Financial Reform

[NorthSideSox72]

OK, here is where the rubber meets the road. What would YOU do to "fix" the financial system, and help avert future disasters? I'll open with this volley...

 

1. Implement the Volcker Rule (aka modern-day Glass-Steagel). You either manage customer accounts and invest/trade on their behalf, or you (and/or your partnership) bet your own money, but never, ever both. This would have prevented MF Global, Lehman and some other issues.

 

2. Add new segregation account types for OTC derivatives of all types, and for foreign OTC instruments (not just derivatives, but also any other non-exchange-traded instruments) of all types. These accounts would then also be subject to the sophisticated investor rules. This would have prevented Lehman Bros, Bear Stearns and other issues, potentially.

 

3. All statements and balances must be directed to customers directly from the custodian, and be available on-demand from such at any time. This prevents a Madoff scenario, and a bunch of other smaller frauds over recent years, because it disallows investment companies from fabricating financials on customer balances and positions.

 

4. Futures seg rules go back to being exclusively for US treasuries, cash and cash-in-lieu. This would also have prevented the MF Global nightmare, potentially.

 

5. SEC and CFTC become one, single federal agency overseeing ALL investment vehicles in the US, for US customers and in US investments. All exchange and clearing house regulators become subject to those rules at a minimum. That new agency reduces management overhead, and needs to invest much more heavily in monitoring technology. These changes could help prevent or better react to the Flash Crash and the like. It also, ultimately, will cut down significantly on the costs associated with compliance for financial firms.

 

 

That's a good start. Go...

 

[cabiness42]

I think this sums up the financial mess:

 

I have a BS and MS in math, both from Top 50 universities, and I don't understand a damn thing you just wrote. So I'm guessing that well over 99% of Americans don't understand either.

 

Assuming that everything you said is 100% correct, how do you convince the average American voter that it is more important to elect people who will implement these solutions than to elect people who will support/oppose abortion, raising taxes on the rich, gay marriage, cut wasteful spending, etc.

[southsider2k5]

OK, here is where the rubber meets the road. What would YOU do to "fix" the financial system, and help avert future disasters? I'll open with this volley...

 

1. Implement the Volcker Rule (aka modern-day Glass-Steagel). You either manage customer accounts and invest/trade on their behalf, or you (and/or your partnership) bet your own money, but never, ever both. This would have prevented MF Global, Lehman and some other issues.

 

2. Add new segregation account types for OTC derivatives of all types, and for foreign OTC instruments (not just derivatives, but also any other non-exchange-traded instruments) of all types. These accounts would then also be subject to the sophisticated investor rules. This would have prevented Lehman Bros, Bear Stearns and other issues, potentially.

 

3. All statements and balances must be directed to customers directly from the custodian, and be available on-demand from such at any time. This prevents a Madoff scenario, and a bunch of other smaller frauds over recent years, because it disallows investment companies from fabricating financials on customer balances and positions.

 

4. Futures seg rules go back to being exclusively for US treasuries, cash and cash-in-lieu. This would also have prevented the MF Global nightmare, potentially.

 

5. SEC and CFTC become one, single federal agency overseeing ALL investment vehicles in the US, for US customers and in US investments. All exchange and clearing house regulators become subject to those rules at a minimum. That new agency reduces management overhead, and needs to invest much more heavily in monitoring technology. These changes could help prevent or better react to the Flash Crash and the like. It also, ultimately, will cut down significantly on the costs associated with compliance for financial firms.

 

 

That's a good start. Go...

 

I don't know about futures, but I know with stock, exchanges are subject to SEC rules and investigations and examinations.

 

[Texsox]

I think this sums up the financial mess:

 

I have BAs in Psychology and English, both from a Top 5* university, and I don't understand a damn thing you just wrote. So I'm guessing that well over 99% of Americans don't understand either.

 

Assuming that everything you said is 100% correct, how do you convince the average American voter that it is more important to elect people who will implement these solutions than to elect people who will support/oppose abortion, raising taxes on the rich, gay marriage, cut wasteful spending, etc.

 

Also assuming that the very people we elect to lead in this area make considerable fortunes in the current system.

 

 

*For Hispanics

[southsider2k5]

I think this sums up the financial mess:

 

I have a BS and MS in math, both from Top 50 universities, and I don't understand a damn thing you just wrote. So I'm guessing that well over 99% of Americans don't understand either.

 

Assuming that everything you said is 100% correct, how do you convince the average American voter that it is more important to elect people who will implement these solutions than to elect people who will support/oppose abortion, raising taxes on the rich, gay marriage, cut wasteful spending, etc.

 

 

I think this sums up the financial mess:

 

I have BAs in Psychology and English, both from a Top 5* university, and I don't understand a damn thing you just wrote. So I'm guessing that well over 99% of Americans don't understand either.

 

Assuming that everything you said is 100% correct, how do you convince the average American voter that it is more important to elect people who will implement these solutions than to elect people who will support/oppose abortion, raising taxes on the rich, gay marriage, cut wasteful spending, etc.

 

Also assuming that the very people we elect to lead in this area make considerable fortunes in the current system.

 

 

*For Hispanics

 

The funny thing is that there are plenty of people who are just HS grads who understand it completely. It isn't a matter of education, it is the right education.

[Texsox]

The funny thing is that there are plenty of people who are just HS grads who understand it completely. It isn't a matter of education, it is the right education.

And I believe it is fair that investors who are interested should expel some effort to learn. I have just "trusted the system".

[kapkomet]

And I believe it is fair that investors who are interested should expel some effort to learn. I have just "trusted the system".

 

 

Hmm. I'm not sure I agree with Mr. Southsider here. I think most people really don't understand the underpinnings of the American financial system. Maybe I'm naive.

[StrangeSox]

Hmm. I'm not sure I agree with Mr. Southsider here. I think most people really don't understand the underpinnings of the American financial system. Maybe I'm naive.

 

Did anyone really understand all of the mortgage-backed securities?

[Texsox]

Hmm. I'm not sure I agree with Mr. Southsider here. I think most people really don't understand the underpinnings of the American financial system. Maybe I'm naive.

 

I believe what he is saying that with specific education, even a HS grad can understand the system. It just takes specialized training. I can agree with that.

 

[VictoryMC98]

Hmm. I'm not sure I agree with Mr. Southsider here. I think most people really don't understand the underpinnings of the American financial system. Maybe I'm naive.

 

Outside of Wall Street, no one knows the smoke and mirrors that is the Financial System. Reinstate Glass-Stegal, problem solved.

[VictoryMC98]

I believe what he is saying that with specific education, even a HS grad can understand the system. It just takes specialized training. I can agree with that.

 

So a HS grad can understand complex Derivatives?

[southsider2k5]

So a HS grad can understand complex Derivatives?

 

And make millions doing it.

 

[Balta1701]

And make millions doing it.

Thanks to trillions from uncle Sam.

[max power]

I don't think a college degree gives a man or woman super brain powers so I find some of the comments here a bit odd. I am a hs graduate. I do understand tex, and agree with that his proposals are a good start.At one time I've traded forex, options, futures, equities, and spot metals and I've been profitible overall, especially this year. I am extremely intelligent and apt in math and science but trading for a living, with my own dime, has always been my career goal. There are many financial events that occur in which I do not fully understand without doing some research. I might spend more time delving into the workings of our financial markets structure but I don't see it making me much more money. You don't have to understand every little detail about a financial event when its the markets perception of the event that is important.

[southsider2k5]

Thanks to trillions from uncle Sam.

 

yawn.

[max power]

Thanks to trillions from uncle Sam.

What? Care to explain?

[Texsox]

There are probably two or three college classes that would help someone understand the material, most classes would not. So I can believe SS's comment. Hell, I'd probably take it one step further and believe that some HS dropouts could understand. Just like most of us understand the stuff that comes with our jobs. Work at it 40 hours a week for a few months or years and I'll bet you have a pretty solid understanding.

[cabiness42]

So does everybody just want to comment on my comment, or can anybody actually answer my question?

[Balta1701]

What? Care to explain?

After 2008, the entire financial sector would have ceased to exist had the government not stepped in with several trillion dollars to keep the institutions currently on Wall Street in existence. Doing so was the right move, but a side effect of this move was the government's failure (by choice) to do anything about the entrenched group of people on Wall Street who caused the mess in the first place.

[NorthSideSox72]

I think this sums up the financial mess:

 

I have a BS and MS in math, both from Top 50 universities, and I don't understand a damn thing you just wrote. So I'm guessing that well over 99% of Americans don't understand either.

 

Assuming that everything you said is 100% correct, how do you convince the average American voter that it is more important to elect people who will implement these solutions than to elect people who will support/oppose abortion, raising taxes on the rich, gay marriage, cut wasteful spending, etc.

This is an excellent point. You are right that it would be hard to explain to the voting public how these things work, why thwy would work, and why they would want them to work. I'll take a stab at each point, and try to frame it in a way that might make more sense to that crowd...

 

1. When you invest your money with a bank or brokerage, how safe is it? Of course there is always the chance your mutual funds, stocks, 401k's or the like can lose money if the market goes down. But what if I told you that, in some cases, your money in that account can be used by banks to make bets for themselves? What if those banks have special business units to take risky bets for their own benefit, and they have your money? Plain and simple, the best way to be safe is to keep the wolves out of the hen house. Your brokerage account should not be exposed to the risks taken by sophisticated investors which you have no control over. Implementing the Volcker Rule means that those private and proprietary trading and investment units not be part of your bank, your brokerage, or your credit union.

 

2. Do you want your money being used for foreign securities that you don't choose to invest in? How about over-the-counter derivatives? You should have a choice as to whether or not your money can be used this way. If you have a brokerage account in the US - for mutual funds, stocks, bonds, or any other equities - you should not have to worry that your money is being sent overseas (unless you choose for that to be the case), or being used on risky, uncleared instruments. OTC derivatives and foreign securities should be restricted to accounts that specifically authorize that use.

 

3. Bernie Madoff was able to perpetuate his fraud by sending out fraudulent statements to his clients. Since Madoff was not a bank, the actual money and securities his clients had were held at a real bank - the custodian - for safe keeping. That bank is the holder of the real information about what the account has in it. Therefore, you should always get a statement directly from the custodian, and be able to request such a statement at any time. This will help prevent another Bernie moment.

 

4. Dear futures traders... do you want your futures cash held in non-US debt? Didn't think so.

 

5. This one is easy... why do we have multiple government agencies and multiple clearing house and multiple exchange regulators, overlapping and leaving gaps and adding layers of inefficiency? Why is it necessary to create communication gaps and gaping holes in regulation? Why are we wasting both business and taxpayor dollars on inefficient process? In order to cut down overhead, promote more efficient technology, improve communications, close regulatory gaps and reduce compliance costs for business, there should be one, single US agency responsible for overseeing the financial markets.

 

 

How's that?

 

 

[southsider2k5]

There are probably two or three college classes that would help someone understand the material, most classes would not. So I can believe SS's comment. Hell, I'd probably take it one step further and believe that some HS dropouts could understand. Just like most of us understand the stuff that comes with our jobs. Work at it 40 hours a week for a few months or years and I'll bet you have a pretty solid understanding.

 

I knew more than a few kids who were nothing more than HS grads who went straight to work as a clerk for different traders, or even starting out as a runner before working up to a clerk, before they became traders.

[southsider2k5]

I think this sums up the financial mess:

 

I have a BS and MS in math, both from Top 50 universities, and I don't understand a damn thing you just wrote. So I'm guessing that well over 99% of Americans don't understand either.

 

Assuming that everything you said is 100% correct, how do you convince the average American voter that it is more important to elect people who will implement these solutions than to elect people who will support/oppose abortion, raising taxes on the rich, gay marriage, cut wasteful spending, etc.

 

I am one of the few people in this country who votes on economic issues vs social ones. I still have no idea how to convince people that these issues need to be addressed more than some of the other stupid stuff we focus on. Instead the closest we get to a real economic debate is $10,000 bets.

[southsider2k5]

This is an excellent point. You are right that it would be hard to explain to the voting public how these things work, why thwy would work, and why they would want them to work. I'll take a stab at each point, and try to frame it in a way that might make more sense to that crowd...

 

1. When you invest your money with a bank or brokerage, how safe is it? Of course there is always the chance your mutual funds, stocks, 401k's or the like can lose money if the market goes down. But what if I told you that, in some cases, your money in that account can be used by banks to make bets for themselves? What if those banks have special business units to take risky bets for their own benefit, and they have your money? Plain and simple, the best way to be safe is to keep the wolves out of the hen house. Your brokerage account should not be exposed to the risks taken by sophisticated investors which you have no control over. Implementing the Volcker Rule means that those private and proprietary trading and investment units not be part of your bank, your brokerage, or your credit union.

 

2. Do you want your money being used for foreign securities that you don't choose to invest in? How about over-the-counter derivatives? You should have a choice as to whether or not your money can be used this way. If you have a brokerage account in the US - for mutual funds, stocks, bonds, or any other equities - you should not have to worry that your money is being sent overseas (unless you choose for that to be the case), or being used on risky, uncleared instruments. OTC derivatives and foreign securities should be restricted to accounts that specifically authorize that use.

 

3. Bernie Madoff was able to perpetuate his fraud by sending out fraudulent statements to his clients. Since Madoff was not a bank, the actual money and securities his clients had were held at a real bank - the custodian - for safe keeping. That bank is the holder of the real information about what the account has in it. Therefore, you should always get a statement directly from the custodian, and be able to request such a statement at any time. This will help prevent another Bernie moment.

 

4. Dear futures traders... do you want your futures cash held in non-US debt? Didn't think so.

 

5. This one is easy... why do we have multiple government agencies and multiple clearing house and multiple exchange regulators, overlapping and leaving gaps and adding layers of inefficiency? Why is it necessary to create communication gaps and gaping holes in regulation? Why are we wasting both business and taxpayor dollars on inefficient process? In order to cut down overhead, promote more efficient technology, improve communications, close regulatory gaps and reduce compliance costs for business, there should be one, single US agency responsible for overseeing the financial markets.

 

 

How's that?

 

Preach on reverend.

[Cknolls]

How refreshing would it be for Corzine to actually admit that the client funds will never be "found" because they no longer exist. They were used to meet margin calls on the rehypothecated assets. But to sit up there and say, "I do not know where the customer's funds are" is a flat out lie. I call bulls*** Corzine you scumbag.

[VictoryMC98]

After 2008, the entire financial sector would have ceased to exist had the government not stepped in with several trillion dollars to keep the institutions currently on Wall Street in existence. Doing so was the right move, but a side effect of this move was the government's failure (by choice) to do anything about the entrenched group of people on Wall Street who caused the mess in the first place.

 

After the Known TARP of 700 Billion, and the behind the scenes of roughly 9.5 trillion given by the Fed under the table.... I can see how, you know a person with a HS diploma would be able to understand something the "experts" on Wall Street, couldn't figure out, which caused 2008 collapse.

 

And nothing is going to change... Unless (raising stick) we deal with campaign finance reform. Root cause of all of the countries problems.

 

The Banks took chances because they knew GOV would bail them out. They had history on their side, under Reagan and deregulation the S&L bailout was needed. And handed out, with the GOV telling us.. that it would never happen again.

 

Plus, well the Banks funnel money into the coffers of both parties, and campaigns are expensive to run. And someone needs to foot the bill.

Edited December 14, 2011 by VictoryMC98