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Let the Fed regulate

By John M. Berry

John M. Berry, who has covered the economy for four decades for the Washington Post and other publications, is a guest columnist.

Politics is trumping common sense in Congress as Republicans and Democrats keep heaping abuse on the Federal Reserve. As a result, they could end up adopting an unworkable, risky overhaul of financial market regulation. 

Senator Christopher Dodd of Connecticut, chairman of the Senate Banking Committee, is leading the parade with his plan to strip the central bank of virtually all its oversight of commercial banks.

  ”I really want the Federal Reserve to get back to its core enterprises,” Dodd said. In recent years, the Fed’s regulation of bank holding companies and consumer lending “was an abysmal failure,” he charged. 
 
No, the Fed didn’t cover itself with glory in some of its regulation and supervision, but neither did any of the other financial regulatory agencies. Moreover, the most serious failures last year involved investment banks overseen by the Securities and Exchange Commission, not the Fed.

The VaR cover-up

By Pablo Triana

Pablo Triana is the author of Lecturing Birds On Flying: Can Mathematical Theories Destroy The Financial Markets? The views expressed are his own

Last month, several men and women assembled in a somber room in Washington to discuss one of the key issues (in my opinion, the key issue) behind the financial crisis that has caused so much misery.

‘Living wills’ easier said than done

In the wake of the widespread chaos that accompanied the bankruptcy of Lehman Brothers last September, regulators have sought to find a better way to unwind global financial giants. One approach is that the banks themselves should prepare for their own orderly demise — a kind of “living will”.

That idea has been gathering steam of late. The G20 group of finance ministers and central bankers meeting in London over the weekend agreed to require “systemic firms to develop firm-specific contingency plans.”

Delaying the moment of truth

Procrastination is not a virtue, except when it involves billions of dollars of debt.

A mantra has taken hold of lenders sitting on loan piles: amend and extend. Or as lawyers involved in negotiations between borrowers and lenders say: delay and pray.

Eddie and the losers

Why are there financiers who think that they — and they alone — can run businesses where nearly everyone else who has tried has failed? There is Guy Hands with EMI and Cerberus Capital Mangement with Chrysler, but Exhibit A has to be hedge fund manager Eddie Lampert’s nearly four-year adventure with Sears.

One can admire the financiers’ ambition, the sheer audacity in going against conventional wisdom. Yet something obvious has been lacking in all their bold calculations: How to persuade consumers to buy their offerings. These have been companies that need leaders who are more like the late Billy Mays than financial wizards.

G.E. waits for Washington to drop the ball

Gridlock in Washington is not always welcome, but General Electric appears to have placed much of its hopes for GE Capital on it.

The fear hovering over GE Capital has been that Obama’s proposed financial overhaul, as outlined in the June white paper, would mean that the company will be forced over five years to spin off its giant finance arm, resulting in higher taxes and increased costs. During an investor conference webcast today, GE Capital went into great detail to address concerns about losses and capital needs, but offered little more than wishful thinking when it came to the regulatory outlook.

Goldman Sachs earnings call

Goldman Sachs had a blowout second quarter, exceeding high expectations on its strong trading gains.

At a time when much of the financial industry is still struggling with the legacies of debt and leverage, the success of Goldman is riveting.  Yet as Matthew Goldstein has written, exactly how Goldman makes its huge gains remains largely a mystery.   Maybe, just maybe, some light will be shed when the firm holds a conference call on the results at 11 a.m. today.  Reuters columnists will be live blogging the call here.

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