The Democrats are knowingly throwing up closure votes on financial overhaul reform, forcing the Republicans between allowing a partisan bill to move forward or being portrayed effectively as defending the status quo of scandalous Wall Street fat cat bankers. The Democrats lost the initial cloture vote by 3 votes, 57-41.
This is a suboptimal bill that, among other things, dramatically increases costs and lowers liquidity in derivative transactions, a common hedging mechanism. It does seem, though, that some GOP senators (e.g., Grassley, Brown, Snowe, or Collins) are willing to vote for a reform bill including the more heavy-handed Lincoln derivatives approach. I've seen one poll that suggests the public is evenly split over derivatives--hardly a mandate for the Lincoln approach. But the GOP seems to be unsure of how to handle the public relations aspects of reform; Obama seems to have greater support than the GOP, based primarily on Obama's populist rhetoric. What the American people need to know about this bill can be summarized in a few points: (1) it does not address the largest users for TARP funding during the economic tsunami, i.e., Fannie Mae, Freddie Mac, the automakers (except for AIG); (2) AIG's failure did NOT involve systemic risk, and in fact the government made AIG customers whole which would not have happened under bankruptcy; (3) derivatives have been around for years; they are not intrinsically risky if used responsibly; (4) the way to deal with the problem of "too-big-to-fail" is to allow big companies to fail. Policy makers and regulators acted in an inconsistent manner during the financial tsunami.
We needed more proactive action from regulators, credit raters, accountants, and other parties. I'm not suggesting this as a solution during the economic tsunami, but given the fact that salient liquidity issues dealt with banks unwilling to lend among themselves given uncertainties of reserve valuation, the Fed could have moved to purchase and/or guarantee a necessary percentage the troubled assets in question. The point I'm trying to make is that what we need in dealing with crises like the economic tsunami is to have the right decisionmakers in place, not add more points of failure to the regulatory system.
Warren Buffett Hearts Obama--Until It Comes to Policy
The world's most notoriously successful investor and one of Obama's most prominent supporters, Berkshire Hathaway CEO Warren Buffett, made a late comment during deliberations over the corrupt Senate Democratic Party Healthcare Bill, suggesting hitting the reset button towards a more bipartisan measure. Now we see another interesting inconsistency involving derivatives.
Warren Buffett has probably the most widely publicized sound bite in the history of derivatives, calling them "financial weapons of mass destruction". It turns out (surprise!) we can find $63B of WMD's "hidden" in its books. In fact, Buffett has boasted about the limited collateralization for said derivatives. Buffett wants a grandfathering exception for existing "good faith" derivatives contracts, being pushed by Ben "Cornhusker Kickback" Nelson (D-NE); he's worried about the billions for transactions on the books. Now I understand Buffett's point in the sense that the nature and extent of derivatives contracts his company would have transacted would have been affected on collateralization costs, and those costs would be imposed ex post facto. But I'm more interested in the broader issue of why he is risking $63B without "intrinsically worthy" collateralization required under progressive Democratic measures under discussion. Why are those transactions okay for Berkshire Hathaway but not any other customer?
Political Cartoon
Glen McCoy points out that the one regulation that progressive Democrats will never pass is voter "lemon law" protections. Who could have ever guessed that a progressive Congress and President would create a new world record fiscal deficit, tripling the last one (passed also by a Democratic-controlled Congress)? Who could have ever guessed that without checks and balances that the only substantive policies passed would be progressive ones, even though we live in a center-right nation? We owe it all to moderates and independents whom seem to understand the nature of slick-talking used car salesman, but not a media-gimmick Congress and President. Voters' remorse? Independents and moderates can force Obama to compromise in this fall's elections.
Quote of the Day
I paint self-portraits because I am so often alone, because I am the person I know best.
Frida Kahlo
Musical Interlude: "Happy" Songs
Edwin Hawkins Singers, "Oh, Happy Day"
Chicago, "Happy Man"
The Rolling Stones, "Happy"
Sheryl Crow, "If It Makes You Happy"
