Financial Regulation Reform Resolution Pt. 1

There is already a bill pending in the Senate to bring transparency to the activities of the Federal Reserve, the Federal Reserve Sunshine Act, S604. All that bill needs is the backing of more Senators, who are of course majority Democrats. The Federal Reserve tends to be overwhelmingly influenced by the NY Fed branch which holds over half the assets of the entire 12-region Federal Reserve System. You can bet they have friendly relations with the major Wall Street firms. You can bet their friends get somewhat preferential treatment when push comes to shove. There is a lot you can read about this on blogs like baselinescenario.com, co-founded by the ex-chief economist at the International Monetary Fund, Simon Johnson. And you have a ready-made resolution you can download and take to a caucus.

A bill to overhaul our system of financial regulations is still a ways from being written. So far it looks like Financial Industry lobbyists are getting plenty of access to their Senators and Congressmen. Us folks back home are not being heard on this issue. We need to get the attention of Congress, especially of the majority Democrats in the Senate, if we expect to get a fair shake in this process. You can write letters to your representatives, which is always worth doing, but we will get more serious consideration if the parties pass resolutions directing their representatives to include certain goals in the legislation. These are also good platform issues.

Financial regulation is a pretty technical topic, one that most people would not claim to understand. We have tried to present some background information on www.citizensplatformcommittee.org to get you started thinking about this. There are some basic points average people can understand. The so-called Volcker Rule is one of these. That proposed rule would prohibit retail banks from speculating in the markets with their money, which is to say our savings. I consider that a good idea. However, that by itself would not have prevented the financial crisis we are still suffering through. Most knowledgeable observers would agree that there was far too much leverage being used by trading firms, and that includes banks these days. Most observers also agree that the markets for securitized assets like those sub-prime mortgages packaged as CDOs and other assorted derivatives is not transparent and does not have any formal capital requirements.

Transparency and minimum capital requirements are accepted rules in the stock and bond markets where we ordinary folks keep our retirement savings in our 401Ks and IRAs. But those rules did not prevent us from losing roughly half our nest eggs during the credit crisis. That is because the same firms that hold large amounts of those "conservative" stock and bond investments were loosing HUGE sums in the unregulated derivatives markets and cash had to be raised from somewhere to cover the losses. They had to sell their stocks, among other things, and the value of their own shares fell dramatically, which did even more damage to the Mutual Funds so much of our retirement savings are invested in. It should be common sense that we need similar transparency and capital requirements for the currently unregulated parts of the financial industry so it can't drag the rest of us down like that again.

These points can provide the basis for a simple resolution calling for fair and effective financial regulation reform.