If you look at the headline on Bloomberg.com titled "Bernanke’s AIG Blast May Mean More Curbs on Risk, Concentration" and read the following intro, you may be fooled into thinking that things will really change to a smaller, stable financial system that works behind the scenes to support wealth creation without dominating the scene. The piece begins:
Federal Reserve Chairman Ben S. Bernanke's blast at American International Group Inc. in Senate testimony yesterday suggests regulators plan further curbs on risk and concentration in the financial-services industry.
Yes, Dr. Bernanke claimed to have been shocked and disappointed that AIG wrote the insurance contracts called credit default swaps without providing reserves. Of course, he knows but does not emphasize that Clinton's Treasury Department explicitly refused to regulate these same credit default swaps. What is the Bernanke solution? It is to adopt a version of the recommendations of the "Group of Thirty" (or, "G30"):
Paul Volcker, chairman of Obama’s economic advisory board and a former Fed chairman, has also advocated curtailing risk- taking by systemically vital institutions. In January, Volcker led a panel of former central bankers, finance ministers and academics known as the Group of Thirty in calling for capital limits on proprietary trading and a ban preventing large banks from running hedge funds.
The G30 purports to be an authoritative source that diagnoses and can treat our financial ills. Guess who is the Chairman and CEO of the G30? Jacob Frenkel. Who is Jacob Frenkel (emphasis added)?
"Jacob A. Frenkel
(Israel), Vice Chairman, American International Group; former Governor, Bank of Israel
Dr. Frenkel is vice chairman of American International Group, Inc. (AIG). He also serves as chairman and CEO of the Group of Thirty (G-30). Previously, he was chairman of Merrill Lynch International. Between 1991 and 2000 he served two terms as Governor of the Bank of Israel. From 1987 to 1991, he was economic counselor and director of research at the International Monetary Fund, and from 1973 to 1987 he was on the faculty of the University of Chicago where he served as the David Rockefeller Professor of International Economics. Dr. Frenkel is a laureate of the 2002 Israel Prize in economics and the recipient of honorary degrees and awards from various universities and governments."
-Source: Council for Foreign Relations
What has been going on the past year is that Louis the cop has been allowed to win at Rick's crap game. He puts on a show of reforming Rick's when the heat's on, so the music and gambling stop for a while.
The G30 piece from 2009, "Financial Reform: A Framework for Financial Stability", was created by a group heavily weighted to input from members who were simultaneously very senior executives at the same financial companies that are being bailed out right and left. The Project Director was Stephen Thieke, of RiskMetrics. RiskMetrics is a private company. Just guess how it makes its money? Selling "solutions" to manage risk, that's how.
The same crew that caused this mess cannot be the crew that truly reforms the system. They are fighting tooth and nail to retain and, if possible, extend the dominance of finance in the U.S. and global economy. The cost of the war in Iraq is nothing compared to the costs of the bail-outs these people have exacted and are prepared to exact upon us in support of this fight.
Rather than Ben Bernanke ruining the balance sheet of the Federal Reserve Bank and claiming to be shocked while speaking to lawmakers who sat idly by accepting campaign contributions from companies such as AIG and Merrill Lynch that have undoubtedly made Dr. Frenkel a very wealthy man, they should be investigating these corporations and their leaders. They should have been researching the applicable laws, beginning with Depression-era securities laws and ending with Sarbanes-Oxley, to see how many fraudulent financial statements and incorrect public statements have been made by corporate executives broke the law.
They should be investigating why the SEC arbitrarily put short-selling restrictions in re financial or quasi-financial stocks twice last year, and then lifted those restrictions. Who benefited from these actions other than insiders? Certainly it could not have possibly made any difference to the ultimate value of the stocks.
Vast amounts of money were taken by insiders in the financial industry to feather many individual nests over the past decade since Glass-Steagall was repealed. Cumulatively this totals in the hundreds of billions or trillions of dollars. Now that the inevitable down-cycle is occurring, it is clear that little of any of this money was really "earned". They took their (good) money out and left the junk in the companies. Why that junk should be any of the taxpayers' responsibility or should end up on the Fed's balance sheet has never been adequately explained. Private companies have private owners of their equity, and these companies have also borrowed money as corporations from lenders. If the companies are bankrupt, it has always been the case that the owners and creditors of those companies take the hit.
These companies and their friends in the Fed and Government keep claiming to be shocked, and they keep threatening that the whole "system" will collapse if the unstable financial house of which they were both the architect and builder is not "strengthened" by "reforms" they want to create. Is this change? Do you believe in it?
Capitalism really does work well, but only when failure really fails.
The people should be set free.
Let any bankrupt companies go.
Copyright (C) Long Lake LLC 2009