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12 May
2010
Senator Kaufman’s
Speech Yesterday
Senator Ted Kaufman (D, DE)
is best known these days for arguing that, as part of
comprehensive financial reform efforts, our biggest banks need
to be made smaller. His advocacy on this issue helped build
support around the country and forced a Senate floor vote on the
Brown-Kaufman amendment, which was defeated 33-61 last Thursday.
Senator Kaufman has also
pushed strongly the idea that in recent years there was a
pervasive “arc of fraud” within the
mortgage-securitization-derivatives complex. This thesis also
seems to be gaining traction – according to the WSJ today, the
criminal probe into this part of the financial sector continues
to develop.
But the Senator’s biggest home run has been on a different
issue: his warnings about the dangers of high-speed trading,
involving “dark pools” of money, appear to have been completely
vindicated – ironically enough, also last Thursday.
Think about it this way.
The US stock trading system, long-established and widely thought
to be robust, crashed on Thursday afternoon. Widely held stocks,
traded with consistent liquidity, do not fall in value from $40
to 1 cent and then bounce back again – even in emerging markets,
let alone in the United States. It is true that complex systems
crash, but given the infrastructure and back-up systems involved
here, this is much closer to east coast air traffic control
shutting down for 15 minutes than it is to your local cable
company having a problem.
And here’s the most
remarkable point – after 6 full working days (and top people do
sweat this kind of issue on the weekend), we are still no closer
to really understanding what happened. To be sure, there are
plenty of theories – and no shortage of proposals for avoiding a
recurrence. But, despite the evident resources thrown at this
problem, we do not know what went wrong.
The SEC is beginning to get its act together under Mary Shapiro.
But it needs to lift its game to a much higher level.
Senator Kaufman has flagged mortgage-related fraud,
high-speed/dark-pool trading, and bank size.
The consensus against
big banks is
shifting against them.
Europe
European megabanks – lauded by Senators
Dodd, Corker, Warner and others as a model for us to follow –
are up to their eyeballs in bad debt. Their regulatory system is turning into ash.
Which are the huge global banks that
Senator Dodd, Jamie Dimon, and Larry Summers think we should be
emulating?
Surely not the Chinese – their governance failures
are profound and complete; this is state banking run amok.
Surely not the British.
Surely
not the Canadians
And surely not the continental European
banks model of ineptness, blind
herding, and the transition from being “too big to fail” to “so
big that even when you save them, you get an economic
catastrophe”?
Senator Kaufman's speech on May 12, 2010 excerpt:
In the week before the
meltdown, here is a comment letter to the SEC written by the
Security Traders Association.
“The equity markets are functioning properly, and there are no
signs of significant deficiencies or an inability to perform
their important functions.” |
