Reining In Leverage

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Mike Konczal, after noting that U.S. officials are trying to weaken European proposals for tougher capital requirements, explains how Susan Collins’ Senate amendment to tighten up capital requirements would work:

No more capital loopholes! No more playing BS games where a firm creates a trust and does financial engineering alchemy to pretend that debt is equity. Serious, quality capital is required for our largest and most systemically risky banks.

This is probably the real fight. When it comes to increasing capital under the Dodd Bill you can practically hear the banks say: “Yes we’ll hold more capital as long as massive amount of risky debt turned into ‘safe’ equity through the shenanigans of our financial engineers can count as that capital.” Do we need to do that all over again?

Enough people think these points are implied in Section II of the bill, but the ability to have discretion on this point is something the regulators are fighting tooth and nail over. And here’s something fascinating: for all the talk about how Basel III and “international agreements” will fix our bank capital problems, the US is fighting this over there too. Check out the bold above; having serious quality capital for our banks is a major disagreement between the US and the Europeans, with the US wanting weaker requirements, and if their hands are tied here then they’ll be tied over there where they could possibly win this.

There’s no way to get around the fact that regulators need a fair amount of discretion no matter what kind of rules you set up. That’s just the nature of a highly complex, fast moving area like high finance. But we can set reasonable floors, and when both Treasury and the banks are fighting those floors tooth and nail it doesn’t bode well for how seriously they take this stuff.

The CFPA is great. Resolution authority is great. Clearing derivatives trades is great. But if we pass financial reform without addressing financial system leverage in any kind of serious way, we’ve wasted our time. Keeping Collins’ amendment intact ought to be a key goal for the progressive community — or, for that matter, for any community that cares about creating a sane banking system. Read Mike’s post for more.

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Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

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Truth #5: It's about minority rule.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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