Feb 04 2013

Preventing Future Economic Failures. Maybe

In the “I’ll believe this when I see it” category, there are two bits of news about banking and Wall Street have been too long in the coming and if it happens, there will be a lot of happy dances in places like Zucotti Park.

First, the British Treasury chief has told the “Too Big To Fail” banks that their days are numbered if they flout the law and banking regulations in the future:

George Osborne told executives from JPMorgan that the days of banks being “too big to fail” are over in Britain, and that taxpayers shouldn’t be expected to bail out the lenders. The next time a crisis hits, he wants more options to act. [..]

The new measure gives regulators the power to force a complete separation of a lender’s retail business from its investment banking. Risky investments undermined banks’ stability in 2008, leading to taxpayer bailouts of two big U.K. banks. [..]

The banking standards commission said that the scandal of manipulating key lending indexes (LIBOR) had “exposed a culture of culpable greed far removed from the interests of bank customers.” [..]

Other countries and regulators are also grappling with how to prevent future bailouts. In the United States, legislation known as the Dodd-Frank act seeks to bar banks them from engaging in risky trading on their own account. The European Union is also examining how banks might separate their riskier investment banking operations from the rest of their business.

Besides that, new international rules – known as Basel III – will require banks to hold more financial reserves to protect against possible losses. The requirements will be phased in over the coming years, but banks have said they are too demanding.

The second is the report that the US Department of Justice and state prosecutors intend to file civil charges again the rating service, Standard & Poors, alleging wrong doing  in its rating of mortgage bonds before the financial crisis erupted in 2008. According to the report in The Wall Street Journal

The likely move by U.S. officials would be the first federal enforcement action against a credit-rating firm for alleged illegal behavior related to the crisis. Several state attorneys general are expected to join the case, making it one of the highest-profile and widest-ranging enforcement crisis-era crackdowns.

The expected civil charges against S&P follow the breakdown of long-running settlement talks between the Justice Department and S&P, the people said. [..]

All three credit-rating firms have faced intense criticism from lawmakers for giving allegedly overly rosy ratings to thousands of subprime-mortgage bonds before the housing market collapsed.

The Financial Crisis Inquiry Commission concluded two years ago that the top credit-rating agencies were “key enablers of the financial meltdown.”

The Justice Department and other law-enforcement agencies have long been investigating whether the rating firms broke securities laws or simply failed to predict the housing crisis.

Over at Zero Hedge, Tyler Durdin questions why S&P is being targeted and not the other ratings agencies:

Certainly if S&P is being targeted so will be the Octogenarian of Omaha’s pet rating company, Moody’s as well, not to mention French Fitch. Or maybe not: after all these were the two raters who sternly refused to downgrade the US when the country boldly penetrated the 100% debt/GDP target barrier, and which at last check has some 105% in debt/GDP with no actual plan of trimming spending. As in ever.

And in these here united banana states, it is only reasonable to expect that such crony, corrupt behavior is not only not punished but solidly rewarded.

I expect to be disappointed. Fool me.

1 comment

  1. TMC

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