Ritholtz: Why Congress might pass 'TBTF' bill

Simplicity, broad ideological support, splitting the banking lobby, and FDIC support -- these are the four reasons Barry Ritholtz gives why Brown-Vitter's "TBTF" bill has a good chance of becoming law.

Here's how Ritholtz sums it up:

The idea that two senators from opposite sides of the ideological spectrum can find common ground to attack a problem with a simple solution is novel in the Senate these days. If Brown and Vitter manage to end the subsidies to banks deemed “too big to fail,” they will have accomplished more than “merely” preventing the next financial crisis. They will have helped to create a blueprint for how to get things done in an era of partisan strife.

That is a worthy goal all Americans should be grateful for.

The truth is, complex bills are not a bad thing, per se, and elegant solutions cannot be found for all policy problems.  Complex bills are bad when they are too abstruse for the public to care about, and then the armies of paid lobbyists who definitely do care march in and skewer and mangle them with loopholes in the rules-making process, which is what has been going on with Dodd-Frank for about two years.  Big banks have been making the law more complex, then turning around and complaining about how complex it is... and wouldn't it just be easier to scrap it altogether, they have the gall to ask us?  

Trying to find a similarly simple, elegant solution to, say, immigration reform would probably be impossible.  Ditto the budget.  Or health care.  A carbon tax is another one of those elegant solutions that would unleash a virtuous cascade of market-driven responses, but it fails Ritholtz's bipartisan test, because conservatives reject any new taxes out of hand, and there is no opposing big industry lobby in favor of it.  

You can try to come up with your own examples.  Talk amongst yourselves....

Can two senators end ‘too big to fail’?

By Barry Ritholtz

May 12, 2013 | Washington Post

URL: http://www.washingtonpost.com/business/can-two-senators-end-too-big-to-fail/2013/05/09/aa01cc70-b5dc-11e2-b94c-b684dda07add_story.html

Taibbi: 'TBTF' bill faces opposition from...S&P?!

In the bizarro world of high finance, the ostensibly conservative ratings agency Standard & Poor's has come out against the bipartisan Brown-Vitter "TBTF" bill in the Senate Banking Committee that would "elegantly" eliminate, according to Matt Taibbi, the Too Big To Fail problem by requiring any bank with more than $500 billion in assets to keep about 15 percent of its capital in reserve, so as not to require a government bailout if their risky investments fail.  

Here's S&P excuse during Senate testimony:

Under our methodology, we would potentially no longer factor in government support if we believed that once large banks are broken up, we would not classify these banks as having high systemic importance.

Here's Taibbi's response to that:

S&P writes about having to factor out the implicit government backing of big banks as though that would be a bad thing. But if implicit government support is the only thing keeping the ratings of these companies even as high as they are now, that means they really should be rated lower, in a true free market.  And Standard and Poor's is, what – against admitting that?  It's nuts.

On the other hand, the Brown-Vitter TBTF bill is supported by the Independent Community Bankers of America, that is ostensibly sick and tired of borrowing at higher rates and having a constant institutional disadvantage compared to Wall Street banks. 

If the voting public continues to pay attention to the TBTF problem then we'll win, because both the far Left and far Right and everybody in between supports ending TBTF, ideologically. But if we get distracted, then the TBTF lobbyists and the corrupt institutions like S&P will cut and gut this bill in the Senate. They don't mind sounding absurd and hypocritical to protect their advantages with the status quo.  

Stay tuned, everybody!....

UPDATE (05.04.2013): For those who are interested, here's a summary from my man Ritholtz of the Brown-Vitter 'TBTF' bill:

• Stricter capital requirements on megabanks, defined as institutions with over $500 billion in assets.
• Six U.S. banks — JPMorgan Chase., Citigroup, Goldman Sachs, Morgan Stanley, Bank of America and Wells Fargo — meet the TBTF criteria.
• Eliminates risk-weights as part of a capital assessment (less reliance on unreliable ratings).
• Does not rely on ratings agency grades.
• Removes off-balance-sheet assets and liabilities as different class — they are treated as if they were on-balance sheet.
• Requires derivatives positions to be included in a bank’s consolidated assets.
• Requires capital cushion that a bank hold be liquid.
• Mandates capital measures be more transparent.
• Eliminates Basel III as a regulatory requirement.
• Restores competition to industry by removing competitive disadvantages mega banks have over smaller and regional community bankers.

Too-Big-to-Fail Takes Another Body Blow

By Matt Taibbi

May 1, 2013 | Rolling Stone:

URL: http://www.rollingstone.com/politics/blogs/taibblog/too-big-to-fail-takes-another-body-blow-20130501#ixzz2S8uS0vvn