June 23, 2009
From CNBC’s “Bullish on Books” blog, here’s John Talbott’s response to Obama’s financial reform plan: the ten reforms that we really need to end this financial crisis, and to prevent the criminal activity that caused the crisis in the first place:
- Clear restrictions need to be placed on commercial banks to prevent them from directly influencing or controlling Fed policy.
- FDIC-insured banks need to be highly regulated with regard to size, leverage, risk of assets (derivatives), and risk of business mix (Glass Steagall.)
- Banks should not be allowed to contribute money or otherwise lobby the government on issues related to broad financial reform: otherwise, no one can expect regulations to improve.
- The credit-default swap market must be closed: not because it’s poorly run, but because trading default risk makes companies too interconnected to fail, thus violating everything that capitalism is about.
- The hedge fund industry must be closed: its manipulation of markets and its reliance on insider trading makes markets both overly risky and unfair.
- Don’t reform rating agencies, eliminate them. No one in his or her right mind will believe in a 20 rating agency or buy pools of undecipherable assets from one ever again.
- Discourage over-diversification among investors: investors now hold too many asset types in too many countries for any one investor ever to evaluate or monitor.
- Require boards to be completely elected by shareholders through cumulative voting. No company insiders, including the CEO, should be allowed on the board.
- Eliminate complex financial products altogether. All mortgages should be thirty-year fixed-rate deals with down payments of at least 15%.
- Require complete transparency. 100% of a company’s positions should be disclosed on the Internet, and all losses should be fully and immediately recognized.
Sound good to you? If so, take a look at John Talbott’s account of the crisis itself—and of the strong measures that may be needed to escape it—in The 86 Biggest Lies on Wall Street.