SAFE Banking Amendment Fails in Senate

The SAFE Banking Amendment failed in a snap vote 33 to 61. Matt Taibbi has comments on it. A few random thoughts:

David Dayen: “Only, outside of a couple upstart groups like A New Way Forward, the progressive movement determined it not a cause worth fighting for. It’s just a plain fact that breaking up the mega-banks would have 10,000 times the impact of the public option – or auditing the Fed, for that matter – and absolutely nobody in the progressive coalition cared.”

A New Way Forward deserves a round of applause for the work they put into this, as does everyone else who wrote, organized and fought for it. But the administration was against this amendment from the get go. When even Austan Goolsbee tells American Banker that size won’t be a priority for their Too Big To Fail policy, it’s about as all hands on deck as you can get. The administration is even against the leverage cap in the SAFE Banking Amendment, worried it would tie our regulators hands when they go to negotiate Basel III. Treasury Secretary Geithner has circulated letters saying that having a hard leverage cap would ruin “flexibility” of the regulators “to successfully negotiate a robust international leverage ratio” that doesn’t “leave U.S. firms at a competitive disadvantage to their foreign peers.”

– This is an old battle in financial reform for liberals. To what extent should you break up and silo large banking oligarchies and to what extent should you codify and accept the oligarchy and try to manage them? From Ellis W. Hawley’s The New Deal and the Problem of Monopoly (1966):

On one hand, there was a growing belief that banking was one of the “natural monopolies,” one of those areas of economic endeavor that should be centralized and then subjected to strict controls or transferred to the state…

The anti-trusters found it difficult to agree among themselves…from the standpoint of the economic planners, most of the Brandeisian ideas were either meaningless or positively harmful. As they saw it the solicitude shown for little banks and manteur bankers seemed only to weaken the banking system, lower the quality of its services, and prevent its integration into a program of centralized planning. The efforts to subsidize small business and promote decentralization were essentially wasteful and futile. And the attempts to promote fair practices and business honesty bore little relation to the real problem of economic concentration. They did nothing…about the problem of mobilizing capital and regulating its use.

As we’ve discussed before, FDR was able to make an interesting split where he didn’t create a highly concentrated private banking industry like most other industrialized countries. I think this administration’s course of action between these two choices was settled in favor of the large concentration with Diana Farrell’s quote: “We have created them [our biggest banks], and we’re sort of past that point, and I think that in some sense, the genie’s out of the bottle and what we need to do is to manage them and to oversee them, as opposed to hark back to a time that we’re unlikely to ever come back to or want to come back to.”

Here’s hoping that this doesn’t go the opposite of Farrell’s goal, and that the banks aren’t the ones that will manage and oversee the regulators. Here’s hoping prudential regulation and the threat of resolution are credible on a firm with nondeposit liabilities equal to 6, 7 or 8% of GDP as well as significant political power. Because if it isn’t, and they get capital cheaper from that, we just got a bunch of new GSE-like firms in the financial economy. If the silo-ing of business lines gets gutted in the Senate, which we will find out this week, we are basically going into a new future for the American financial economy that will look depressingly like what we’ve just come from.

– Even Hank Paulson says: “In our haste to deal with the flaws in the non-bank financial system, we should not move ourselves back to a system of consolidated, monolithic commercial banks.” I assume that the word monolithic was chosen for effect.

– As Simon Johnson points out, in response to the sometimes implicit and sometimes explicit arguments that large, concentrated financial sector will be more stable, self-regulate and respond better to government regulators than a less concentrated one:

Which are the huge global banks that Senator Dodd, Jamie Dimon, and Larry Summers think we should be emulating? Surely not the Chinese – their governance failures are profound and complete; this is state banking run amok. Surely not the British – after all Mervyn King and Adair Turner, the top authorities on those banks, are globally the most articulate officials on how good finance has gone so deeply wrong. Surely not the Canadians – those myths have been long exploded (and without dissent, in our conversations with the Bank of Canada).

And surely you are not proposing that the continental European banks are a model of anything other than ineptness, blind herding, and the transition from being “too big to fail” to “so big that even when you save them, you get an economic catastrophe”?

There’s still a lot that can change or stay in the bill, but I do think that the SAFE Amendment failing was a major setback for financial reform.

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2 Responses to SAFE Banking Amendment Fails in Senate

  1. Valerie Curl says:

    When I read that the SAFE Amendment went down, I felt like the American people had been sold down the river…and exemplifies why we need honest campaign finance reform.

    This Congress looks too similar to Jackson’s Millionaire Congress.

  2. jacksmith says:

    Alan Grayson Honors The Dead http://www.youtube.com/watch?v=TV9TRoYMtjs&feature=player_embedded

    I want to commend all of you for working so hard and being so strong at helping the whitehouse and congress begin to address our U.S. and Global healthcare crisis. You have been AWESOME! my fellow Americans and peoples of the World. America and the World is better and safer for it. My greatest pride is the knowledge that I am one of you. And that you really get it. You really understand the importance of it all.

    There are some potentially very good things in the healthcare legislation. Especially with the reconciliation fix’s. The Democrats, Bernie Sanders and the Whitehouse did a GREAT! job of fighting to produce the best healthcare legislation that they could. They have earned all our strong support. And we should give it to them.

    But it was your relentless pressure and hard work that made the difference. Whatever good comes from this healthcare legislation, America and the peoples of the World will have each of you to thank. You were smart, creative, courageous and relentless. You fought together for the best legislation possible. And when you had to, you fought alone. No matter who stumbled and fell you continued to push and forge ahead. Fighting for the lives and health of the American people and the World. YOU SHOULD BE PROUD OF YOUR-SELVES🙂

    It may come to pass that future generations will look back on us and say that we were ALL Americas Greatest Generations. And that healthcare reform was our finest hour. You should be proud of our leaders President Obama, Speaker Pelosi, Majority Leader Reid and the many other Democratic and independent fighters for the people in congress. They proved them-self worthy of the leadership of a GREAT! PEOPLE.

    But we are not done yet. This was just the beginning of healthcare reform, not the end. WE THE PEOPLE OF THE UNITED STATES, ARE NOT! divided on healthcare legislation. The vast majority of you have been consistently crystal clear that this legislation does not go far enough. You want a strong Government-run Public Option CHOICE!! available to everyone on day one. And you want it NOW!

    YOU MUST NOT ALLOW AN INDIVIDUAL MANDATE TO STAND WITHOUT A STRONG GOVERNMENT-RUN PUBLIC OPTION CHOICE! AVAILABLE TO EVERYONE.

    WE THE PEOPLE have been crystal clear that we want an end to dependence on for-profit healthcare and the for-profit proxies called private for non-profit healthcare. The American people want the CHOICE! of a strong Government-run Public Option to replace their need or dependence on healthcare providers whose primary motivation is profit. Rather than providing the highest quality, easiest accessible and most affordable medically necessary healthcare possible. This is what the rest of the developed World has. And the American people want it too. They want healthcare ASSURANCE! Not, for-profit health insurance. And they want it NOW!

    Now is the time to continue the push for a strong Government-run Public Option CHOICE! available to everyone that wants it on day one. Rationally it’s clear what we have to do to get this done. SUPPORT THE DEMOCRATS that supported you with a Public Option choice, and REMOVE as many republicans as you can. Not one republican in congress was willing to step across the isle to support a strong Government-run Public Option CHOICE!! available to everyone on day one. NOT ONE! Let no candidate prevail this November that does not support a Strong Government-run Public Option.

    47,000 AMERICANS die each year from lack of healthcare. 120,000 die from treatable illness that don’t die in other developed countries. Hundreds of thousands of you are dieing from medical accidents in a rush to profit. And Millions of your are injured. Millions more are driven into bankruptcy. All for the privilege of paying two to three times as much as any other people in the developed world for healthcare. HOGWASH!

    Additionally, tens of thousands of you and your children were killed and millions sickened and injured from a terror attack with H1N1 (swine flu). Released on the American people and the World by the for-profit healthcare industry. All in an attempt to panic and frighten you into accepting the oxymoronic criminal enterprise of private for-profit healthcare (The most costly, deadly, dangerous, and disgraceful product sold in America). H1N1 is still sickening people and killing them. Especially children, the young and the middle aged. And there will be a third wave. These are the terrorist you need to worry about the most. Even the so-called international terrorist would not do something so INSANE! But greed driven medical profiteers would and did.

    Apparently as far as republicans in GOVERNMENT are concerned, YOU! my fellow Americans – CAN JUST DROP DEAD! Including their own family members. Fools!… Hundreds of thousands of you, and possibly millions of you will die from the long-term effects of your infection and poisoning with H1N1.

    So my fellow Human Beings. Rest-up, Take good care of the basics (Balanced nutrition, hydration, exercise, rest and POSITIVE emotional supports). Then wade back into the FIGHT! for a strong Government-run Public Option CHOICE! available to everyone on day one. Drug re-importation, Abolishment or strong restrictions on patents for biologic and prescription drugs. And government controlled and negotiated drug and medical cost. You must take back control of your healthcare system from the Medical Industrial Complex. you MUST do it NOW! This is a matter of National and Global security. There can be NO MORE EXCUSES.

    God Bless You My Fellow Human Beings. I’m glad to know of you. And proud to be one of you.

    See you on the battle field.

    Sincerely

    jacksmith – WorkingClass🙂

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