Here's The Washington Post's first sentence: "A revolt among big donors on Wall Street is hurting fundraising for the Democrats' two congressional campaign committees, with contributions from the world's financial capital down 65 percent from two years ago."
Wall Street, double-crossed! No more business as usual! The jig is up! Down with greed, up with financial responsibility! There's a new sheriff in town -- and his name is Barack Obama!
The article acknowledges that many things explain the drop in contributions: "But the overwhelming factor is the rising anger among financial executives who think they have not been treated well based on their support of Democrats over the past four years." And "'Democrats worked hard to pass reform with tough oversight, accountability and regulation, and it's no secret the big banks were against it,' said Deirdre Murphy, spokeswoman for the Democratic Senatorial Campaign Committee. 'But we believe preventing another financial collapse is the responsible thing to do.'"
There you have it.
The finance guys are literally foaming at the mouth over the "tough" new financial regulations. Though Wall Street gave more money to Democrats than to Republicans -- and therefore expected a slap on the wrist -- the new rules put them in a straightjacket. Those !&!$ Democrats! They rammed down unpalatable regs -- at the cost of The Street's profits -- simply to prevent another financial collapse. But wait. Why not turn to the greed-friendly Republicans poised to swoop down, grab contributions and, unlike the principled Democrats, do The Street's bidding?
Nice try, WaPo. Now, here's what's really going on.
Banks' stocks shot up, not down, the day the proposed new financial regs came out. Why? If it wasn't quite a green light for business as usual, it was close enough. The Associated Press wrote: "After months of angst over the government's plans to regulate the financial industry, investors are able to relax. And they've showed their relief by sending bank stocks soaring. Financial companies have outdistanced the rest of the stock market (June 25) after lawmakers agreed on a banking overhaul bill that is less strict than investors feared."
CEOs tend not to "revolt" when the company stock goes up.
If Wall Street is so ticked off by the Democrats, shouldn't the supposedly resurgent Republicans prosper because of the supposed disillusionment over the Democrats? Fifteen or so paragraphs down, WaPo tells us: "Republicans ... have tried to reap the benefits, to mixed results. ... The two Republican committees that are focused on congressional races have received $2.7 million from the New York area, slightly more than at this point in 2008 but less than the $4 million they raised at this point in the 2004 cycle when the party still controlled Congress." Oh.
As for preventing another collapse, Fannie Mae and Freddie Mac -- the "government-sponsored entities" primarily responsible for the housing meltdown -- are now completely taken over by government. They own or guarantee 40 percent of the country's mortgages -- which they bought from institutions, repackaged and then resold, with an implicit guarantee by the federal government against default.
The Community Reinvestment Act mandated lenders to grant loans to otherwise unqualified buyers. It remains on the books. And the Federal Housing Administration continues to back loans taken out by home purchasers who otherwise would not and should not be able to purchase homes.
Wall Street can therefore continue to pass along the damage done by its risky behavior to the taxpayers. It fulfilled its version of the Hippocratic oath: Congress, do us no harm. The regulations prevent no practice that a few sharp accountants, lawyers and traders haven't already figured a way around.
The Democratic spokeswoman asserted that "it's no secret the big banks were against (the regulations)." Really? The proposed regulations preserve the options for bailouts of institutions considered "too big to fail." And some firms are bigger now than ever. Reason Foundation's Nick Gillespie says: "One of the major reasons why financial institutions played Russian roulette with the economy was because they were betting they would get bailed out. Which is precisely what happened. The new rules codify the idea that the government will make sure certain institutions can never fail. And if you think the big boys won't game that system, then you don't understand how well Citigroup, Goldman Sachs and others have come through the current meltdown."
How do the new regulations hamper Wall Street? Regulations, in general, tend to fight yesterday's war. Financial services, like everything else in this digital age, are in a constant state of innovation and reinvention. The new regulations will induce new financial products and new ways of doing business unanticipated -- if not caused -- by Congress in its attempt to "rein in bad practices."
To reduce the possibility of a future meltdown, Congress could have forced the players to play with their own money by shutting the escape hatch of government guarantees and bailouts. It did not. Pass the Champagne.
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