Walk of Shame: Wall Street Lobbyists

As you may have read (here or here), the Fool hit the White House on Tuesday to talk about President Obama's plan for financial regulation.

If you haven't read the 89-page manifesto yet, put away the 5-Hour Energy shots. The Wall Street Journal posted a great summary.

Too lazy to do that? All right, I'll bail you out. (Get it?) Basically, the President has released a comprehensive plan to minimize the effects of the next financial catastrophe on the U.S. and the rest of world. Notice I didn't say "prevent." We'll always have greed, bubbles, and irrational exuberance. All we can do is minimize their effects.

Here are my thoughts on the key areas affected by the plan:

Too big to fail
The plan falls short of forcibly breaking up the Frankenbanks (I'm looking at you, Bank of America (NYSE: BAC  ) , JPMorgan (NYSE: JPM  ) , Citigroup (NYSE: C  ) , and Wells Fargo (NYSE: WFC  ) ), but it does make it much more onerous and less advantageous to be huge. It also gives the government authority to take over and dismantle troubled "too-big-to-fails" so the entire financial system doesn't get held hostage (again).

Derivatives
In a post-plan world, there would be more transparency (e.g. derivatives exchanges), more capital requirements, less reliance on credit agencies, and fewer people allowed to play with derivatives. There would also be more skin in the game -- a bank that, for example, originates a mortgage would have to keep some financial interest in it as the mortgage gets sliced and diced into financial sausage.

Closing loopholes
The plan makes strides to bring accountability to regulation. Because like companies and products would be regulated by the same agency, because regulatory exemptions would be lifted, and because roles would be more clearly defined, there would be less fingers pointing there and more bucks stopping here.

Opening up black boxes
One of the big dangers out there is the laissez-faire treatment of big money: hedge funds, private-equity funds, and venture capital funds. Now, they'd have to register with the SEC, submit to more regulation, and let some light shine into their hitherto unlit worlds. Regulation isn't perfect. (Madoff, for instance, was registered with the SEC well before his scheme blew up.) But an absolute lack of regulation is downright small-f foolish. It's like refusing to wear a seat belt because sometimes they fail.

Fannie Mae (NYSE: FNM  ) and Freddie Mac (NYSE: FRE  )
A decision would finally be made: Wind them down, fully privatize them, or convert them to public utilities. In any case, we know what doesn't work: a quasi-government private company.

An FDA for consumers
This is the portion of the plan getting the most press, and I think the FDA comparison is apt. The Food & Drug Administration makes sure the public is protected from snake-oil salesmen. The Consumer Financial Protection Agency's mission is to stop the drilling in financial snake oil. Before you get all Ayn Rand on me, do you really think unchecked financial innovations like option ARMs do more good than harm? If so, then you probably also think "liquidity" is a sufficient argument for unchecked derivatives -- and you're probably getting ready to cash a huge bonus check from Goldman Sachs (NYSE: GS  ) or the like.

Who's walking for shame?
No plan is perfect, but like Hannibal, I love it when one comes together. We can argue about the details, but it's my belief that President Obama's plan is largely true in its aim. Clearly, something has to be done about "too big to fail," the derivatives casino, and predatory financial products. My walk of shame is not for those who debate portions of the plan, but for the financial special interests that will seek to bastardize the plan for their own selfish gains. President Obama stated it well:

All this hasn't stopped the big financial firms and their lobbyists from mobilizing against change. They're doing what they always do -- descending on Congress, using every bit of influence they have to maintain the status quo that has maximized their profits at the expense of American consumers, despite the fact that recently a whole bunch of those same American consumers bailed them out as a consequence of the bad decisions that they made.

If this plan ends up riddled with loopholes and exemptions or otherwise disfigured beyond recognition, blame Wall Street. And then prepare to bail them out again in a few years.

Agree with me? Think I'm a moron? Let me know in the comments section below.

Anand Chokkavelu is so not inviting Wall Street to prom anymore. He owns long-held shares of Citigroup. The Fool has a disclosure policy.


Read/Post Comments (16) | Recommend This Article (22)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 13, 2009, at 2:28 PM, ozzfan1317 wrote:

    Its not perfect but its a good start at least.

  • Report this Comment On October 13, 2009, at 2:29 PM, ozzfan1317 wrote:

    Its not perfect but its a good start at least.

  • Report this Comment On October 13, 2009, at 3:52 PM, wjmwestoak wrote:

    Obama is a lot of smoke and no fire type of Prez... homie..

  • Report this Comment On October 13, 2009, at 4:13 PM, TMFPhillyDot wrote:

    I think those are a lot of great ideas -- the true test will be whether or not he can implement them. I believe that Obama's intentions are good, but sometimes (and unfortunately) the success of a President depends not on his ideals or convictions but on his legislative prowess and his ability to persuade various factions. One of the many reasons President Carter is a great post-office President; couldn't get anything accomplished while he was there, but is incredibly active now.

  • Report this Comment On October 13, 2009, at 7:20 PM, xetn wrote:

    So you believe that since we only have over 77000 pages of government regulation already on the books, and they are not doing the job of protecting every single person from their own activities, such as getting a mortgage they can't afford, or someone buying a derivative they don't understand, the only cure is to add more regulation on top of the existing ones?

    All the people that were scammed by Madoff wold have been protected by this new regulation? He was audited 10 times by the SEC and they never caught him. There were independent analysts that were warning people about his activities by not listened too.

    Is the government going to protect everyone from their own greed and stupidity? I know, it sounds really nice not to have to take responsibility for your own actions. That is why you can always sat "fool on"!

  • Report this Comment On October 14, 2009, at 12:45 AM, bs1934 wrote:

    Right on. Many of these lobbiests are charlatans (that's what I call elected officials) anyway. An on and on and on it will go, as you say. I think we should build a huge wall where the TwinTowers used to be and start lining them up and executing them. OF COURSE THAT WILL NEVER HAPPEN. Those guys who sneak around and shoot people in favor of abortion should redirect their efforts towards lobbiests and perhaps a representative or two. DID I WRITE THAT! Before you check me out FBI, I am 75 years old, slightly addled and generally speaking quite harmless. All bark and no bite.

  • Report this Comment On October 14, 2009, at 12:47 AM, bs1934 wrote:

    Hey XETN, Yeah, there are way too many laws and it seems way too may lawyers to write them and argue them as well. What you say is absolutely true, but if we give up trying to put some road blocks in to slow down the greed mongers of Wall Street, that isn't very sensible either.

  • Report this Comment On October 14, 2009, at 8:35 AM, kgeechee wrote:

    RE: bs1934

    Well, if you did not say I have said it and will say it again while expanding your universe to include charlantan broker and money managers who have no regard for their clients' interests.

    BTW, I'm 70, have stage 4 cancer, and the FBI can come and get any time. I'll a free funeral and plus my wife can for False Imprisonerment.

    Hang 'Em High,

    Feed their Bones to the Buzzards

    Thanks,

    PS: MF needs to add a Spell Check button!

  • Report this Comment On October 14, 2009, at 11:10 AM, richsinc wrote:

    Can anything be done to limit lobbyists???

    Lobbyists are internal terroists; the enemy within. The whole world would be far better off without their money, greed and power. Look at what they are trying to do to healthcare reform and now to financial reform.

    Grant would have barred them from the Willard Hotel or shot them if he had known what the lobbyists would become today.

    I would like to see more in-depth reporting on lobbyists and their activities here on Fool. Shine some spotlights on them; maybe they will run like the roaches they are...

  • Report this Comment On October 14, 2009, at 11:28 PM, pernfam wrote:

    We need regulations that protect investors and the public from the greed of wall street. Fool me once shame on you ,fool me twice shame on me. Don't let wall street and the banks take us down the same road again.

  • Report this Comment On October 16, 2009, at 3:43 PM, Shark52 wrote:

    The greed of Wall Street bankers and lobbyist only works because of the greed of an individual investor. I think Charley Munger has it right - only let banks that have access to insured deposits do really boring things. If a bank wants to get greedy and prey on the unsuspecting, take away the govenrment prop. When a few companies fail, the smart will learn; the greedy will still think there is a quick way to the mountain top and if lucky they will be right and if not they will be broke. Worse thngs have happened and will happen in the future. The only reason a company is to big to fail is because we present to the unsuspecting that the government will pick up the pieces and the world believes it - a self fulfilling prophecy. Regulations as a concept is not a bad thing, but when was the last time you actually read a privacy notice that seem to come daily. Value?

  • Report this Comment On October 16, 2009, at 4:38 PM, Sophiajones wrote:

    Anand,

    I think you're right on the... pardon the expression... money. :-) Haven't seen O's plan yet, but if that's what it's aim is, i hope the plan flies straight a true and stops all this nonsense! My 401K is in the sh__er. My taxes are paying for second homes, & boats... and my credit card companies are raising my interest rates at 5% at a pop. I have a 760 credit score & 3 of them sent me these type of notices. Amex went to 22.25% Yeah, that's what I said as I closed them all. (What are they paying? 1.25% from the government.. uhhh, I mean me.)

    Thanks, for being there and reporting honestly,

    Emye

  • Report this Comment On October 16, 2009, at 5:56 PM, 1sweet1 wrote:

    Good article Anand.

  • Report this Comment On October 17, 2009, at 12:48 AM, ORABS wrote:

    The problem with the right-wingers blaming all our woes on poor stupid people is that there is nothing anybody can do about it. Unless congress passes a law that says you cant be stupid, there will always be people trying to get what they cant afford or dont deserve. And there is nothing you can do about it, so their reason for our predicament has no solution. You can, however, prevent banks from taking advantage of stupid people through regulation. Which is worse to society, stupid poor people just trying to get a morsel of the pie, or big banks ripping everybody off. I think the answer is pretty clear.

  • Report this Comment On October 17, 2009, at 1:57 PM, fourthreethree wrote:

    Howdy folks...i second the sentiments of bs1934 and kgeechee above. Lots of rope and ammo is what is needed for the lobbyist/elected "representative" connection! Since that solution is definitely NOT politically correct for the power structure, what can we little people do to discover truths that will guide our investing?

    I've been following MF for several years now and found it most helpful (if not often over my head). A divorce divided my meager nest egg in half 10 years ago -- is that considered a 50% loss (ha, ha)? After struggling back into triple investment digits the greed mongers scuttled the market and down i went again to the tune of about a 60% loss.

    Well, i'm 60 now and wondering when the third strike is going to come that takes me out of the game for good! I'm sticking with the Fools, though, and optimistically hoping that some of the things mentioned in Anand's fine article actually come to pass. BTW, didn't Mr. Obama the candidate promise to remove or restrain lobbyists as President? Hey, i voted for that!

  • Report this Comment On October 20, 2009, at 3:32 PM, neutrinoman wrote:

    The most important thing to change is "too big to fail." Outside of protecting depositors at commercial banks, bailout guarantees (including the Fed's unofficial policies of cheap credit and asset inflation and Congress's push for universal home ownership) should be withdrawn. No more high-class welfare for managers, stockholders, and creditors of financial institutions! That's the difference between now and, say, the S&L crisis of the early 90s. No one dreamed then of bailouts, just paying out deposit insurance, which is *not* a bailout of managers, stockholders, and creditors.

    These more recent policies made the 2007-08 crisis inevitable. If these policies are not ended, more crises are inevitable, soon. In fact, the Fed's current "reflation trade" is setting us up for another "emperor's new clothes" situation right now. Commercial banks should not be hedge funds, but that's how they're now making their money. It's not greedy individual investors. They don't have the clout to make this big a mess.

    BTW, were she alive today to see the Greenspan-Bernanke-Fannie-Freddie cheap credit gravy train, Ayn Rand would be spinning in her grave :) I doubt she'd be surprised though.

    The one bad thing in the Obama proposal is the lame consumer protection agency, which will make it more difficult than it needs to be for consumers to obtain credit. The burden of making complex risk decisions should lie on the financial institutions; it's their job. It was their abandonment of prudent practices as *lenders* that led to the crisis. This gets to what ORABS said about dumb consumers: it's the *bankers'* responsibility to not place their money at too much risk. Borrowers will always be willing to borrow more.

    The new regulations don't have to be complicated, >>just applied consistently.<< 77000 pages of regulations could be replaced with a few hundred, at most.

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