Speculating Banks Still Rule -- Ten Ways Dems and Dodd Are Failing on Financial Reform

[Jefferson23]

By Nomi Prins

None of this is reform. We are better off with nada than vapid promises and a false sense of security.
April 14, 2010 |

As we wind up for another dramatic bipartisan squabble over all the crap Wall Street flung at us, things are getting back to normal – for the wealthy. The top 25 hedge fund managers made a record $25.3 billion dollars in 2009. And despite all those dramatic congressional hearings, average compensation of Wall Street bankers rose by 27 percent in 2009. Meanwhile, banks are hiding their debt with the same old balance sheet magic they've been deploying for years and posting record new trading revenues—putting the economy at risk while creating no perceptible economic benefits.

On the other side of humanity, more sobering numbers include a record 2.8 million properties in foreclosure for 2009, a 21 percent increase over 2008's astonishingly high figure, with another 4.5 million foreclosures projected for 2010. Federal mortgage modification plans have not stemmed this tide, because lenders aren't required to particiapte; and lenders, in the words of Herman Melville's Bartleby, "would prefer not to" renegotiate a mortgage for which they'd then have to book a loss. As foreclosures continued to climb, so did bankruptcies, rising 35 percent in 2009 over 2008 levels.

Banks -- shockingly -- aren't helping. They posted their lowest lending rates since 1942; despite all the subsidies and cheap money they received from, well, us, including exceedingly low Federal Reserve loan rates (zero to 0.25 percent interest).

That brings us to Bubble Lesson 101, Greenspan and Bernanke edition:

Cheap Money + Intensified Trading = Disaster Waiting to Happen.

Banks are incentivized not to lend. When the Emergency Economic Stabilization Act (which included TARP) was passed in October 2008, it included some fine print allowing the Fed to pay banks interest on reserves (money, or capital, banks are obligated to park with the Fed to back their businesses), and on extra reserves (money they aren't obligated to park). In September 2008, the top banks were required to keep $43 billion dollars in reserve at the Fed, and placed $59 billion in extra reserves. Today, banks are required to keep $63 billion in reserves, but parked an extra $1.2 trillion at the Fed.

Meanwhile, banks are using other federal funds to bolster speculative operations.

remainder here: http://www.alternet.org/economy/146428/speculating_banks_still_rule_--_ten_ways_dems_and_dodd_are_failing_on_financial_reform?page=entire