MAKING A DIFFERENCE

Things are happening regarding banking regulation. The most remarkable story emerged the week of December 7th regarding what I think is a very brave Georgia woman who worked for Bank of America, Jackie Ramos. Ms. Ramos was fired by Bank of America after she took a stand against the bank's policies regarding the workout of credit card loans. Her descriptions of the bank’s insincere efforts to act like they want to modify the loans of customers who are experiencing severe credit problems highlight the real intention, to generate more fees and keep the customer in debt.

She gives her, first person, experience in accessing $15 "convenience" charges and $39 over-the-limit fees on helpless customers. Then, of course, Bank of America (and, don’t fool yourselves…BOA is not the only abuser of these practices) will represent to the U.S. Government and bank regulators that they are “breaking their backs” to help these customers who find themselves service charged into oblivion and paying 30%...excuse me (as Ms. Ramos puts it) 29.99% interest rates on their credit card accounts.

Make no mistake about it…the only thing these “too big to fail” banks are breaking their backs doing is figuring out how to get themselves back to the position of paying obscene salaries to their top few executives, all the while telling their own, lower paid employees, that the economy won’t allow them to give good raises or hire additional workers, or get back to the purpose banks exists for…lending money to credit worthy borrowers. Regulators in Great Britain are onto this scam and have decreed that all bonuses over approximately $40,000 will be taxed at 50%. Having been in a position that paid large bonuses, I don’t see this as onerous on executives at all. It should encourage employers to construct the salary of their employees on the basis of a better base, but a fair reward for the performance of the employees work. However, I don’t see where the likes of “to big to fail” banks or large corporations who pose a systemic risk to the well being of the U.S. economy are in a position to demand an obscene bonus when many of their profits are only due to the bailout of AIG, a corporation who insured the risk these banks were taking and that ultimately failed.

If you haven’t seen Ms. Ramos’ YouTube video, I recommend you watch it at http://www.youtube.com/watch?v=a5E0WNO7e_Q&feature=player_embedded.

Then, five House Democrats called for a return to a Depression-era law, known as the Glass-Steagall Act, that separated Wall Street investment banking from commercial banking.If the law is enacted, it would give banks one year to choose between being commercial banks or investment banks. The nations biggest -- those now commonly referred to as "too big to fail" -- would be broken up. The reason this makes since is that commercial bank deposits are insured by the FDIC. Consequently, the blurring of investment and commercial banks provides a window for the investment bankers to have access to insured deposits to gamble in the stock market. A classic heads, I win, tails you lose scenario.

The amendment's five co-sponsors -- Maurice Hinchey of New York, John Conyers of Michigan, Peter DeFazio of Oregon, Jay Inslee of Washington, and John Tierney of Massachusetts - want to restore the Act which originally passed in 1933, which also prohibited commercial banks from underwriting stocks and bonds. The act was repealed in 1999 and unfortunately signed into law by President Clinton, although the energy behind the repeal was Senator Phil Graham, of Texas. Mr. Graham foresight into the economic future has been consistently wrong. He predicted the Budget Reconciliation Act of 1993 would send the economy back into a deep recession. The actual result was the longest period of expansion on record.

The amendment would seem to have the backing of former Federal Reserve Chairman Paul Volcker who is one of a number of financial experts that are suggesting a return to Glass-Steagall is necessary going forward. In addition, The Wall Street Journal's editorial page, much to my surprise, also endorsed the concept in a recent editorial as a way to "reduce moral hazard" and "limit certain kinds of risk-taking by institutions that hold taxpayer-insured deposits." Unfortunately the Wall Street Journal doesn’t realize that insured deposits aren’t tax payer funds they are premiums assessed on member banks with the “full faith and credit of the U.S. Government.” There’s a big difference.

As a result of the repeal of Glass-Steagall big banks began getting even bigger. The four largest in our country -- Bank of America, JPMorgan Chase, Citigroup and Wells Fargo - now hold more than half of the nation's mortgages, two-thirds of credit cards and two-fifths of all bank deposits.

Because the deposits of these banks are insured by the FDIC, there's growing concern that they would have little restraint in making risky bets through their investment subsidiaries because they know if they lose, the FDIC and potentially the U.S. Treasury will ultimately bail them out.

Volcker also admonished the financial community this week delivering a jarring message to high-level bankers and regulators at an exclusive meeting in Sussex, England. "Has there been one financial leader to say [executive pay] is really excessive? Wake up, gentlemen. Your response, I can only say, has been inadequate," he said, according to the Times of London.

Volcker, a veteran of the financial world and currently chairman of President Obama's Economic Recovery Advisory Board, spoke this past Tuesday at the Future of Finance Initiative conference, organized by the Wall Street Journal.
Amid throngs of bankers arguing that new regulations should not impede on financial "innovation," Volcker pushed back, accusing Wall Street's increasingly complex financial products as useless to economic growth. In demeaning the meager contributions of the big banks, he named the ATM cash machine as the most successful financial innovation in the past 20 years, the Times reported.

Financial reform is coming, and soon, because if it isn’t we’re going to go through this exact same exercise on down the road…only it’s going to be more severe the next time and every time thereafter.