

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CEO Blankfein Apologizes for Goldman Sachs Role in Crisis

"Lloyd Blankfein, chairman and chief executive officer of Goldman Sachs Group Inc., apologized for the firm’s role in some of the activities leading to the financial crisis.

“We participated in things that were clearly wrong and have reason to regret,” Blankfein, 55, said at a conference in New York hosted by the Directorship magazine. “We apologize.”

"

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Financial Crisis Inquiry Commission Starts Their Hire

The Angelides Commission, convened by Congress to investigate the financial meltdown of 2008, today announced a passel of "senior staff" appointments. Earlier, the commission appointed an executive director, Thomas Greene. It has held one public meeting, on Sept. 17. Yet to come: a calendar of public hearings, which are expected to start in December. The panel is supposed to report on its findings by mid-December 2010.

Here's the announcement of its appointees:

·   Bart Dzivi has been appointed as special counsel.  Dzivi has served as counsel for the Federal Home Loan Bank, where he handled enforcement matters and supervised investigative auditors during the
savings-and-loan crisis; was counsel to the U.S. Senate Banking Committee, where he organized investigative hearings on savings-and-loan issues; and served in the private sector at several law firms with an emphasis on banking litigation and policy
matters.

 ·  Martin Biegelman has been named an assistant director for the commission.  He was most recently director of financial integrity for Microsoft Corp., where he led a global investigative program focused on fraud and corruption. Biegelman took a leave of absence from Microsoft to join the commission.  He previously conducted internal corporate investigations in the private sector and was a federal law enforcement professional for the U.S. Postal Inspection Service, highly regarded by state and federal prosecutors for his work on white-collar crimes.

 ·   Thomas L. Krebs has been appointed as an assistant director and deputy general counsel.  Krebs is the former director of the Alabama Securities Commission, an agency he reinvigorated with major wins in the Alabama Supreme Court.  He is a former president of the North American Securities Administrators Assn. and founder of a six-state task force that prosecuted financial crimes.  He is nationally recognized for his ability to investigate and prosecute financial corruption.

 ·    Bradley J. Bondi has been appointed as an assistant director and deputy general counsel.  He was previously a partner with the law firm of Kirkland & Ellis, where he investigated and litigated complex financial and securities cases.  He briefly served as counsel at the Securities and Exchange Commission, where he advised commissioners on improving agency enforcement.  He also teaches securities law at Georgetown University Law Center and George Mason Law School. 

 ·  Dixie Noonan has been named investigative counsel.  At the law firms of both Sullivan & Cromwell and O’Melveny & Myers, she worked on complex securities cases and conducted internal investigations for corporate boards and audit committees. 

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Raging Microeconomies

I'm really interested in microeconomies and making them work well. In the US and elsewhere there are really interesting microeconomies. Sometimes, it gets really interesting when the government supports it. Here in Brazil there is a food and everything else market. In the middle of this area is probably one of the most lively, interesting, family-oriented places I have seen to drink a beer and eat food at night. It's right on the water and there is probably a 5000 square foot area with 5*5 boxes with 2 sides of counter in groups of 4, perfectly spaced throughout. Behind each box is usually a cook and maybe a family member as dishwasher. Customers sit at the counter and the place is packed. Ships are nearby and during the day it's a relaxed, animated place to watch futbol. Now, I can write a whole book on what I think a family or community oriented place of FUN is, but suffice it to say that you'd raise your eyebrows at the engagement level here. On the microeconomies side what is interesting is this -- government and/or the cultural heritage helped to build this area (unverified, but it doesn't matter). It's set up so that everyone can have their little restaurant, they benefit from being in the center of it all, and although they're all selling similar food, they each have to share the total number of customers. Yet, there is room for diversity and real competition -- who makes the better fish, who has lower prices? Sometimes, these models are boring because everyone sells the same thing. Further, what's interesting is that everyone has a chance of being an entrepeneur and to grow their total net worth. I don't know how practical it is to get rich off of a restaurant like that but if you think about it from the other end - poor people without these kinds of set ups in similar gdp countries are more likely to be hawking wares on the street. This kind of set up seems like good infrastructure for setting up the poor to be slightly better off. The other interesting side is the diversity and creativity that is forced from this situation.

The point really is that to get people out of poverty, some smarter economists and urban policy makers (I studied urban planning) need to think about infrastructure that build on people's relationships and give everyone a fighting chance. That's what healthcare is, that's what headstart is -- it gave me a fighting chance. The secret to understanding how to have a better world is not economics per se, but more behavioral economics and political economy issues. How do you make it so that each person is inspired to do something with their lives and then do it? Then, how to end the corruption between people who have made it. I have a few answers to the first and the second...

From Stephanomics, a recap of a radio program with political philosopher Michael Sandel.

"I was interested in the economists [in the Obama Administration] who were making this critique. They said it's terribly greedy. What I wish the journalists had asked them was is there a distinction between greed and self-interest, do you think?

Strictly speaking, no mainstream economist would recognise any such distinction, and yet for political purposes they attack greed as if it's a thing independent of self-interest... Citizens generally who looked at this - at the bailouts and the bonuses and been outraged - they believe there is a difference between greed and self-interest. But there's no way of capturing that intuition in economic analysis because, according to economic analysis, in any case one is deploying self-interest or greed, which is simply self-interest squared, to serve a social purpose. That's what the economic model says. And you have to introduce some normative assumption about what is excessive pursuit of gain in order to make sense of greed as a vice independent of the self-interest that all of the economic models presuppose. So I think there are intuitions in everyday life that people have that the economic models simply don't capture, and greed is one of them."

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God's Will Changes With Power, We need a culture of THE NEW

The blog has been a little silent this week as I travel to Brazil to visit a friend, while also continuing to build our operations here at A New Way Forward.

I've been planning to write about power. My answer to power is that we need a culture of accepting "THE NEW". What if we had a book publishing system that was extremely accepting of new voices and published new people as long as they had a scintillating, worthwhile book? What would our literature look like and how much more will our minds develop? I think MIT is pretty open from what I have seen, but what if the majority of publishers did the same? Would we have more writers and more importantly more thinkers? But, we can't go overboard - we need to be open to new, but also new has to be "good"/interesting. But, back to power and how that relates to newness. I recently heard a radio program on NPR about people who go into their political jobs with a plan to fix everything but then end up seeing their "activism" really differently and they find themselves as corrupt as the next when they get there. The speaker likened power to going mountain climbing - you promise that when you get to the top of the mountain you won't endanger yourself by staying too long, but once you get there you've been through so much and there's less oxygen and you get used to your surroundings that your thinking HAS changed. The way the man on the radio explained the many politicians we see in power who just don't get enough done is you just get used to the power, you get used to the nice cars and the special treatment, and you're friends with people in power and so you understand them, you come to expect that higher standard of living and in the end work to preserve the status quo rather than change it. How many people have you voted for who have simply just changed when they got into positions of power in office?

Well, whether or not you identify with this cultural phenomena that power corrupts takes a personal revelation, I believe. I say this because I know when I heard the radio program I felt I still naively believe that I would maintain my cool if I were the president of the Federal Reserve or some such. But I know that as I have gotten older, I have somewhat gotten used to a higher standard of living (my vices are a cleaner house than I accepted in my early 20's and paying for better food) that as a younger rascal I avoided and wasn't comfortable with. But, we believe in leaders because we want to believe in heros or have grown to accept that someone like Martin Luther King Jr. and millions of civil rights activists will do something amazing. We want to believe in heros, until we really sit down and think about THEM -- these people are better off with power and all the fancy people they've come to know have become their buddies. It's simply practical for them to maintain their status quo and it's WHAT THEY KNOW.

But, the reason I had my personal revelation that power really does corrupt is because of people like Greenspan and Volcker, ex-Fed chiefs that, during their tenure, didn't care how many jobs were lost as long as their theories were working out in some way for the growth of the stock market or what have you. Why do their recent statements that too-big-to-fail is too-big-to-exist or that the banks need to be broken fit so closely with my beliefs? They're out of power now and they can see more clearly that propping up the biggest banks isn't the answer to real world issues and is simply not a public service.

As more and more people step out to make humble statements that are thoughtful and compelling, and as Frank points out the anti-too-big-to-fail platform is becoming a meme, we need to think about how to nip power in the bud. ANWF thinks we need to start over and cut the giants down to size to make markets more competitive and beneficial to the public and the freed up power will then flow throughout society and we'll have a more equitable political and economic system. But, if this happened, eventually people will start fighting to grow enormously again and overturn these measures after the activists of this century die. What we need is a culture of newness and thoughtfulness where we accept as a basic fundamental code that new ideas that have merit that inherently come from the bottom and serve the bottom should be valued and instantly worth your time to consider and work with. We need the best ideas that come from the bottom to be a cultural mantra and we're getting there. But, and Donny and I spoke on this issue a few months back, our society preserves the status quo in millions of ways - even the nonprofit public interest groups in DC are waxing their power and keep out the grassroots in a powerful, powerful way. The bottom can keep the top in check and can move things forward, help to create progress. I have met other public interest groups that do feed off the bottom and they are amazingly more effective at achieving what they want to achieve because of it. We only need to believe that something new can be good and that the old is a preservation of power because it is.

In my earlier work, I helped to create a platform that would allow the public to open the political system and make the political system. It's working better than ever these days, but there's a lot more to go. It's not that I think every idea from someone poor or disenfranchised or powerless is a good idea. Believe me, I am cyniCAL. It's more that I believe that when you get the public going, get them educated, get them brainstorming, get them seeing that small conversations can turn into something really effective, you help to transform what policies get passed and what the policies are representing, and pull out some of the most transformative ideas ever. How can we understand the culture of acceptance of THE NEW in practical terms? If someone in power is not coming up with new ideas to solve real and actual criticism or problems that come as they go, then they're probably maintaining the status quo. But, anyway, it's the culture of acceptance and open-mindedness that I want to see happen.

John S. Reed, head of Citigroup, has recently said, "I'm sorry" for his role in creating the largest financial institution we now know of as Citigroup and that it should be broken up. Citi lobbied hard to end protections for personal bank deposits that the Glass-Steagall Act gave and President Clinton did his part to do the same. The first time I talked to Joe Trippi, he told me that the pen that was used to sign the bill to end G-S is sitting in the Citigroup boardroom. Reed said, “We learn from our mistakes. When you’re running a company, you do what you think is right for the stockholders. Right now I’m looking at this as a citizen.”. It seems that policies that can help citizens thrive in a large economy must come from those not covered in the concentration of power and those not in power need a system and platform to realize the best of their ideas.

CEO of Goldman Sachs, Lloyd Blankfein, recently made some splashes when he said he was doing God's work': "He starts with a little humility. He understands that “people are pissed off, mad, and bent out of shape” at bankers’ actions. Goldman played its part in the meltdown that almost destroyed the global financial system. It, like most other banks, lent too much money, made its first quarterly loss for more than a decade last year and ended up taking bail-out cash from Washington. “I know I could slit my wrists and people would cheer,” he says. But then, he slowly begins to argue the case for modern banking. “We’re very important,” he says, abandoning self-flagellation. “We help companies to grow by helping them to raise capital. Companies that grow create wealth. This, in turn, allows people to have jobs that create more growth and more wealth. It’s a virtuous cycle.” To drive home his point, he makes a remarkably bold claim. “We have a social purpose.”"

Cafe Hayek comments, "I used to feel this way. I used to think that Wall Street innovation was part of our prosperity because the innovation made markets more efficient. But that only works when firms face profits and losses. When losses are truncated by bailouts, you get anti-social risk-taking. You get a cycle not of virtue but of vice. You get $1.5 trillion poured down the black hole of subprime lending. The bottom line of the current system is that Blankfein won and the we, the people, lost. Shame on the people who allowed him to play with our money instead of his own. Shame on him for pretending he earned our money and the profits he made playing with it."

After days of going hungry, people have been lining up at midnight as soon as their paychecks clear to buy groceries at stores like Wal-mart, according to the NY Times. The hungry don't think that when they get to the top they'll be as ruthless and aid starvation the way monetary policies passed by Fed chiefs do. But, it's been so often verified that these kinds of desperate life experiences don't guarantee staying away from short-sighted elitism just the same.

And here is James Kwak on explaining that size isn't the point, but it's what size means that is the point. Here's James Kwak introducing newness. Couldn't have said it better, but isn't this what we're all wondering/thinking?:

I think this whole “interconnectedness” theme is a clever rhetorical trick — a way of defusing the “too big to fail” argument by making a correct but ultimately minor point. I agree that if you simply cap balance sheet assets, that will not be enough. Technically speaking, a derivatives dealer can have ZERO balance sheet assets yet have an unlimited amount of open derivatives positions. If my memory of When Genius Failed is correct, LTCM just before its collapse had about $130 billion in assets and $1.4 trillion in open derivatives positions (that’s market value, not notional [wrong, see below]) on top of $4 billion in capital.

But who said that “big” in “too big to fail” had to mean balance sheet assets? When I say “big,” the concept I am referring to is the overall shadow the institution casts over the financial system and the amount of collateral damage it would cause were it to fail. That damage can take various forms: debt that becomes worthless, derivatives positions that can’t be closed, hedge fund collateral that can’t be pulled back, etc. So call it “too interconnected to fail” or “too systemically important to fail” if you want, but you haven’t made the problem go away. The only thing you’ve done is pointed out that it can be tricky to measure overall importance, but none of us ever denied that to begin with.

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Sanders Break Up The Banks Bill Complies with our Statement on Breaking 'Em Up

Sick of banks' corrupting powers? Sick of banks getting richer while our country feels a little dumpy? Senator Sanders is sponsoring a real Break Up the Banks bill. We recently put up a statement on the front page of the site on what it actually means to break up the banks, and not just in name only. We're reacting to a number of bills calling themselves the too-big-to-fail bill or the break up the banks bill. Our statement on breaking up the banks is a reference point for comparison to any bills that come up -- if any new bills don't prescribe breaking up the banks by function or size, they're not really helping to resolve the problems of too-big-to-fail. Check it out.

Sanders' bill is two-pages long and simply calls for a break up of the bailed-out humongous banks. You can see his great video and bill language here. We're proud of Sanders -- he's really with it.

Senator Sanders office has also put out an official announcement and link to a petition around the bill - smart.

We'll be rallying for this bill and will set up a way for people to send emails to their representatives, asking them to co-sponsor the bill. Ready to start getting something done?

Also, of note is another financial regulatory bill that Rep. Kanjorski is introducing in reaction to Frank's bill. He says Frank's bill is too weak. We'll see if Kanjorski's bill is any better.

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The newest bill won't break up the banks, but alludes to it

It's interesting: Congress is trying to put one over us and for a second we were excited to be wooed by them (I was glad to see them using language like "break up the banks" and "end too-big-to-fail"). They put out a bill called the Too-big-to-fail bill, but unfortunately, the bill does almost nothing different from what we have seen in the past year. I said this is a previous post that this bill simply formalizes the process of making banks bigger, of making them more of a systemic risk to the entire economy, and of allowing bailouts to the biggest banks when they fail. Dean Baker has an excellent layout the major "business as usual" highlights of the bill. Article pasted here (tx Mary Bottari):

Those who like banks that are too big to fail will love the latest financial reform proposals circulating in the US Congress. The bill put forward by Barney Frank, the chairman of the House finance committee, does little to change the current structure of the financial system.

The "too-big-to-fail" banks will be left in place, even bigger and less accountable than before. There will be nothing done to separate commercial and investment banking, so giants like Goldman Sachs will be free to speculate with money guaranteed by the Federal Deposit Insurance Corporation. The main difference is that the Federal Reserve Board will be granted even more power than it has now. And, we will tell the Fed to be smarter in the future, so that it doesn't make the same stupid mistakes that gave us the current crisis.

While we all want a smarter Fed, it is not clear that the bill before Congress will get us one, even though it will definitely give us a more powerful Fed. The new Fed will be able to decide which financial firms need to be put through a bankruptcy-like resolution process, paid for with a virtually unlimited amount of taxpayer dollars.

While the bill proposes that the cost of cleaning up after a big bank failure is supposed to be paid by other big banks, in fact the mechanism laid out in the bill virtually guarantees the opposite. Rather than raising a pool of money in advance from the big banks to cover the cost of a bailout, the bill proposes that large banks would be assessed a special fee only after a failure.

To see how strange this is, suppose Citigroup or some other major bank collapsed, requiring $100bn to pay off creditors. (We actually should not need a penny to pay off anyone other than insured depositors if we were serious about the banks not being too big to fail.) Either the failed bank was acting as a rogue institution, engaging in behaviour that was far more reckless than its peer institutions, or it was doing the same thing as everyone else.

In the first case, would it make sense to tax the other large banks $100bn because Citigroup acted recklessly? If the recklessness of one bank had led to its collapse in an environment where its competitors are sound, this would imply that there had been some serious failures of regulation. Why would we tax other large banks because the Fed, the FDIC and/or other regulatory bodies had failed in their job?

Alternatively, suppose Citigroup collapses because it was doing the same thing as other banks, but was just slightly more reckless or unlucky. In this situation, which is similar to the one we faced last fall, all of the banks would be severely stressed. It would be impossible to hit them with a special fee. Could we have slapped a special fee on Citigroup and Bank of America last autumn to have them cover the cost of the failure of Lehman Brothers? At the time, imposing any significant fee would have almost certainly pushed several more banks to insolvency.

The bottom line is that this bill is almost certain to leave the taxpayers holding the bag for future bailouts. Even worse, it does nothing about the moral hazard created by having institutions that are too big to fail. There is nothing in the bill to lead creditors to believe that the government will not make good on their loans to Goldman, JP Morgan and the other banking behemoths.

There is a large and growing consensus across the political spectrum for breaking up banks that are too big to fail. Advocates of this position include former Federal Reserve Board chairmen Paul Volcker and Alan Greenspan; Sheila Bair, the current head of the FDIC; and Simon Johnson, the former chief economist of the International Monetary Fund. There is no reason that we need financial institutions that are so big that they cannot be safely unwound without large commitments of government money.

The only people who seem to stand outside this consensus are those who hold power and are steering the process of financial reform. This is largely the crew whose regulatory failures gave us the current disaster. If they cannot learn from their mistakes then someone else will have to drive the reform process.

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Goldman Hedged Bad Mortgages to Reap a Profit, Latvia is a microcosm of a burst bubble

As a McClatchy report over the weekend reveals, Goldman Sachs bet that a slew of mortgages would fail, marketed and peddled them to more customers, and are making billions off of their scheme: 'Now, pension funds, insurance companies, labor unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman's failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.

"The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion," said Laurence Kotlikoff, a Boston University economics professor who's proposed a massive overhaul of the nation's banks. "This is fraud and should be prosecuted."'

Here's an article from Kristina Rizga (who covered ANWF back in April). Latvia's economic bubble burst in late 2008 and Kristina has been working on explaining what happened and what new hope there is to rebuild their country. It's an interesting parallel to what is happening here, as consumer spending fueled the bubble that was also financed by private debt. A quote from the article applies to what we need in this country as well.

"In the current situation, we have definitive proof that you can't let the markets run completely free. The state has to be involved to assure fair rules for everyone and provide safety nets for the most vulnerable."

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The most important questions on TBTF bill

Just as too-big-to-fail is said with two distinctive meanings or tongue-in-cheek - it was used as a positive way to describe banks that needed bailouts but also has come to describe banks that should not exist or get bailouts, the too-big-to-fail bill is also coming to have the same double identity. It's not a bill that will substantially keep too-big-to-fail from happening again, but in fact will simply create a more formal process for doling out bailouts to the too-big-to-fail institutions when they fail. Again, the TBTF bill isn't a solution to completely resolving TBTF, but is creating a more complete process to deem banks too-big-to-fail. The resolution authority is not mandatory.

Here is a Forbes article on the most important questions to keep asking of the new bill unveiled:

Fuzzy Areas In Financial Reform Bill
Joshua Zumbrun, 10.29.09, 06:11 PM EDT
Does the proposal allow bailouts? Can we say who would be Too Big To Fail? And has anyone actually read it yet?

WASHINGTON -- As new financial reform proposals begin to worm their way through Congress, a number of sticking points have emerged. New laws to monitor firms that could pose risks to the whole financial system, create a council of regulators and shut down flailing financial institutions--it all sounds nice on the surface. But you know what they say about the details.

Here's a look at some of the early criticisms of the financial reform bill that emerged in testimony before the House Financial Services Committee on Thursday. (See "Familiar Flavor To Financial Reform Bill.")

Does the bill allow bailouts or not?

Treasury Secretary Timothy Geithner insists that the legislation does not give the government the authority to bail out companies. Under the legislation, any high-flying financial institution that gets in trouble would be forced into a new resolution process under which the FDIC would shutter it, as the FDIC currently does with normal banks.

But the bill as written would seem to also allow the government to provide liquidity to solvent institutions. Since these are nebulous concepts, it seems the government could declare that a bank is illiquid but not failing, and lend it money in a fashion quite similar to a bailout.

Peter Wallison of the American Enterprise Institute says, "The draft proposes nothing more or less than a permanent TARP." Phillip Swagel, a professor at Georgetown and a former assistant Treasury secretary under Henry Paulson, said he does not think it is Geithner's intention to do this, but the legislation would allow it.

Is the proposed resolution process the same as failing?

The bankruptcy of Lehman Brothers ( LEHMQ - news - people ) and the catastrophic fallout is cited as Exhibit A for why bankruptcy court is inadequate for dealing with major financial institution failures. The administration argues that the resolution process would create a system where nobody is "Too Big To Fail." No matter how big you are, you will get taken to resolution if you screw up.

CEOs would be likely to lose their jobs, a bit of added incentive for them to not wreck their companies, but what about the firm's bondholders? If bondholders believe that the resolution process is preferable to bankruptcy, then they could enable the same sort of mistakes seen in the past year.

In the event of a failure, the rest of the financial industry would be assessed a fee to cover the costs. The idea is to protect taxpayers. But couldn't this also end up being a punitive assessment, even against financial institutions that had absolutely nothing to do with a particular failure?

Who is "Too Big To Fail"? What firms are even financial institutions?

This question matters for two reasons: First, who gets special oversight and will end up in special resolution; and second, who will have to pay for the resolutions after. The legislation gives the government discretion in determining who is "Too Big To Fail," and even which institutions can be considered financial institutions.

This is a trickier question than it ought to be. After all, the TARP was written to rescue financial institutions, but after intense lobbying from the automotive industry, the Treasury decided the law could be interpreted to bail out General Motors and Chrysler as well. Sheila Bair, the chairman of the FDIC, agreed in questioning that the law probably needed to be clarified, to prevent the scope from getting out of hand.

Can we say who is "Too Big To Fail"?

One provision requires that the government will not keep a public list of firms who have been designated as systemically risky. But under questioning, Geithner said it would not be secret, because the firms would be held to different standards. What is the point of this charade where the designation of "systemically risky" is public, but the government does not keep a public list of the firms? Geithner says it strikes the proper balance between transparency, and not overhyping expectations of Too Big To Fail.

Should the Fed have more power?

In the original version of the legislation, the Federal Reserve would have had sole responsibility for monitoring systemic risks and systemically risky institutions. Monitoring risks is now the job of the proposed council, but the Fed still gains the authority to regulate new institutions. After doing such a crummy job of regulation running up to the financial crisis, a lot of Congress still balks at the idea of giving the Fed more authority.

Can we have time to read the bill?

An irritated Spencer Bachus, R-Ala., the ranking Republican on the House Financial Services Committee, complained that the draft legislation (253 pages of it!) was released Tuesday evening. The testimony of witnesses was due 48 hours before the hearing--the experts and regulators who came to testify about the bill had to turn in their testimony before having a chance to read the bill. A poor process for possibly "the most important legislation this committee will ever consider in our lifetimes," says Rep. Scott Garrett, R-N.J.

When asked if they'd had enough time to actually read and consider the legislation they had been called to discuss, all 10 witnesses on the final panel said "no." Several times witnesses responded that they could not answer questions from Congress because they were not sure what all the legislation said.

The legislation still faces, at minimum, markups in House and Senate committees, votes in the committees, votes on the House and Senate floor, then a conference to resolve the differences between House and Senate versions, and another vote. There's plenty of ironing yet to occur. Careful wording may fix some of the problems, but some sticking points are far from resolved.

Sheila Bair's issue with the bill is this: 'Federal Deposit Insurance Corp. Chairman Sheila Bair, breaking with the Obama administration, said U.S. financial companies should prepay into a fund the government would use to unwind large failed firms.

Congress should set up a Financial Company Resolution Fund and force institutions with more than $10 billion of assets to pay before a firm collapses, Bair said in testimony prepared for a House Financial Services Committee hearing today. Investors in failed companies also should take losses, she said.

“A prefunded FCRF has significant advantages over an ex- post funded system,” Bair said. “It allows all large firms to pay risk-based assessments into the FCRF, not just the survivors after any resolution, and it avoids the pro-cyclical nature of requiring repayment after a systemic crisis.”'

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No SIncerity in TBTF Stability Bill

I'm 29 and still don't know exactly why Congress can't be sincere about fixing problems. There's a deep question there that I don't think just has to do with greed. Perhaps, it's mindless.

The Too-big-to-fail bill that was unveiled the other day seems to have almost no real sincerity for fixing the problem of too-big-to-fail bailouts. Regulation is done in secret, the Federal Reserve still gets to decide some of the things that create too-big-to-fail (cash reserve ratios, etc.). David Sirota writes the following:

"At a recent hearing, Rep. Brad Sherman, D-Calif., called the language "TARP on steroids," noting the provisions would deliberately let the executive branch enact even bigger, more unregulated bailouts than ever – and by unilateral fiat.

Whereas the original TARP included some oversight language and power to limit Wall Street bonuses, TARP on Steroids includes no specific oversight or executive pay constraints. Whereas TARP permitted the government to underwrite both small and large banks, TARP on Steroids allows taxpayer cash to go only to the behemoths (which, not coincidentally, tend to make the biggest campaign contributions). And whereas TARP limited the treasury secretary's check-writing authority to two years and $700 billion, TARP on Steroids would let him spend as much as he wants for as long as he wants.

This last point is what poker players call "the tell" – the inadvertent tip exposing a scam. Treasury Secretary Tim Geithner's tell came when he publicly said the Obama administration would oppose amendments limiting the new bailout power – even if the limit was a $1 trillion cap.

The former financial executives inside the Obama administration have labeled their bill the "Financial Stability Improvement Act," and some might say that's like Bush officials oxymoronically calling their own anti-environment initiatives a "Clear Skies" agenda. But that's not a totally fair comparison because there's an underlying consistency here: While these new "financial stability" powers may destabilize the nation's finances, they would more than stabilize Wall Street's larcenous profits.

That thievery, of course, has been the big problem all along – and now, only another 9/29 can prevent it from getting worse.

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