Every time I think they're about to blow it, royally, they come up with something good. I know that "free market fundamentalists," who nearly destroyed our economy, will be calling this the end of capitalism, however, I am not of the camp who things regulating a totally unregulated financial sector is a bad thing.
Some points I like:
|Reduced reliance on credit-rating agencies will also be proposed, said the piece.|
This is excellent news! Rating agencies have way too much influence and they are completely out-of-paradigm anyway, causing their pronouncements to be that much more destructive. There should be ZERO need for reliance on them, as far as I am concerned, but even if we get reduced reliance, that is a good thing.
|"All derivative contracts will be subject to regulation, all derivatives dealers subject to supervision, and regulators will be empowered to enforce rules against manipulation and abuse," according to the op-ed piece.|
Hopefully this will mean more oversight of speculative activity in sensitive materials, like oil and food. They didn't explicitly mention ending or putting limits on speculative activity or altogether banning pension funds and other passive, "long-only" investors from owning commodities, but at least this is a step in the right direction. Have you noticed how the clueless media is now calling the doubling in oil prices a "demand-driven" phenomenon? Yeah, demand for futures contracts. There's 13 million people out of work and the media's telling us that equates to more oil and gasoline demand?? It's speculation and it's the Saudis setting prices higher.
Here's how I feel (and I am just echoing the words of Warren Mosler, here):
Back in 1972, 2.6 million homes were built in this country and if you wanted a mortgage you went to your commercial bank for it. The bank originated the loan and serviced it. Bankers made salaries not much higher than civil servants and Americans bought homes, cars, appliances, took vacation trips and pretty much had and did all the things we have and do today.
Fast forward to 2006--the peak of the housing boom--and a time when the financial sector looked entirely different. Bank loans comprised only about 25% of all credit. Rather, credit flowed from unregulated intermediaries that dealt in risky, unstable, and hard to understand instruments.
Well, guess what? We built the same amount of homes (but our population is now 300 million, not 200 million like in '72), sold slightly more vehicles (whoopee!), but only used 80% of our industrial capacity compared to 86% back in the early 70's.
Why do we need the financial sector in its current form?
Answer: WE DON'T!!
Whether or not the Obama Administration understands that or not, I don't know. (Actually, I doubt it.) However, they are moving in the right direction.
|"The financial sector is more trouble than it is worth." -Warren Mosler|
P.S. Oh yeah, one more thing: In 2006 the financial sector earned 40% of all corporate profits in America, compared to single-digit percentages back in the 70's. That's way too much money to a sector that contributes nothing of real value to the economy. Get rid of it! Just keep the banks.