Rewriting the Financial Rules

Friday, June 19, 2009

Joe Nocera, New York Times business columnist and author of the Executive Suite blog, Tom Braithwaite, business and politics correspondent for the Financial Times, and Diane Brady, senior writer at Business Week, discuss what the President's new financial overhaul plan may mean for the future of the US banking industry. Restructuring Wall Street What do you think needs to happen to prevent the next banking collapse? Post your new banking rules below!


Diane Brady, Tom Braithwaite and Joe Nocera

Comments [27]

Andy from Morristown, NJ

Everyone focuses on individual issues and headlines. We need to focus on Wall St's mindset.

A CEO who runs his corporation into debt, on the verge of collapse but posts a paper profit for the quarter can expect millions in bonus. One running a profitable corp., no debt, manufacturing durable goods, employing tens of thousands of people and paying a reasonable dividend; but with no growth can expect to be replaced.

Some ideas to start correcting the market:

Don't regulate what they can and cannot do, regulate the results. They'll work it out better than any bureaucrat will. Bureaucrats get tied up with minutiae and Wall St will just come up with new instruments that they don't apply to.
--- Regs should focus on the health of the overall institution and the effects of their investments. When there is, a negative impact sanctions or penalties should be assigned.

- Companies that take profits at the expense of the (US) economy should bear a heavier tax burden than those that grow the economy.

- Eliminate Long Term Capital Gains Tax, but balance that by making Short Term 50 to 80% depending on how short or vile (Corporate Raiders who take a quick profit at the cost of jobs and manufacturing that contribute to the economy is pretty vile). Fixed short-term instruments like CDs could be exempt or taxed at current rate.

- A lot's been said about Executive compensation. Let's just say it should be tied to the long-term effects of their contributions.

Working the system has always been part of the game, but now it's the whole game. Ethics needs to be taught and enforced.

Jul. 07 2009 01:03 PM
Phil Henshaw from NYC

Too big to fail? Too big to manage?

There's a fairly simple rule change that is both necessary to keep the economy from becoming unmanageable and solve the "too big to fail" prblem. You think about how the whole world economy keeps getting bigger faster making our finite earth unmanageable.

Our whole system, with the banks in the lead, is designed to expand ever faster, using up more and more resources, roughly in proportion. It actually operates to use up cheap resources as fast as humanly possible, to maximize growth, leaving us with ever more expensive resources for the future.

The limits of growth make the whole system too big to manage for another important reason too. When a growth system hits resource limits the growing parts start competing to take resources away from each other, creating conflict. As we're beginning to see, deciding who gets what in terms of the dwindling quality of resources on earth will become quite unmanageable.

The rule change for Wall Street would be for all investment earnings to be returned to individual investors for them to spend rather than reinvest. Then the banks and trading firms would stop multiplying money for their own account. They’d only be managing the private savings from wages of employees. Neither the whole economy or anyone in it would then keep getting ever bigger faster just by using other people's money to invest in themselves...

There's more to it, of course, but the core problem is the manageability of the economy as a whole. The old design worked when the economy was small and the earth big. Now it’s became unworkable as the financial sector multiplies even when real delivery of goods and services don’t. That’s really the key.

The above rule change would allow the economies to grow but not compel them to provide multiplying profits for the rich. They’d longer become too big to manage and become more responsive to other values.$

Jul. 07 2009 12:23 PM
Veronica from Florida

Both my husband and I are ex-Bankers. He was a Loan Officer with a credit line of $2,000,000. A loan of that size required ONLY HIS SIGNATURE. His salary structure was base plus bonus, NOT COMMISSION. The bonus was based on overall quality of the portfolio which included collection accounts. If the collection activity was higher than acceptable BONUS WAS REDUCED OR ELIMINATED. No Banker should be on a commission basis with volume the performance gauge. That policy encourages poor loan quality. FIX LOAN ORIGINAL POLICY WITH QUALITY THE GOAL AND DERIVITIVES WITH SUB QUALITY LOANS IN THE PACKAGE WILL NOT EXIST. Problem solved.

Jun. 25 2009 01:23 PM


If you were ripped off and cannot afford a lawyer, I sincerely think you should protest in front of the bank that ripped you off.

I know it won't be fun, but it is important that people be held responsible for what they did to you and so many others.

You should have a signboard and distribute some leaflets explaining what they did to you, and the fact that you cannot hire a lawyer.

Also, I think there are some non-profit organizations that are working to help people like you to fight the fraudulent banks.

Don't get mad. Get organized. And FIGHT BACK.

What do you have to lose? You have power in numbers.

Jun. 19 2009 03:00 PM
Eugenia Renskoff from Williamsburgh, Brooklyn

Hello, Brian, I think that it is very important for the people, such as myself, who have lost their money and their comments because of mortgage fraud and foreclosure, to get their money back, with or without a lawyer. I have no money to hire a lawyer, yet I was duped. And it would be good if the banks and lenders did not protect the loan officers and realtors who acted in an unethical way. Eugenia Renskoff

Jun. 19 2009 01:07 PM

The caller who blamed the media for the financial crisis... holy cow, talk about blaming the messenger.

I only WISH this were all the fault of false reporting by the media.

I can't believe you put that caller on the air. That was really kooky.

Jun. 19 2009 01:06 PM
Leo from Queens

#10 Anonymous - Great point!

Jun. 19 2009 11:17 AM
Neil Weisfeld from Princeton, New Joisey

One clear lesson of the meltdown is that leaders of financial houses violated basic principles of ethics. So the new rules should require: greater transparency (all board decisions open to public scrutiny, unless counsel determines that disclosure would jeopardize proprietary information and help competitors); boards must establish opportunities and incentives for professional employees to call in ethical experts or ombudsmen when appropriate; ombudsmen to investigate ethical pressures on employees and release annual reports, purged of complainants' identities; strong corporate codes of ethics that are aggressively implemented and continually improved; and frequent, mandatory, and professionally facilitated seminars on ethics, using case studies, in which senior officers and board members engage; and adherence to ethics as a criterion for all board appointments.

Jun. 19 2009 10:53 AM
Mohamed from NY, NY

1)Breaking WallStreet's Kingdom rules with the governement.

2)regulation of credit-default swaps.Policy changes such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.

3)reduction of the amount of leverage allowed to investment banks

4)updating regulations so as to keep up with the tremendous pace of financial innovation.

5)Banks that remain in private hands should also be subject to size limitations

Jun. 19 2009 10:46 AM

The government could operate a bank that has its full faith and credit behind it. Many countries have national banks that are successfully run. They may not offer the best rates but are certainly more secure. The rationale for a government bank would be similar to that of the current administration's proposal for creating government health insurance.

Jun. 19 2009 10:41 AM
kai from NJ-NYC

No one wants regulation until something catastrophic occurs, like over-leveraged banks being swamped with defaults. When that thud hits, parties recognize the value of precaution, regulation, and the sustainability of entire [economic] systems.

Jun. 19 2009 10:35 AM
Nick Lento from NJ

Campaign finance reform would solve these problems. Piecemeal doesn't cut it. Every little "rule change" just gives them a reason to find another devious way around the rules.

People know how to stop the legalized criminality; the problem is that the thieves own the lawmakers because the finance their campaigns and their careers. What we have now is a government run by the very people it's supposed to rfegulate. The thieves are legally robbing us all blind...and I see no indication of any real transformative/systemic change.

There will be another boom, and another bust....probably within the next decade...this is not a sustainable way to run a great nation.

Jun. 19 2009 10:33 AM
Rich from Staten Island

I don't agree with the "Too Big to Fail" model. Whatever happened to financial institutions use of syndications where these companies take an allocation of risks for these transactions?

Jun. 19 2009 10:29 AM
Phil Henshaw from NYC

The purpose of the financial regulation is a holdover from the past. to try to guarantee minimum rates of return. That is to assure that making investment will be a sure bet and lets people add their winnings to their bets. That, however assures perpetual multiplying expectations. However you regulate them no kind of expectations can endlessly multiply that way. The physical world assures expectations for anything will level off.

The systems theory that details precisely what goes wrong (everything becomes unmanageable) and what the alternatives are (needing to siphon off what would otherwise pump it up) takes more than a ‘tweet’ length comment.

Basically when instability develops people's 'winnings' need to be returned to them to be spent, to support existing businesses, not kept multilying new competition.

Jun. 19 2009 10:28 AM
Charles from Annandale NJ

I'd like to see regulation that returns us to the underlying concepts of investment and saving. Derivatives and derivatives of derivatives should be sold in and regulated by the casino industry, or some Wall Street equivalent, and should be marketed as such. They are risk plays and gasmbles on market trends. As far as I can see they add no value to our economy, so let them be treated and regulated like gambling.

One can bet on sports, but most of our sports leagues have tough regulations to keep the betting activity separate from the sport. Can we do the same with finance? You want to bet on the market? OK but don't let your bet influence the market itself, beyond the normal supply and demand effects on stock prices.

Jun. 19 2009 10:28 AM
ECohen from 180 west end ave nyc

Financial institutions need to be forced in some way to retain responsibility for their lending decisions versus simply being able to "sell off" their loan and mortgage portfolios to others in the form of securities. If the benefit of this "newer" method has been to expand the amount of lending capital available, then some fix needs to be put in that requires the original lender to still be in the game for a certain percentage. Without that requirement, the banks' never feel the impact of poor decisionmaking.

Jun. 19 2009 10:26 AM
Susan from Kingston, New York

All companies with financial services should be regulated. Whenever it takes, it needs to be done now.

Jun. 19 2009 10:23 AM

The right kind of regulation won't drive honest investors to other countries; it will just drive away the dishonest ones. Which is exactly what we want. Prosecuting shoplifters doesn't drive away honest customers.

Jun. 19 2009 10:23 AM
Marsha from Upper West Side

Too bad your last caller hasn't lost her sense of smell and taste from Zycam as have I so she might have a tad of understanding.

Jun. 19 2009 10:22 AM
Nick Lento from NJ

Joe Nocera summed up the problem with the WHOLE of Obama's approach to governing!

Yes, he's sticking large numbers of "fingers" into many of the leaks in a broken dam; instead of making a NEW dam to replace one that is unsustainable damaged.

We need SYSTEMIC reform to fix SYSTEMIC problems.

What it boils down to is that certain interests have found ways to game the system and to legally STEAL! No wonder they love the status quo.

And of course, now the forces of the status quo come out of their holes and blame "the media" for exposing the problems.

We've just been taken for about two trillion bucks by a bunch of legalized thieves and now we're supposed to go back to "business as usual"! Dodd has always been in the pockets of the banking/insurance industries and his statement today makes that clear.

We didn't elect an allegedly progressive Democrat to have him be an lackey for the establishments that have screwed the American people!!!

Sweeping the systemic problems under the rug just means they'll come back in a few years.

Jun. 19 2009 10:20 AM
alex from brooklyn

Raring agencies need to be addressed. Perhaps give them some liability for their ratings, maybe in the aggregate if it can't be done for individual ratings. Perhaps making their criteria more transparent.

Jun. 19 2009 10:16 AM
David Ezell from NYC

I don't have the skill set to rebuild Wall Street so I have no specific suggestions. However, I am VERY TIRED of the "change" president being a lapdog of big business and banks--talking big ideas and making no real changes at all. These people put us all, the whole world, at great risk. We need to quit doing the same thing and hoping it will be better. Let's rebuild it from the top down!

Jun. 19 2009 10:16 AM
Jerry from ny,ny

transparency of everything and all

Jun. 19 2009 10:14 AM

The problem is not the size of the banks, it's the poor decisions they made. Having many small banks instead of a few big ones won't help if the small banks make the same kinds of mistakes--instead of "too big to fail", we'll just have "too many to fail".

Jun. 19 2009 10:13 AM
Rich from Staten Island

Why have these banks been allowed to consolidate over the years. What have the mergers of Chemical Bank, Manufacturers Hanover, Chase Manhattan, JPMorgan, Bank One, Bear Stearns, and Washington Mutual accomplished as one entity now. Customers haven't benefited neither have employees. The risk has been concentrated though

Jun. 19 2009 10:13 AM
ceolaf from brooklyn

Financial institutions should NOT be able to choose their regulator -- especially not if their regulatory fees go to the regulator they choose.

This simply gives too much incentive for the regulators to makes deals or loosen oversight in order to get or keep those fees.

Jun. 19 2009 10:12 AM
John P. Crowley from NYC

We don't need more layers of regulatory hacks. What we need are real cops to police and enforce the greatest set of regulations ever devised. We are far from over-regulated, we are underpoliced. If you know SEC and other Agency Rules and Regulations, one can see that they are built on common sense and an inherent knowledge of what is "right" and what is "dead-wrong". The laws are written for those disposed to challenge the basic tenets of civil behavior. More importantly, the punishment for such errant behavior is clearly deliniated.

Jun. 19 2009 09:59 AM

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