Once upon a time there was a liberal crusader named Barney Frank. Barney was famous for his toughness, his smarts, and his canny ability to realize when he was being conned. Then the Democrat party won the Congress back and Barney found himself Chair of the House Financial Service Committee. Suddenly (*dummmm da dum-dum*) he was replaced by an evil twin who became the banksters’ best friend, shoveling them $$$ by the barrel and protecting their profits at our expense. What happened? Who pulled the switcheroo?
The new Barney Frank, whoever he really is, will be attacked today by the AFL-CIO’s new president, Richard Trumka, for proposing a new set of banking regulations that, rather than restricting the power of banks to make their own rules, actually gives them more power than they had before they crashed the economy. What a good idea. Not. (Via Digby)
After weakening current law on derivatives, the committee is proposing once again to weaken law in the banker’s favor. The draft legislation concerning banks “too big to fail” would actually lead to more bailouts over the long run. In an advance copy of AFL-CIO President Richard Trumka’s prepared testimony that I obtained, Trumka will tesify that:
The discussion draft appears to take the most problematic and unpopular aspects of the TARP and makes them the model for permanent legislation.
Essentially the legislation would weaken regulation and lead to the conditions in which the American people would be forced to bail out the banks again. As Trumka testifies:
The discussion draft would appear to give power to the Federal Reserve to preempt a wide range of rules regulating the capital markets – power which could be used to gut investor and consumer protections.
Trumka goes onto explain in vivid details how the Federal Reserve with its lack of accountability has traditionally acted in the interests of the banks:
The Federal Reserve currently is the regulator for bank holding companies. In that capacity, it was responsible throughout the period of the bubble for regulating the parent companies of the nation’s largest banks. While regulatory authority rests in the Board of Governors of the Federal Reserve in Washington, routine responsibility for regulatory oversight has been delegated by the Board of Governors to the regional Federal Reserve Banks. The Federal Reserve System’s regulatory expertise resides in these regional banks. The problem is that these regional Federal Reserve Banks are actually controlled by their member banks – the very banks whose holding companies the Fed regulates. The member banks control the selection of the majority of the regional bank boards, and the boards pick the regional bank president, who are effectively the CEO’s of the regulatory staff… Giving the Federal Reserve with its current governance control over which financial institutions are bailed out in a crisis is effectively giving the banks the ability to raid the Treasury for their own benefit.
Trumka explains how the proposed legislation would give the big banks more of an incentive to take risky bets in order to drive out their competition:
We are also deeply troubled by provision in the discussion that would allow the Federal Reserve to use taxpayer funds to rescue failing banks, and then bill other non-failing banks for the costs.
Isn’t that absolutely absurd? If a bank deemed “too big to fail” by the Fed takes out risky bets and its fails miserably, the other banks who were engaged in safe banking would have to bail them out.
And that’s not the worst. Barney’s Committee’s legislation would allow the Congress to do all the bailing out in secret.
[T]he proposed legislation would allow the government to bail out banks into the trillions of dollars without having to seek Congressional approval. It would allow the Federal Reserve to bail these banks out secretly without the public knowing about it.
Is this a Goldman Sachs’ wet-dream or what? And Barney Frank is chairing the Comittee that came up with this abomination? I don’t think so. The Real Barney Franks would NEVER let this anywhere near the floor. So what happened to him? Where is he? And who switched him for this ass-kissing Uriah Heep, slave of the investment banking class? Hmm?
Come on. We want answers.