Andy Kroll

Andy Kroll

Senior Reporter

Andy Kroll is Mother Jones' Dark Money reporter. He is based in the DC bureau. His work has also appeared at the Wall Street Journal, the Detroit News, the Guardian, the American Prospect, and TomDispatch.com, where he's an associate editor. Email him at akroll (at) motherjones (dot) com. He tweets at @AndrewKroll.

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Obama Defends Risky Trading Ban

| Wed Mar. 3, 2010 5:26 PM EST

President Obama looks ready to fight to ensure the survival of his plan to ban risky trading within the same walls as taxpayer-backed US banks, according to draft language from the administration obtained by Reuters today. Obama's proposal would also place limits on the same kinds of trading at other big non-bank institutions, like Goldman Sachs. This new proposal, which will reportedly be sent to lawmakers today, reinforces a tough stance the president took back in January when, standing alongside former Federal Reserve chair Paul Volcker, for whom the idea is named, he called for new safeguards preventing federally-insured banks that take deposits from essentially gambling in venutres like hedge funds and private equity funds.

The proposal for non-banks would involve a cap on their risky trading levels and subjecting them to more enhanced regulation—the latter a proposal sure to irk the financial-services community. According to Reuters, the draft says, "These proposals are part of a comprehensive package of reforms to create a safer, more resilient financial system."

It's unclear right now how much of the Volcker proposals will make it into draft legislation now being hammered out in the Senate banking committee, led by Sen. Chris Dodd (D-Conn.), the committee's chairman. Earlier this year, Dodd had lightly criticized the Obama administration for rolling out the proprietary-trading ban, saying the president's proposal "seemed to many to be transparently political." The banking committee is expected to release its financial-reform framework as early as this week. The Volcker Rule has also been downplayed by experts, like former IMF chief economist Simon Johnson, who say a firewall between proprietary trading and more boring banking activities wouldn't get at the root of the problem:

For one thing, proprietary trading is but a small part of what these banks do. For most of the major banks, such activity accounts for less than 5 percent of total revenue—even at Goldman Sachs, which is, in some senses, the largest hedge fund in the world (backed by the US government through its access to the Fed’s discount window), proprietary trading accounts for only around 10 percent of total revenue on average. Even if we could strip this activity from the banks, it would reduce their size only slightly—and the too-big-to-fail banks would find ways to take similar-sized risks because their upside during a boom would still be big, and their downside in a bust would dramatically damage the economy, thereby forcing the government into some sort of rescue.

I'd recommend reading more of Johnson's take on the Volcker plans here. And hearing what Johnson has to say, Obama's continued backing for Volcker's idea looks even more political. We'll have to wait and see whether the Senate banking committee takes a cue from Obama or makes up its own mind on the issue.

Barney Frank Will Fight Fed Agency

| Wed Mar. 3, 2010 12:03 PM EST

Rep. Barney Frank (D-Mass.), chairman of the influential House financial services committee, says he'll continue to fight for an independent consumer-protection agency as part of this year's comprehensive financial-reform legislation, and that he opposes housing a consumer agency within the Federal Reserve, a plan that recently emerged from the Senate's ongoing negotiations. "My main objection to housing this critical function in the Federal Reserve has been the central bank's historical failure to implement consumer protection as a central part of its mission and role," Frank said in a statement today.

The Massachusetts congressman recently told Mother Jones that an independent consumer-protection agency was a "dealbreaker" for him. He also said an earlier plan leaked out of the Senate—where the banking committee's chair, Sen. Chris Dodd (D-Conn.), is leading the talks—to put a consumer agency within the Treasury Department was "weaker than I was hoping." Frank told Mother Jones recently that he'd rather see Senate Democrats push for a stronger financial-reform bill, and let Senate Republicans try to vote down that bill in public, rather than make early compromises in closed-door meetings.

Here's Frank's statement in full from this morning, which he issued to clarify comments in today's New York Times:

I do not support housing the Consumer Financial Protection Agency in the Federal Reserve. I continue to vigorously support the House-passed bill that establishes an independent agency with strong rule-writing authority and enforcement powers to implement consumer protections. I could, if necessary, support housing this important function in the Treasury Department, provided that the entity has sufficient independence and broad regulatory scope to accomplish the mission of protecting consumers.

My main objection to housing this critical function in the Federal Reserve has been the central bank’s historical failure to implement consumer protection as a central part of its mission and role.

Quote of the Day: Fed or Zoo?

| Wed Mar. 3, 2010 11:17 AM EST

In today's New York Times, John Taylor, president and CEO of the National Community Reinvestment Coalition, blasts the latest iteration of a consumer-protection agency to emerge from the Senate banking committee's closed-door financial-reform negotiations—namely, a consumer agency housed within the Fed. A vocal critic of the Fed for its failure to police banks under its purview and for its utter lack of regard for protecting consumers, Taylor had this to say when asked where he'd rather see a consumer-protection agency housed:

I'd take the National Zoo over these guys. This is a place to bury it, or at least make it ineffective.

Summers Rallies for Financial Reform

| Wed Mar. 3, 2010 10:26 AM EST

Larry Summers, the top economic aide and somewhat mercurial adviser to President Obama, told leading US business leaders in a speech in New York yesterday to accept the bitter pill of financial reform. "A strong government (that) responds to market failures, provides social protection regulates potential abuses and supports economic conditions is undeniably in the long-run interest of business, he told audience members.

Summers' speech comes as the Senate banking committee, led by Sen. Chris Dodd (D-Conn.), is trying to reach an agreement on a bipartisan financial-reform bill. The Obama administration has of late deployed some of its top financial officials—Treasury Assistant Secretary Michael Barr, even President Obama himself—to drum up support in the financial-services community for Congress' proposed crackdown on financial products, the housing markets, and mortgage lenders, while also bolstering consumer protections—a major sticking point for lawmakers in Washington.

Here's a few other highlights from Reuters' report on Summers' stump speech yesterday:

While Summers said he understood business antipathy, "history teaches us that active government is a necessary force," he added.

...

To make his point, Summers suggested that few, if any, major financial institutions would have survived without the emergency liquidity offered by the government.

It was just 18 months ago that leading companies were reduced to borrowing money overnight because they were unable to borrow for a week, he said. The nine financial institutions benefited by the U.S. bailout fund today have a combined market value approaching $1 trillion, he said.

On comprehensive financial reform, he said "On one level, it's mind numbingly complex. On another, it's not that hard."

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