House Financial Services Committee Chairman Barney Frank has a new proposal to regulate bank transactions. Some of it is OK and some of it perpetuates the abuses that brought Lehman and other financial institutions to their knees.
First the OK part. Frank's proposal would require over-the-counter derivatives to be traded on listed exchanges and sold on exchanges or processed through a regulation platform. This is not good enough. We need transparency for each and every trade done by each and every financial institution. That means that all trades must be done on a listed exchange and cleared through a clearinghouse. All of this data can be put on computers and monitored daily. Then if some trader goes beyond established guidelines, he will be shut down immediately.
The second and most devastating aspect of the Frank proposal is that it does not bar naked short sales. Naked short sales are when a trader sells a security without first borrowing it from another firm. Mr. Frank, please review the naked short sales of Lehman Brothers just before its collapse. Do you know how many naked short sales there were? An astounding 38.2 million shares were naked short sales.
Now, your committee can start over and really tackle bank regulation. Don't be afraid to step on the bankers' toes. We simply cannot let them take our country down again. There must be tough, enforceable regulations.
Do you agree that we need tough, enforceable financial regulations?
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Reader Comments (Page 1 of 1)
10-03-2009 @ 2:22PM
Beltway Greg said...
Barney didn't get it then and Barney doesn't get it now. How do you expect the enablers who brought us this mess to clean it up? All of our congressman and senators have some junior staff member researching this issue or perhaps they're taking advice from some hard charging back bencher connected to one of the "Stink Tanks" that clog up the arteries of the Nation's Capitol. They didn't have a clue then and won't have a clue ten years from now. They should call Jim Cramer or some other hedge fund manager to show them where the bodies are buried. I'll bet if you stopped Mr. Frank or practically any other member of congress on the street and asked them to define "short sale" you would be met with a blank stare. How many members of congress took sweetheart loans from Countrywide under the "Friends of Anthony" program? Why should they care? Their pension is backed by the ability of the government to take money from we the people so it's not as if they have to worry about some rogue trader and you can bet they have a generous COLA so why worry?
10-03-2009 @ 4:51PM
S said...
The typical Bloggingstocks.com reader would ask what the heck are derivatives and why should I invest in the Knight Capital Group?