Adventures in Ass Covering

It looks like any number of financial institutions are realizing that Congress is going to do them like a College Republican does a drunk sorority girl if they don't get their act together, so they are now taking actions that they should have taken years ago. (See Barn door, cows missing)

First, the Federal Reserve has finally concluded that it should regulate some more of the non-bank lenders out there:

Tuesday that it will extend its regulatory umbrella to cover a group of lenders that includes several major originators of subprime loans, policing whether they follow federal laws that protect consumers of mortgages, credit cards and other financial products.

Federal banking regulators already oversee companies that own banks, known as holding companies, along with the banks themselves. Under the new policy, the Fed will extend the same oversight to other businesses owned by those holding companies, such as units that make home-equity loans.

The policy places subprime lenders such as CitiFinancial, an arm of Citigroup, and Wells Fargo Financial, an arm of Wells Fargo, under Fed oversight for the first time. The same laws protect all borrowers, but until now, no federal agency watched to make sure non-bank subsidiaries followed the law.

And we also have the FED suddenly requiring the financial institutions submit their pay policies to them for review.

What is going on here is that there is significant push-back in Congress against the Obama proposal that the Federal Reserve be the primary systemic risk regulator, and the desire of the Fed to be the "financial consumer protection agency", as Bernanke is aggressive lobbying for this role shows.

When this is juxtaposed with increasing support in Congress for the Paul/Grayson proposal to audit the central bank, and we are having a gallows conversion, where they attempt to show that they are really concerned about regulation and protecting ordinary people.

Hopefully, this won't work, and we will see a Federal Reserve with a smaller, and not a larger, role than it has today.

I think that the only two people who want the Fed's role to expand are current chairman Ben Bernanke, and White House Economic Advisor Lawrence Summers, who is hoping to be Fed chair one day.

We are also seeing the same things with banks and overdraft fees, where proposals in Congress to regulate fees, as well as "automatic overdraft protection" and check clearing orders, are creating an orgy of heretofore non-existent concern for consumer among the big banks, with Bank of America, Wells Fargo, and J.P. Morgan Chase announcing that they will be rolling back their fees.

There is no big surprise here, the banks know that if they can always raise fees again.

The argument is the same: "We'll be good, there is no need for legislative restrictions."

What goes unspoken is the idea that once people are looking the other way, the rates will go back up again.

It's the same thing with the Conference Board, an organization created for, and funded by, business executives, who are now saying that they will be issuing a report suggesting fixes in how executive compensation is determined:

The report to be released today urges companies to avoid paying for personal travel, hefty severance packages or above-market returns on deferred compensation. The recommendations were endorsed by the California State Teachers' Retirement System, AT&T Inc. and others.

"In order to restore trust in the ability of boards of directors to oversee executive compensation, immediate and credible action must be taken," the report from the New York research group said.

This is not about fixing things, this is simply an effort to create the appearance that things might fix themselves, in order to forestall any potential laws or regulations that would prevent excessive compensation from returning in the future.

I suppose that there is a silver lining to all this, which is that the people involved are clearly worried, which perhaps real changes can be initiated.