Banking and Finance
What needs fixing

Hugh's Annual Economic Christmas List

Burgess COMMENTARY

Peter Burgess

Annual Economic Christmas List

Someone asked me back at the end of 2008, shortly after the meltdown, what I would do to address the current economic crisis. Since then I have put out a list once or twice a year on the subject. Here are some of the gifts I would like to see under our national Christmas tree, gift wrapping optional.

Force banks to prove they are financially sound and not bankrupt.

1. 1. Evaluate assets and solvency on mark to market basis
2. 2. Remove discredited executive leadership
3. 3. Enforce Prompt Corrective Action to place financial institutions into bankruptcy or receivership regardless of size
4. 4. Initiate forensic audits of financial institutions, investigate and prosecute fraud at all levels (both fraud in lending and control fraud); RICO malefactors
5. 5. Require bondholders to take major losses in any re-organizations
6. 6. Re-initiate normal lending, i.e. local community based lending practices
7. 7. Reduce fees
8. 8. Recapitalize and re-privatize or set up as a public utility for vanilla banking activities
9. 9. Cap bank size at $50 billion in assets
10. 10. Cap total remuneration of bank management, limit bonuses to no more than 10% of the base salary, base these on performance, no stock options
11. 11. Strict enforcement of Sarbanes-Oxley
12. 12. Require independent boards of directors
13. 13. CEOs and board members criminally liable for criminal activities of the company and civilly liable for losses unless reported immediately to regulators and with relinguishment of control
14. 14. No off balance sheet investments, no Special Investment Vehicles
15. 15. No offshore havens or accounts
16. 16. No CDS; no netting; banks must show that they have the assets to cover all derivative exposures on a daily basis

• 17. Audit Money Markets and bring them under bank rules

1. 1. End the Fed's policy of considering the wage increases of workers as inherently inflationary and to be combatted at all costs
2. 2. End the Fed's facilitation of investment bubbles by creating easy credit for them
3. 3. End the revolving door between the Fed and banks. Senior officials at the Fed banned from working in the financial industry, for any financial lobbying group, or any group funded by bankers or the banking industry for a period of 10 years. Senior bank officials banned for life from holding positions at the Fed.
4. 4. Split off the Fed's regulatory functions into an independent agency or fold them into Treasury
5. 5. End the Fed's domination of academic economics by ending its funding of 'scholarly' research. Create an independent board to disburse research funds and audit it for effectiveness and fairness.
6. 6. Curtail private banks' money creation powers
7. 7. Phase in debt free money creation, that is progressively eliminate Treasuries
8. 8. Yearly audit and publication of the Fed’s activities; increase monthly and quarterly reporting requirements
9. 9. Require that the Fed can only take on to its balance sheet assets that are marked to market

1. 1. Eliminate conflicts of interest (they are currently paid by those they provide ratings to)
2. 2. Make explicit that ratings do not mitigate fiduciary responsibility of investment and financial institutions

1. 1. Re-create the HOLC. Offer a re-issue option on mortgages (all types on first residences) with a cramdown based on pre-bubble values (approx. 40-50% discount on face value, varies by market) at long term fixed rates.
2. 2. Phase out Fannie and Freddie
3. 3. Foreclosure moratorium
4. 4. Allow conversion to renting
5. 5. Create a clear title agency to work in conjunction with special title courts to re-establish the links between the title, the homeowner, the mortgage (as modified above), the mortgage holder/trust, and local recorders of deeds
6. 6. Future mortgages must be plain vanilla, follow truth in lending requirements, verify applicants creditworthiness and information, and disclose all fees and costs in advance
7. 7. Establish a warrant system for mortgage writers with proof of insurance and/or reserves

1. 1. Must be registered with the CFTC, traded, and tradeable on a federally regulated US exchange to be legally enforceable
2. 2. Reserve requirements and limitations on leveraging
3. 3. Limitations, not on net positions, but on overall nominal ones
4. 4. Participants must show on a daily basis they have the committed funds and collateral to cover all their exposures without netting

1. 1. Simplify contents to a single asset class
2. 2. Define ownership of the underlying assets
3. 3. Ban re-rating sub-tranches upward and spinning them off into new CDOs
4. 4. Ban movement of individual “mortgages” within a CDO
5. 5. Ban CDO squared

1. 1. Nullify and ban

1. 1. Increase margin requirements
2. 2. Ban non-commercial traders
3. 3. Monitor for excessive speculation: High volume trade notifications and total exposure reporting by traders

1. 1. Must be kept on balance sheet. (This effectively eliminates them.)
2. 2. Must be marked to market

1. 1. Re-imposition of Glass-Steagall and extension to all financial institutions.
2. 2. A 0.1% Tobin tax on all trades
3. 3. Bid prices must be posted for at least 30 seconds before they can be acted upon
4. 4. No third party servers can be located on the premises of an exchange
5. 5. Re-institution of the uptick rule to prevent predatory shorting of a company’s stock
6. 6. Reinstitute mark to market accounting; disallow mark to model
7. 7. Disallow and/or limit write downs of debt in accounting
8. 8. Disallow booking the projected profit of a contract at its beginning but phase it in over the life of the contract

1. 10. Ban investment banks from trading on their own account
2. 11. Registration and activity reporting for hedge funds and private equity firms
3. 12. Acquisitions can not be broken up, resold, loaded with debt, or used as collateral for a period of 5 years. Nor can workforce levels be reduced by more than 10%.
4. 13. Close the revolving door between government and the financial community for low level employees; a 3 year rule either way
5. 14. Completely revamp and restructure the SEC to emphasize professionalism and independence in investigation and monitoring; codify minimum funding levels
6. 15. An aggressive Consumer Financial Protection Agency with authority over all personal financial transactions with the power to propose and require plain vanilla instruments and which uses its power to ban or limit abusive ones
7. 16. Increase anti-trust investigations and actions
8. 17. Repeal McCarran-Ferguson’s anti-trust exemption for insurance companies
9. 18. Forbid insurance companies from re-insuring internally or through shells
10. 19. OTC (over the counter) exchanges must be independent or set up by another independent exchange; no OTC exchange can be owned or controlled by a market participant. Final buyer must be identified in all cases.
11. 20. Ban dark pools, private exchanges where the buyers, sellers, and the price they agree upon in large block trades are not communicated to public exchanges (and so have an impact on price) until after the deal is done, presenting markets with faits accomplis.
12. 21. Transparency, transparency, transparency

1. 1. Re-imposition of anti-usury laws
2. 2. Credit card rates capped at 8%
3. 3. Limitation on credit card offerings
4. 4. Easing of personal bankruptcy laws, all non-property loans to be non-recourse
5. 5. Option of debt repudiation without bankruptcy

1. 1. Require adequate funding and more realistic projections for future payouts
2. 2. Require pension funds to pursue low risk investments
3. 3. Ban investments through high risk hedge funds

1. 1. A 50% tax rate for incomes above $300,000.
2. 2. A marginal 90% tax rate for income above $1 million. All earnings here and abroad from whatever source to be declared and taxed as income. Any wealth and/or income undeclared to be confiscated and subject to additional financial and criminal penalties.
3. 3. A yearly 10% asset tax on household wealth above $20 million.
4. 4. Current charitable foundations set up by families (think Gates, Buffet, etc.) to also be taxed at this same rate.
5. 5. A 50% tax on gross corporate profits. All profits and assets here and abroad to be declared or subject to confiscation with additional financial and criminal penalties for both the corporations and their chief officers.
6. 6. 90% estate tax on all estates over $7 million. Eliminate most trusts.
7. 7. No employee stock options.
8. 8. Take income caps off FICA (Social Security)
9. 9. Rescind Bush tax cuts for the wealthy
10. 10. Rescind tax subsidies for outsourcing
11. 11. Reward companies with tax breaks if they increase workers’ wages and living conditions, and if they become greener

• 1. End free trade agreements; shift to a fair trade model, to protect and develop core US industries
• 2. Harmonization of standards for banking, insurance, and exchanges
• 3. Flexibility on the dollar as the world's reserve currency

1. 1. Single payer universal healthcare
2. 2. Large multi-year stimulus with a view to sustainable re-industrialization: nationwide broadband, levees for New Orleans, rebuilding highways and water systems, building wind and solar power, update the power grid, conservation, mass transit, better community planning, carbon reduction projects, basic research; aid for state deficits; education grants; food stamps; unemployment benefits; and green technologies
3. 3. Savings in defense spending: Withdraw fully from Iraq and Afghanistan, end the covert wars, cut unneeded, goldplated weapons programs, reduce the number of overseas bases
4. 4. Change the filibuster rule in the Senate to prevent gridlock
5. 5. Consider doing away with the Senate all together
6. 6. Do away with the electoral college
7. 7. Mandatory public campaign financing
8. 8. Encourage unionization to bolster workers' wages
9. 9. Restrict federal monies to universities which keep tuitions above 1995 levels plus inflation plus 5%.
10. 10. Make grant money readily available to students for post-secondary education
11. 11. A living wage standard to replace the minimum wage
12. 12. Government as employer of last (or first) resort