NO ADVERTISING, GOVERNMENT OR CORPORATE FUNDING

  • Latest News
  • Pitch a Story
  • Work with a Journalist
  • Join the Blog Squad
  • Afghanistan
  • Africa
  • Asia
  • Baltimore
  • Canada
  • Egypt
  • Europe
  • Latin America
  • Middle East
  • Russia
  • Economy
  • Environment
  • Health Care
  • Military
  • Occupy
  • Organize This
  • Reality Asserts Itself
  • US Politics
  • Is Effective Financial Regulation Possible?


    Gerald Epstein: Powerful lobbying by finance sector keeps turning regulations into Swiss cheese; there is an alternative if people fight for it -   January 16, 2013
    Members don't see ads. If you are a member, and you're seeing this appeal, click here


    Audio

      Share to Twitter
    Share to Facebook



    Thanks for providing such a reliable news website - Shakur K
    Log in and tell us why you support TRNN

    Bio

    Gerald Epstein is codirector of the Political Economy Research Institute (PERI) and Professor of Economics. He received his Ph.D. in economics from Princeton University. He has published widely on a variety of progressive economic policy issues, especially in the areas of central banking and international finance, and is the editor or co-editor of six volumes.

    Transcript

    Is Effective Financial Regulation Possible?PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore. And welcome to this week's edition of the PERI report from Amherst, Massachusetts. And now joining us from Amherst is Gerald Epstein.

    Gerry's codirector of the Political Economy Research Institute in Amherst. He's a professor of economics there. And he's published widely on a variety of economic issues, including central banking and international finance.

    Thanks for joining us again, Gerry.

    GERALD EPSTEIN, CODIRECTOR, PERI: Thanks, Paul.

    JAY: So what have you been following this week?

    EPSTEIN: Well, I've been following the continual swiss-cheesing of the financial regulation game here. As you know, after the financial crisis, all the financial regulators said, we're going to put up really strong regulations, tough enforcement, so that this doesn't happen again, so the banks don't fail and the taxpayers are left on the hook.

    Well, this was six years ago when the financial crisis really started hitting, four years and a half since Lehman Brothers, and since that time there's just been one delay and problem after another. So this week we're looking at the so-called liquidity coverage ratio, which is a regulation to make the banks hold on to enough liquidity, enough cash, enough safe assets, so that if there's a run on the bank, they can sell those, get cash, and pay off depositors. This was the idea, so that banks don't go bankrupt and come after the taxpayers.

    Well, what happened was the biggest banks lobbied very hard against tough regulations here and in Europe, and the Basel Committee last week came out with the liquidity coverage ratio regulations that were a total gift to the banking industry.

    JAY: So what's next on this? I mean, is this then a done deal, that there won't be the tougher regulation?

    EPSTEIN: Well, what they're going to do is—well, we know it's a big gift to the banking industry, because JPMorgan's bank stock immediately shot up about 6 percent. The European banks' stocks rose even more. What they did was instead of making the banks hold a lot of liquidity in really safe assets, they reduced the amount of liquidity that they're making the banks hold, and they're letting them count things like mortgage-backed securities, all kinds of securitized assets, triple-B rated securities, and count that as safe liquid assets. So it's really just a kind of a charade.

    Similar things are happening in other realms of financial regulation. So, for example, there was a rule to make the banks push out their derivatives trading from the core banks and push them into subsidiaries that would be easier to let them just go bankrupt and taxpayers wouldn't have to bail them out. The banks fought hard against this rule. But the government had kept this rule against subsidiaries of foreign banks. Now the foreign banks are fighting hard to exempt themselves.

    Something is similar happening with the Volcker Rule. The Volcker Rule was supposed to have been written and implemented by now. It's being delayed another several months at least.

    So this is just going on and on and on.

    JAY: So we're once again dealing with a situation where finance is simply so powerful you can't regulate it. I mean, every attempt to do this seems to wind up with sort of something kind of superficial that they can say, oh, we did it, but in substance it's not very serious. Is that not right?

    EPSTEIN: That's correct. I think a lot of us were hoping—and, it turns out, incorrectly—that you could really put in some effective regulation that would be enforced. But what it's now looking like is that that's simply not going to be possible.

    So I think the only solution, really, is a more extreme solution of actually breaking up the banks, making them be much smaller, so that as they continue to get into trouble and make their risky bets, we won't have to bail them out. And the fact of the matter is, most of the large banks really are not doing much that's contributing to real investment, to job creation. There wouldn't really be that much lost if the financial sector shrunk substantially and if we broke up the banks.

    JAY: That's even tougher to pass, isn't it, than passing regulation.

    EPSTEIN: It would be tougher to pass, but it's a clearer line. And I think rather than fighting in so much detail over every aspect of every rule, which is what we have been doing—and I think it was worth the fight, but rather than doing that, it's better to have a very clear line about breaking up the banks and pushing on that.

    JAY: And what about—I mean, I'm not saying it'd be any easier to pass, but a proper public bank, so that, you know, whether they're big or small, let private banks go off and speculate if they want to, but have some alternative to that private banking system?

    EPSTEIN: That's right. And as part of a reinvestment program, which the United States and European countries are going to eventually have to move toward, we will have to see much more public banking, development banking and so forth. And that can be part of an infrastructure bank, more policies to create smaller cooperative banks. That has to be the flipside of this coin.

    JAY: Now, the thing is, even for the interests of the non-finance sector of the economy, you know, people involved in industry and retail and all the rest, I mean, you know, without some kind of regulation, there's simply no reason why there wouldn't be another crash as there was in '08. Aren't they concerned?

    EPSTEIN: Well, this has been the ongoing puzzle of the whole political dynamic since the crisis started, which is why the nonfinancial firms have been so passive in this whole financial regulations fight.

    Part of the answer, I think, is that a lot of at least the large financial firms have themselves become financialized, that is, that they make a lot of their profits from financial activities. And particularly, the high pay of their CEOs is tied to stock options and the financial speculation. So until that changes, you're not going to see a lot of the large non-financial corporations supporting strong financial regulation.

    It's the medium-size and smaller-size firms, I think, that have to find a political vehicle for opposing the large banks. But the party system here in the U.S. between the Democrats and the Republicans is so divided right now, I think the political vehicle for them isn't clear at the moment.

    JAY: Divided, but also both parties so beholden to the finance sector.

    EPSTEIN: That's right. That's correct.

    JAY: Yeah. Alright. Thanks very much for joining us, Gerry.

    EPSTEIN: Thank you.

    JAY: And thank you for joining us on The Real News Network.

    End

    DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


    Comments

    Our automatic spam filter blocks comments with multiple links and multiple users using the same IP address. Please make thoughtful comments with minimal links using only one user name. If you think your comment has been mistakenly removed please email us at contact@therealnews.com

    Comments


    Latest Stories


    Obama Unveils Immigration Plan, But What Will It Change?
    TRNN Replay: Immigration Reform Requires Dismantling NAFTA and Respecting Migrants' Rights
    TRNN Replay: Why Do Mexican Workers Head North?
    TRNN Replay: Do Undocumented Workers Take Jobs and Lower Wages?
    Study Finds Racial Profiling Persists in Toronto Despite Ban
    G-20 Recommits to Lifting Private Sector Activity
    Who Is In Charge of Development: The Elite or the Majorities? (1/2)
    Swedish Court of Appeals Rule to Continue the Detention of Julian Assange
    TRNN Replay: Do Undocumented Workers Take Jobs and Lower Wages?
    TRNN Replay: Founding SNCC and Taking on Mississippi - Bob Moses on Reality Asserts Itself (4/9)
    The Power to Create Money in the Hands of the Banks
    TRNN Replay: The Respectable Face of Terror - Robert Moses on Reality Asserts Itself (3/9)
    Animal Agriculture: A Neglected Agent of Global Warming?
    Despite Senate Vote on Keystone XL, Tar Sands Oil Will Still Reach the Gulf
    Seattle Begins Police Reforms in Wake of Federal Civil Rights Investigation
    TRNN Replay: Bob Moses on Reality Asserts Itself (2/9)
    All Eyes on Ferguson as Gov. Nixon Declares State of Emergency Ahead of Grand Jury Decision
    The Life and Times of Emory Douglas, Minister of Culture in the Black Panther Party (2/3)
    G20 Summit Failed to Seriously Address Global Problems
    TRNN Replay: Glen Ford on Reality Asserts Itself
    Who is Behind the Ousting of President Compaore in Burkina Faso?
    Investigation Uncovers "Culture of Impunity" for Chicago Police Department
    TRNN Replay: Bob Moses on Reality Asserts Itself
    RAP NEWS 29: The G20 with Tony Abbott - Feat. Senator Scott Ludlam
    Critics Say DC's 'Model' Police Review Board Can't Stop Abuses
    $4.3 Billion Fine for Fraud in Exchange Market Manipulations is Pittance for Major Banks
    Obama Administration Leaves Door Wide Open for Torture to Occur Again
    TRNN Replay: "I am a real pessimist about politics in America" - Ed Herman, Co-author of "Manufacturing Consent"
    US-China Climate Accord is Neither "Historic" nor a "Landmark"
    How Deep is the Rot on Wall Street?

    RealNewsNetwork.com, Real News Network, Real News, Real News For Real People, IWT are trademarks and service marks of IWT.TV inc. "The Real News" is the flagship show of IWT and Real News Network.

    All original content on this site is copyright of The Real News Network.  Click here for more

    Problems with this site? Please let us know

    Linux VPS Hosting by Star Dot Hosting