Additionally, hearing that the Democrats are thinking of using a process in which they deem the legislation to have passed without actually voting on it would, in my opinion, take our country to a new low.

If Democrats ‘deem’ this reform to have passed, I have a hard time believing or understanding how that is not a direct assault on the Constitution of our country. The mere fact that it is even being considered is reviling.

LD  
*******************

A loyal Sense on Cents reader asked me to comment on the dramatic rise in health-care premiums highlighted in an article, Soaring Health Premium Just Makes Me Feel Sick, from the Irish Independent. The author, Martina Devlin, writes of an individual in Ireland who just received her new health-care premium. Devlin offers:

I SERIOUSLY debated cancelling my private health insurance recently. When the renewal notice arrived in the post I did a double-take at the size of the bill, cross-checked the increase — which was almost 20pc — and gulped.

Value for money it wasn’t. In fact, it struck me as a hefty charge to cover what I regarded as an insubstantial risk. You can never discount the danger, but I’m still reasonably young and healthy (touch wood).

Reviewing the article immediately reminded me of a conversation that I had with my wife’s cousin, a doctor in a community hospital. I spoke with him over the holidays and asked him his take on the propsects for healthcare reform and legislation here in our country.

His take was as follows:
1. Insurance companies were bought off by the administration to support legislation without a public option.

2. Pharmaceutical companies were bought off by the administration.

3. 15 million uninsured (5 % of the American population) will clearly benefit.

4.  Those with pre-existing conditions will benefit.

5. The elderly will suffer as healthcare is rationed.

6. Doctors and others in the health field will pay in terms of lower compensation (bending the cost curve).

7. The American Medical Association (AMA), which came out in support of Obamacare, only represents approximately 17% of the physicians in this country.

8. Who really pays for the costs associated with the health reform plan? Largely, middle income American taxpayers who will be forced to pay higher premiums as highlighted in Ms. Devlin’s article.

Ultimately, the reform as drafted is a massive redistribution program.

In summary, he said that for this legislation to work it must have a public option to force the insurance companies to lower costs. Without that, it does not work. But to get the insurance companies to call off their lobby, the administration has to accede to legislation without the public option.

I am much more comfortable and familiar with Wall Street than I am the world of healthcare. That said, my wife’s cousin is a great guy and extremely trustworthy. I’ll tell you what. I felt ill about the proposed healthcare reform after speaking with him. I am not surprised that the American populace at large is also overwhelmingly opposed to this so-called reform.

All opinions, especially from those in the health care industry, encouraged and appreciated.

LD

Happy St. Paddy’s Day!

In the spirit of spreading a little Irish cheer and Irish culture, I thought the following peek into a typical Irish family would be appropriate. Enjoy!!

Slainte!

What it means to be in an Irish family…with edits for my personal experience growing up as one of eight children (seven boys, one girl) in a great Irish Catholic family in Boston!!

1) You will never play professional basketball.
Basketball dreams ended for us in middle school.

2) You swear often and very well.
A Doyle favorite curse was typically relegated to “God-damnit, Jesus, Mary, and Joseph…”

3) At least someone in your extended family is a fireman, cop, bar owner or funeral home director, and you may have at least one aunt who is a nun or uncle who’s a priest.
Yes….

4) You think you sing very well. Also, you may not know the words to many songs, but that doesn’t stop you from singing…usually very loud.
All the time, especially in church!!

5) You have no idea how to make a long story short.  In fact, you wouldn’t even consider trying.
Never a problem, speaking for yours truly or my brothers.

6) Many of your childhood meals were boiled and included potatoes.
Mom’s favorite casseroles and stews were loaded with spuds!!

7) You’re strangely poetic after a few drinks.
Especially my brothers, uncles, and cousins!!

Some punches directed at you are from legacies of past generations.
All the time!! The Doyles are firm believers in “don’t get mad, get even!!”

9) Many in your extended family are named Mary, Catherine, Pat or Eileen and there is likely at least one member of your extended family with the full name of Mary Catherine.
With upwards of 60 direct relations, we have these covered.

10) Someone in your family is very generous. More than likely, you think it’s you.
….also the best looking!!

11) You don’t wait for the other guy to stop talking before you start talking.
No doubt. We are firm believers that if we wanted somebody’s opinion, then we’d give it to him!!

12) You’re not nearly as funny as you think you are, but what you may lack in talent you make up for in frequency.
Story of my life!!

13) There wasn’t a huge difference between your last wake and your last keg party.
As an 11-year old, I can remember as if it were yesterday the wake for my legendary grandfather held in his home . It was flowing.

14) You are, or know someone, named Murph.
More than one!!

15) If you don’t know Murph then you know a Mac. If you don’t know Murph or Mac, then you know a Sully. You may even know a Sully McMurphy.
Many of all of the above!

16) Your skin’s ability to tan is greatly limited.  A tan for you is a shade of red or pink, which turns less red or pink once you peel.
Why do you think so many Irish are nicknamed Red?

17) Childhood remedies for the common cold may have included some form of whiskey.
Not that I was aware but…

18) You’ve never left a family party without saying goodbye for at least 45 minutes.
Also very true…

19) At this very moment, you have at least two relatives who are not speaking to each other. Not necessarily fighting, mind you, just not speaking to each other.
The Irish are notorious for the “deep freeze.”

Enjoy the day!!

LD

Bloomberg reports on this breaking story this morning in writing, Deutsche Bank, JP Morgan, UBS Are Charged with Derivatives Fraud:

Deutsche Bank AG, JPMorgan Chase & Co., UBS AG and Hypo Real Estate Holding AG’s Depfa Bank Plc unit were charged with fraud linked to the sale of derivatives to the City of Milan.

Judge Simone Luerti scheduled the trial of the four firms, 11 bankers and two former city officials for May 6, Prosecutor Alfredo Robledo said after a hearing in Milan today. The banks allegedly misled the city on swaps that adjusted interest payments on 1.7 billion euros ($2.3 billion) of borrowings.

Prosecutors across Italy are probing banks as local and national government agencies face potential losses of 2.5 billion euros on derivatives, lawyers say. The Milan probe may also affect cases as far away as the U.S., where securities firms have faced charges for price-fixing and bid-rigging in the sale of derivatives to municipalities, though not for fraud, according to former regulator Christopher “Kit” Taylor.

I addressed this activity across Italy last week in writing, Using Derivatives ‘Like Hard Drugs’:

Prescription drugs can only be accessed through a physician for a reason.  When used appropriately under the guidance of an ethical and informed doctor, the powers of prescription drugs can be life-changing and life-saving. When these prescription drugs are marketed by those more interested in their own bottom line than the health and well-being of their ‘patients’, then use often turns to abuse and the effects are crippling.

A similar dynamic plays out in the high and mighty halls of international finance. The Financial Times writes a captivating story on how the abuse of derivatives has overwhelmed cities and towns across Italy. This article, entitled An Exposed Position, is a riveting view as to how the abuse of financial derivatives will have untold costs for years to come.

As with any prescription medicine or financial product, the first question a potential buyer/investor needs to ask is whether to trust the ‘doctor.’ Who would knowingly ingest medicines or products if you thought the provider was less than totally ethical? The FT addresses this very point:

The scandal also raises bigger questions about the ethics of the financial industry in relation to complex products. In recent years, most bankers assumed they were allowed to sell anything they wanted to non-retail clients, since it was presumed that “sophisticated” investors would be able to protect their own interests.

However, what has become clear in Italy is that many public sector clients were unable to understand the maths of complex finance risks. This is likely to force investment banks to rethink their definition of “sophisticated” clients; it could also encourage politicians in Europe and elsewhere to clamp down much more aggressively on the entire derivatives trade.

Once again, Caveat Emptor is the order of the day. As the buyers of the products became more ‘hooked,’ the marketing and pricing became that much more aggressive.

The FT highlights this development:

The more complex the deals became the less the local authorities understood them, claim several lawsuits against the banks. Derivatives specialists and some political sources dispute this and say local politicians chose to ignore the risks because of the potential gains. Domenico Siniscalco, then finance minister, warned back in 2004 that local authorities were using derivatives “like hard drugs”.

I do not absolve the users of these hard drugs from their responsibilities and obligations. By the same token, not every distributor of the ‘hard drugs’ is necessarily unethical. Very simply, the risks of the derivatives do not come with sufficient transparency. Additionally, what is plainly obvious is that not only in Italy but literally everywhere around the globe, the pushers and distributors of these ‘hard drugs’ are not properly regulated. Why not?

All too often we see that the regulators are in bed with the pushers.

Who bears the ultimate costs? Society, that is the taxpayers of the towns, cities and states, not only in Italy but in every other country where these hard drugs have established a foothold.

What a world.

Again, a failure of regulation and regulators has caused the City of Milan, other Italian investors, and truly investors everywhere to live and invest by the mantra of CAVEAT EMPTOR.

Navigate accordingly.

LD

The Federal Reserve just released its March statement confirming no change in its monetary policy and little change in economic outlook. A brief overview of the Fed’s statement includes the following:

>> Maintains the Fed Funds range at 0-.25% for an extended period.

>> The quantitative easing program used to purchase $1.25 trillion in mortgage-backed securities and $125 billion in federal agency debt is nearing completion at the end of this month. The Fed will monitor economic conditions and employ policy tools as necessary to promote economic recovery and price stability.

>> Economic activity is generally improving. The overall pace of economic recovery is moderate.

>> Labor market is stabilizing, but employers remain reluctant to add to payrolls.

>> Inflation will likely remain subdued given substantial slack in capacity utilization.

Wall Street continues to receive its free lunch while Main Street struggles along. Same drill different day and thus no big deal? Well, in my opinion, there is a very big deal in this Fed release and a statement from the White House earlier today (highlighted in my post, White House Sees Elevated Unemployment for ‘Extended Period’). So, what’s the big deal? Well, let me tell you.

I believe the White House statement and the Fed release were effectively scripted and coordinated. Utilizing the same two key words, those being ‘extended period’, does not happen by chance.  Those very words are a clear cut indication that the White House and Fed are totally coordinated in terms of economic releases, statements, and ultimately monetary policy.

Why is this such a big deal and an enormously negative deal at that? The Fed is supposed to be independent.

I have not thought that the Fed has been independent for a long time. That said, the appearance of an independent Fed is supposed to be important to markets and investors. I would put the wording of the White House statement released on the same day as a Fed release as a definite indication that the Fed is now held captive by the White House.

Barack just let Uncle Ben know that he has him by the balls.

Go ahead and tell me if you think I’m overdoing it. I’ll respond, however, that from this writer’s perspective our monetary policy and Federal Reserve system were seriously cheapened today.

My recommendation . . . sell the dollar.

LD

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While I ask that question in a self-effacing fashion, I will allow others to pass muster as to whether my commentary deserves attention in Washington. Why do I ask that question now though? I wrote this morning, “What Happened to Focus on Jobs?”:

The ‘talking points’ utilized by those in Washington project that our economy and markets are experiencing cyclical unemployment. I firmly believe they are wrong. Our economy and markets are experiencing structural unemployment.

Now it appears as if the White House ‘talking points’ have changed.

Bloomberg reports Obama Aides See Jobless rate Elevated for Extended Period:

U.S. employers won’t hire enough workers this year to lower the jobless rate much below the level of 9.7 percent reached in February, three Obama administration economic officials said today.

The percent of Americans who can’t find work is likely to “remain elevated for an extended period,” Treasury Secretary Timothy F. Geithner, White House budget director Peter Orszag and Christina Romer, chairman of the Council of Economic Advisers, said in a joint statement. The officials said unemployment may even rise “slightly” over the next few months as discouraged workers start job-hunting again.

“We do not expect further declines in unemployment this year,” the officials said in testimony prepared for the House Appropriations Committee.

I find this statement very interesting on a number of fronts, including:

1. An effective admission by the administration that the economy is experiencing structural unemployment as I highlighted above. Does this admission mean the administration will merely accept this elevated unemployment reality, while focusing on other initiatives, including healthcare, education, cap and trade, and financial regulatory reform?

2. The use of the phrase “extended period” is directly taken from the Federal Reserve in its approach to keeping interest rates low for an “extended period.” Oh, by the way, the Fed is meeting today. In light of the White House statement this morning, I certainly expect the Fed to reiterate that phrase this afternoon.

3. With the expectation that the Federal Reserve will keep the liquidity flowing, Wall Street will celebrate given the cheap funding and easy money from the Fed, but regrettably Main Street’s condition will not benefit in concert.

Jobless recovery? On Wall Street yes, on Main Street, no!! We would be wise not to think there is a connection between these two thoroughfares at this time.

Please tell me if you think differently. What is happening in the job market in your corner of our economic landscape?

LD

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Then why is it that the topic of jobs is not the OVERWHELMING focus in Washington eight days a week? While President Obama elevated the focus on job growth in his State of the Union speech, the topic seems to receive front page coverage only on the first Friday of the month when unemployment statistics are released.

Consistently, CFOs of major corporations in our country state that one of the primary reasons they have not increased staff is due to uncertainty in legislation and regulation coming from Washington.

Our political leaders in Washington along with a number of economists seem to believe that jobs will grow simply because they always grow when a recession recedes. Basic logic does not dictate that premise to be a certainty.

The ‘talking points’ utilized by those in Washington project that our economy and markets are experiencing cyclical unemployment. I firmly believe they are wrong. Our economy and markets are experiencing structural unemployment.

Without a recognition of that fact and then an unwavering emphasis on addressing that reality, CFOs will continue to fluctuate in regard to increasing payrolls. By unwavering, I mean the White House should be consistently beating the drum on this topic while promoting policies and programs that inspire confidence in the CFOs. I see little to none of this happening…and I watch each and every day.

Perhaps we will see some “beating of the drum” on the first Friday of April when the monthly employment statistics are heavily spun, but that drumbeat sounds very shallow.

LD

I find it easy to critique financial journalists and journalism these days for not digging to expose the charades within the Wall Street-Washington incestuous liaisons; however, a few journalists are not beholden to the financial industry, do dig, and truly distinguish themselves in the process. The two finest journalists in this realm both happen to work at Bloomberg. One is Jonathan Weil. The other is Susan Antilla.

While many journalists have written about the finer points of repo financing and how Lehman cooked their books, Susan Antilla took the time to delve deeper into Anton Valukas’ expose on the inner workings of Lehman.

I have the utmost respect for Susan and commend her for this outstanding work, Don’t Bluff Buffett, Plus Other Lehman Lessons:

It’s tough not to conclude that, whoever is at fault, Lehman Brothers got away with scamming investors about its financial state until the New York-based investment bank hobbled into bankruptcy court on Sept. 15, 2008.

How did the firm hide so much for so long? Consider these Top Ten Ways to Pull a Lehman, inspired by bankruptcy examiner Anton R. Valukas’s 2,200-page tome of travesty, released last week:

10. Don’t burden the board of directors with fine points.

Before a presentation to the board on March 20, 2007, the chief administrative officer of Lehman’s Mortgage Capital division e-mailed a colleague to summarize her discussion with Lehman President Joseph Gregory:

“Board is not sophisticated around subprime market — Joe doesn’t want too much detail.” While it would be OK to be candid about risks, the presenters should take care to be “optimistic and constructive.”

9. Know your regulators . . .

At the Securities and Exchange Commission, people were aware of risk excesses but “did not second-guess Lehman’s business decisions” so long as management was aware of what was going on, Valukas wrote. When the less-forgiving Office of Thrift Supervision caught on that Lehman had blown past its risk limits during a review of the company’s 2007 operations, it issued a negative report, citing “major failings in the risk management process.”

8. . . . and use that knowledge when you get the chance.

In 2003 and 2004, when Lehman and other U.S. banks had a choice between letting the U.K.’s Financial Services Authority or the SEC supervise them, they chose the friendly cops in the U.S. Little wonder it would be a court-appointed examiner, not the SEC, that would wind up delivering the authoritative Lehman autopsy.

7. Have a bad memory.

Until Lehman published its 2007 annual report, the firm offered a section called “Other Measures of Risk,” which described its “risk appetite metric.” But, whoops, that section went missing in 2007 and was nowhere to be found in its swan-song first or second quarterly reports in 2008, either.

How come? Valukas spoke with a manager who helped draft one of the reports, plus the chief financial officer and the senior vice president of external reporting. No one remembered why the section was mysteriously zapped.

6. Keep the focus on your bonus.

Lehman businesses that breached their balance-sheet limits faced penalties that “could include the diminution of their compensation pool,” the report says. But hey, no problem. If the balance sheet topped the limits, sometimes Lehman would just raise them. And by early 2008, when declining revenues threatened to eat into compensation, Lehman upped the percentage of net revenues that would go into the compensation kitty, to 52.5 percent from 49.3 percent.

5. Don’t let the risk experts get uppity.

Madelyn Antoncic, Lehman’s chief risk officer from 2004 to 2007, “expressed her opposition to the large increase in the 2007 risk appetite limit and to the firm’s bridge equity and leveraged loan business,” the report says. She was replaced on Dec. 1, 2007.

4. Don’t keep notes.

Lehman’s Risk Committee met on Wednesdays, Antoncic told Valukas. Or was it Mondays, as Kaushik Amin, head of liquid markets, recalled? Mondays, Wednesdays, it’s all the same when there’s no record of it, anyway. Valukas cited David Goldfarb, chief strategy officer, in reporting that “no minutes were kept because it was an active dialogue rather than a decision making meeting.”

3. Break your own rules.

Fuld and Gregory “apparently faced financial difficulties” and wanted to sell their limited partnership interests in employee-only funds. The rules dictated that the partnerships were not redeemable “except on events such as death or severance.”

No worries. On July 17, 2008, “Fuld and Gregory received wire payments of $3,933,929 and $4,614,565, respectively.” The report says the transactions “appear to have been an exception to Lehman’s rule.”

2. Make friends with Warren Buffett . . .

Among Fuld’s efforts to drum up capital to keep the firm afloat was a pitch to Buffett for $2 billion or more. The billionaire was willing to discuss the possibility, talking to Fuld on March 28, 2008, and then spending the rest of the day poring over Lehman’s 10-K.

1. . . . but never, ever, try to bluff him.

Buffett considered Fuld’s carping about short sellers to be “indicative of a failure to admit one’s own problems,” the report says. Fuld also made the mistake of leaving out details of what the report calls “a $100 million problem in Japan” that Buffett learned about on March 29.

Fuld called Buffett on March 31 to say Lehman couldn’t accept his terms. By then, Buffett already had decided he wasn’t interested, according to the report.

So Fuld didn’t know when to keep his mouth shut or when to share important information with Buffett. That is just the way things were in Lehman-land, as this distressing report reveals.

Valukas certainly distinguished himself with his extremely thorough work. Why wasn’t a court examiner appointed to do the same with the SEC and FINRA instead of allowing for a self-directed internal review?

Valukas’ work and Susan’s expose are de facto indictments of the SEC, FINRA, Lehman’s board, Lehman’s management, and Lehman’s compliance for abrogation of duties if not outright corruption. She opens windows which real regulators and examiners should continue to explore. I would think prosecutors could have the makings of a serious RICO (Racketeeer Influenced and Corrupt Organizations Act) case. Will they pursue it? Whether they do or not, we all owe Susan a debt of gratitude for this fabulous piece of work.

Do yourself a favor and make a point of checking Bloomberg for Susan Antilla’s work. Do your friends a favor and have them check as well. Susan is dogged in pursuing and promoting the truth, transparency, and integrity our country so badly needs.

Simply the best!!

LD

Who is sending a warning shot today across our fiscal brow on this most important of topics?

The credit rating firm Moody’s. The New York Times highlights Moody’s warning about our future financial and economic landscape by writing, Credit Agency Warns U.S. and Others of Risk to Top Rating:

Major Western economies have moved “substantially” closer to losing their top-notch credit ratings, with the United States and Britain under the most pressure, Moody’s Investors Service said Monday in a reminder that the global debt crisis is not limited to the small or weak.

The ratings of the Aaa governments — which also include Germany, France, Spain and the Nordic countries — are currently “stable,” Moody’s analysts wrote in the report. But, it added, “their ‘distance-to-downgrade’ has in all cases substantially diminished.”

“Growth alone will not resolve an increasingly complicated debt equation,” Moody’s said. “Preserving debt affordability” — the ratio of interest payments to government revenue — “at levels consistent with Aaa ratings will invariably require fiscal adjustments of a magnitude that, in some cases, will test social cohesion.”

I don’t deny that our government needs to step in and support our economy at this juncture; however, we need to be fully cognizant that both the increased debt and the increased time we are utilizing to address our fiscal problems comes with an ever increasing cost. What is that cost? Higher interest rates to service the debt. Who pays? Future generations.

When will our society demand that we live within our means? When will society hold our politicians to account for wasteful spending? When will our media, charged with exposing the waste and the politicians, actually uphold their task?

Congress has the rating that it warrants, but ultimately the problem is ours. If we as a society do not create the change we need, then we become the nation we deserve.

Is this the best we can do?

LD

What businessman wouldn’t like greater control and influence over the pricing of his goods and services? How are prices determined? In a capitalist system, prices are a function of the competitive forces of supply and demand. What happens when competition dwindles? Pricing power for the suppliers increases. How does competition dwindle? When barriers to entry are so high, or competitors go out of business. This economic reality is also known as an oligopoly and it defines the current state of our financial industry known as Wall Street.

Is Wall Street taking advantage of the lessened competition and flexing its muscle to drive revenue? Is the Pope Catholic?

Bloomberg takes us into the the world of derivatives trading to shed some light on Wall Street’s newly defined oligopolistic (say that six times fast) nature. Bloomberg writes, Goldman Sachs Demands Collateral It Won’t Dish Out:

Goldman Sachs Group Inc. and JPMorgan Chase & Co., two of the biggest traders of over-the- counter derivatives, are exploiting their growing clout in that market to secure cheap funding in addition to billions in revenue from the business.

“If you’re seen as a major player and you have a product that people can’t get elsewhere, you have the negotiating power,” said Richard Lindsey, a former director of market regulation at the U.S. Securities and Exchange Commission who ran the prime brokerage unit at Bear Stearns Cos. from 1999 to 2006. “Goldman and a handful of other banks are the places where people can get over-the-counter products today.”

Do you think the crowds at Goldman and JP Morgan talk to each other to discuss their respective terms? Some may call that collusion. Others may think that is merely reality and “to the victors go the spoils.” Either way, Goldman and JP Morgan are reaping huge benefits and revenues in the process.

How would regulators level the playing field? Transparency. Force Goldman, JP Morgan and every other Wall Street institution to trade derivatives and every other product via a system known as TRACE (a trade reporting system managed by FINRA) so that investors are fully aware of pricing and terms within these markets.

Wall Street will not easily cede that turf, will curry favor with the pols and the regulators via massive lobbying dollars and campaign contributions, and the oligopoly will become further entrenched.

Don’t think for a second that Wall Street firms are not trying to flex these oligopolistic muscles in each and every sector of the market.

Do investors have any options or leverage to counter the Wall Street oligopoly? Yes. Investors can choose not to play Wall Street’s game. Take your business elsewhere. Find deals and products from other financial intermediaries.

I addressed these very realities a week ago in talking about Goldman Sachs on CNBC.

LD

From the top down, and without being overly cynical, I am extremely concerned that this proposed financial regulatory reform is a reshuffling of deck chairs with increased powers for both the Federal Reserve and U.S. Treasury. The very fears I voiced almost a year ago remain entrenched. What is the basis of my fear? The so-called reform is much more focused on the “sufficiency” of regulation of our financial industry and not nearly focused on the “transparency” of the regulation, the regulators, and the regulated.

Call me suspect.

What are the key highlights as reported by Bloomberg?

1. The Federal Reserve will be charged with oversight of the large money-center banks which dominate our financial landscape.  The oversight of the smaller, regional and community banks will move from the Federal Reserve’s regional offices to the Federal Deposit Insurance Commission (FDIC). Put this in the reshuffling of deck chairs.

2. The OTS (Office of Thrift Supervision) and OCC (Office of the Comptroller of the Currency) will merge. This merger is an attempt to eliminate the ability of certain institutions to accomplish what is known as “regulatory arbitrage,” that is, shop around and effectively negotiate for the most optimal regulatory rulings. In my opinion, the overall effectiveness of this move will only be determined by how aggressive the management of the merged regulator is in promoting transparency. Do not think for a second that the merged entity might not be one layer of regulation simply placed upon another. My overall take is to put this component of the proposed reform in the “incomplete” category.

3. The newly proposed Consumer Financial Protection Agency, which will be the new entity to protect the American consumer from the predatory nature of the financial industry, will be housed within . . . the Federal Reserve. NOT GOOD. The Federal Reserve did have oversight of those entities which originated and underwrote predatory mortgages and other predatory consumer loans, so why is this agency and authority remaining under its domain? The Wall Street-Washington incestuous relationship certainly will not be exposed with this development.

2:40pm Senator Dodd just finished presenting his proposed reform. In his comments, he highlighted that this CFPA would be largely independent and that its director would be appointed by the President while it merely ‘rents space’ from the Fed. If this is not a load of crap I do not know what is. To think that the CFPA will be housed within the Fed but will maintain its independence takes naivete to an entirely new level.

4. The U.S. Treasury will head a Systemic Risk Committee charged with overseeing and ultimately unwinding firms as need be and if desired. With this development, Washington will try to sell America on the premise that there are no longer any firms which are “too big to fail.” Don’t believe it. The large banks have only gotten larger and more entrenched as a result of this economic crisis.

I have very mixed feelings about this systemic risk authority. On one hand, if existing regulators charged with monitoring the leverage within the financial system only did their job, this committee would likely not even be necessary. I would only wish that those voting on this aspect of the reform would HAMMER the point home that the SEC and FINRA FAILED in their charge to monitor Wall Street institutions. The failure within those institutions and necessary changes to those institutions are not even broached in the reform.

2:40 pm Perhaps they are in the fine print but they deserve widespread exposure.

I repeat my assertion, how can America accept Financial Regulatory Reform with no mention of changes within the Financial Industry Regulatory Authority? Wall Street owns FINRA. That should change.

5. American investors are thrown a bone in terms of being allowed to vote on “say on pay” within financial institutions and proposing new board members. Long overdue to break the stranglehold current management has held in stacking boards and ultimate control of these firms. Will it be effective? Time will tell, but this is a good development as long as it can be effectively implemented.

6. Where is the transparency across the entire derivatives markets? Where is the Volcker Rule? I would expect Wall Street to throw Washington a few morsels on these key fronts while truly beating the core of these initiatives like a drum.

What is my overall grade of this proposed reform? D

I do not view this proposed reform as truly exposing and changing the deeply entrenched incestuous relationship between Wall Street and Washington, despite what pundits and analysts may say.

What needs to happen? In a word, TRANSPARENCY. Very simple and concise delivery as to the rules of the road so consumers and investors can protect themselves. I honestly do not think that will happen under this proposal.

Many people might say with my critique I am not being cognizant of how Washington operates in passing legislation. I would respond that the Washington process is part of the problem. Where is the media to expose the Wall Street-Washington incest?

How should consumers and investors respond and react? Remain on guard . . . CAVEAT EMPTOR.

What do you think?

LD

Related Sense on Cents Commentary

Future Financial Regulation: Not a Question of Sufficiency, But of Transparency and Integrity; (May 18, 2009)

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