Lame Ducks, Bogus Excuses

Sen. Chris Dodd brought the big banks back to Capitol Hill Tuesday to hear more about the foreclosure mess.

By the end of the day Dodd, who is retiring from the Senate after presiding over the watering down of financial reform, had a novel response: he called for an investigation.

By now nearly federal agency as well as every state attorney general is already investigating the scandal, after banks disclosed the shoddy record-keeping they were using in the foreclosure process.

How hard any of these investigations is really digging is an open question. But the more the merrier, according to Dodd. He suggested it would be a first test for the systemic risk council, which was set up under the financial reform law that bears his name, along with his House colleague Barney Frank.

The systemic risk council will be made up of members of the Obama administration, led by Treasury Secretary Tim Geithner. The administration has already brushed off the foreclosure scandal, so it’s highly unlikely the council would come back later and reverse its assessment.

Meanwhile the congressional bailout monitor, now headed by former Delaware senator Ted Kaufman, issued a stern warning about the consequences of the foreclosure scandal in its monthly report. “If document irregularities prove to be pervasive and, more importantly, throw into question ownership of not only foreclosed properties but also pooled mortgages, the result could be significant harm to the financial stability,” the monitor wrote.

Not to worry, the big banks keep reassuring us. It’s just a matter of some sloppy paperwork.

The big banks’ credibility, to put it politely, is not so hot. For example, Bank of America insists that they would be doing better modifying mortgages if not for the investors standing in the way. So the investigative journalism outfit Pro Publica took a look and found out their explanation was bogus.

Around the Web: Volcker Rules - Not!

Until the morning of January 21, 82-year-old former Federal Reserve president Paul Volcker had been a lonely and largely ignored figure among President Obama’s economic advisers.

Volcker seemed to be the only one of Obama’s advisers not under the spell of the “too big to fail banks” and their highly touted innovations.

Volcker was especially vocal about protecting the public from the financial world’s riskier innovations. As he told a financial conference last year, “Riskier financial activities should be limited to hedge funds to whom society could say: ‘If you fail, fail. I'm not going to help you. Your stock is gone, creditors are at risk, but no one else is affected.’ ”

It was Volcker who had said that the only financial innovation to benefit consumers in the last 20 years was the ATM card.

But he wasn’t getting much traction with the president and his advisers.

Then the Democrats lost Ted Kennedy’s Senate seat.

In a lurch back toward the populism he had embraced during his campaign, President Obama hastily reached out for Volcker.

During a press conference, the president endorsed something he called the Volcker rule as an essential plank of his financial reform plan. That rule would restrict banks from risky proprietary trades with their own (borrowed) money.

Here’s what the president said:

“Banks will no longer be allowed to own, invest, or sponsor hedge funds, private equity funds, or proprietary trading operations for their own profit, unrelated to serving their customers.  If financial firms want to trade for profit, that's something they're free to do.  Indeed, doing so –- responsibly –- is a good thing for the markets and the economy.  But these firms should not be allowed to run these hedge funds and private equities funds while running a bank backed by the American people.”

For more on proprietary trading and the Volcker rule, read this from Rortybomb’s Mike Konczal and the NYT. For more about why the Volcker rule was a good idea, see this from WSJ’s Dealbreaker.

Obama mentioned the Volcker Rule a couple more times, as did the man who was marshaling financial reform through the House, Rep. Barney Frank.

But neither the president nor anybody else in the Democratic leadership ever mounted a public campaign to make it an essential part of reform. In fact, within a month, the president was already backing off his support of the Volcker rule.

And now, like many other parts of the reform that would have protected consumers and inconvenienced banks, it has been largely gutted.

Bloomberg reports “lobbying by banks and congressmen sympathetic to Wall Street’s views, as well as some administration members in the banks’ defense, trampled the views of Volcker and others who favored a stronger proposal.”

The weaker provisions won’t even go into effect for as many as 12 years.

It would have been one thing for Obama and the Democrats to go down swinging on the Volcker Rule. But they didn’t even put up much of a fight.

If you’re as disappointed as I am with the president’s lack of leadership on this, after he made such a big deal about it, why not let him know?

Heads banks win, tails taxpayers lose

Remember when high risk and reckless trading led to economic collapse?

That was so five minutes ago.

Goldman-Sachs is back to its old tricks, roaring to record profits from high-risk trading - and the federal government is aiding and abetting the whole thing.

You might have thought the feds would be discouraging Goldman from using the economy as its private casino, but that’s far from the case.