Amidst the craziness...

Well, even as I was writing yesterday's post, the Brown-Kaufman amendment failed and Bernie Sanders' proposal to increase the GAO's oversight of the Fed was watered down to a one-time audit. Why do I let myself succumb to optimism when optimism virtually never is justified? I imagine it's a safe bet that the banks won't have to spin off their derivatives desks either, and they'll find a way to defeat the Volcker Rule as well.

There's a lot of talk about a bank tax lately — to repay government for bailing out the industry, provide a cushion for the future, and just reduce the deficit — but I don't see that happening either. The administration proposal for a $50 billion fund collected from the banks to help finance future bailouts already is dead, so a permanent tax seems even less likely.

In the meanwhile, high-speed trading by computers created quite an "anomaly" in the market yesterday. It will be interesting to hear how mere humans will eventually explain it — and interesting to see if there's a complete recovery from the losses at the end of the day. Unless the problem was entirely a technical glitch that cascaded out of control, one figures that some major investors think stock prices have been a bit overheated of late, and their sell orders triggered the robotic meltdown.

It also will be interesting to learn who might have made money while stock prices were bouncing around. Is it paranoid to think that some of the quants who created the algorithms that led to the craziness might have... hmmm.

Regulating Wall Street: things looking up!

Judging by how upset Barack and his Banker Buddies have been in recent days, the financial reform bill coming out of the Senate is likely to be a lot stronger than most of us expected. Sherrod Brown and Ted Kaufman's proposal to reimpose caps on deposits and liabilities a single bank can have on its books looks like it will be part of the final bill; and while Blanche Lincoln's proposal to force banks to divest themselves of their derivatives desks is far from a sure thing, it is doing well enough to make Tim Geithner squirm.

Most encouraging is that support for these and other new restrictions have bipartisan support, showing that members of both parties have noticed the popular rage against big finance, and are afraid to buck it. There is support on both sides of the aisle for the Volcker Rule, which would bar banks from proprietary trading; support on both sides for reinstating Glass-Steagall separation of commercial and investment banking; and an extraordinary alliance of the left and the right calling for expanding GAO powers to audit the Fed.

The bank lobby — with full support of the Robert-Rubinesque contingent of the Obama administration — is working mightily to construct "placebo amendments," substitute proposals senators could vote for that would make it appear they support reform while continuing to serve the plutocrats.

So, stay alert. As many have noted, we have a once-in-a-generation opportunity to rein in the banks. If it doesn't happen this time, it won't happen until the next mega-recession comes along.

Derivatives

I have to admit I was very pleasantly surprised by the proposed derivatives regulations that came out of the Senate's Agriculture committee — so much so, that I think it would be fantastic if somebody could find a way to assign farm price supports, the next time they come up, to Banking and Finance.

Blanche Lincoln provided real leadership, and Charles Grassley bravely decided to satisfy Iowa voters rather than adhere to monolithic Republican Party discipline. (Well, maybe he had permission.) However it happened, the bill reported out of committee is significantly better than the House version.

Perhaps it's because those farm state Senators have a genuine understanding of the way derivatives are supposed to work. The reason Agriculture is responsible for derivatives is because farmers need futures contracts to manage risk . Those contracts always have been traded openly and, by and large, they have done the job for both farmers and end users of agricultural products. Markets do work, provided they are not diddled by those who look for ways to profit from market failure.

So now it's "wait and see" time again. I don't think the Republicans are dumb enough to filibuster a financial reform bill, but who knows? With enough pressure from Fox News and the minions of Dick Armey, it still could happen.

More important to the final bill, though, is what comes down from the White House. Geithner and Summers have been mouthing some of the "correct" pronouncements lately, but nobody ever should forget just how much money Wall Street has to sling around. A hell of a lot was tossed at Obama during the 2008 campaign, and thanks to the Supreme Court's decision in the Citizens United case, there will be a hell of a lot more to be tossed around in the future.