US Finance Bill Lacks Power to Curb Wall Street

20 Jul 2010

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In Washington, the Securities Exchange Commission (SEC) has made a deal with broker-dealer, Goldman Sachs, who will pay a fine of US$550 million to settle a fraud charge brought against the firm. The SEC brought charges against Goldman for secretly betting against its own clients in the US housing crash of 2008. Goldman entered into the settlement without admitting or denying the SEC’s allegations.

Paul Jay of the Real News Network talks to Gerald Epstein, professor of economics and co-director of the PERI Institute to get his reaction on the settlement and its implications for the implementation of the recently introduced US Financial Reform Bill.

The deal between the SEC and Goldman Sachs was a really good deal for Goldman, but really bad for the American people, says Epstein. US$550 million, which sounds like a lot of money is just 14 days of profit for Goldman Sachs, or as some people argue, just what they make in overnight trading.

Also, there were no criminal charges brought against Goldman Sachs.

This bodes very poorly for the implementation of the new US Financial Reform Bill that was just passed by the American Congress and is going to be signed into law by President Barack Obama next week.

The biggest challenge for real financial reform is that much of the new bill depends on regulation and not on structural change.

According to Epstein, the financial reform bill has established a set of arenas, almost like the World Cup, where 10-12 different contests are going to take place. The bankers and reformers will each fill their teams. Unfortunately, the bankers are going to have 11 players on their team, while the reformers will only have a goalie on the team with his hands tied behind his back.

Epstein refers to the "too big to fail" concept as structural blackmail, which allows banks to behave recklessly and get bailed out by governments/tax payers.

The new bill is supposed to address this problem, but Epstein contends that it won't.

All the bill does is to set up a council of regulators whose task it will be to look out for problems of excessive risk taking and tackle them with a set of tools. Epstein argues that these tools are weak as they are not clearly defined and will only be determined over the next 10-12 years, so they are completely inadequate to the task.

Moreover, many of the provisions that would have prevented the banks from being able to gamble with taxpayer guaranteed money were limited in the final draft of the bill.

Banks still have access to government bailouts, and in the final analysis, 85% of the kind of speculative trading that caused the financial crash of 2008, can still take place under the provisions of the new financial reform bill.

You can find this page online at http://sacsis.org.za/site/article/254.19.

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