The collapse of the financial institutes is scary not only for the short term but for the long term. There is a reason that the financial institutions were deregulated for a very good reason. The regulations were strangling the banks and the investment houses. As a matter of fact deregulating this industry was the reason for the big bubble that bailed out the failed Presidency of Bill Clinton.
Every State in the nation regulates any insurance company, bank, or capital finance company doing business within their borders. Just in terms of pure regulation the insurance industry is regulated more then any other industry. They are regulated by every State, territory, and DC. As well as being regulated by the SEC, and other Federal agencies. It was not a lack of regulations that caused this. That was not the cause.
What caused this collapse was that every warning sign was ignored, covered up or in regards to the regulators, i.e. politicians bought off. This is about GS-5s making $20,000 a year being used to analyze multi billion dollar corporations, and their balance sheets. This is about tellers giving out mortgages, gee here you go Jack, this is your deposit, your balance, your toaster, and your new $500,000 mortgage.
So as to cut costs banks and mortgage companies do not pay well. That is a simple statement of fact. Banks historically hire people fresh out of high school or college and start them at the bottom and work then through their different departments while sending them off to the Banking Institutes’s training program. Until you get into senior management you starve in Banking.
Within the insurance industry to audit them requires a special accounting certification that I never was comfortable that the people who had them knew what they were doing. In other words it was too easy for incredibly greedy people to take apart the regulatory process for their advantage.
I know, I know this is dummying down a very serious problem and there is much more to this then what I have said here. The time and space constraints limit my opinion.
Here is my six part plan.
Senator McCain should announce that the moment after he swears in his Attorney General he will command him to set up a special prosecutor. Said prosecutor to begin with Fannie Mae and Freddie Mac and go wherever the path might lead to prosecute any and everyone who did anything illegal.
The first piece of legislation I will send to the congress will be CEOs and their ilk can have their golden parachutes. However, bonuses of more then $1,000,000 in value can only be paid out over 12 quarters. If they leave their corporations in tatters then they do not get to collect their bonuses.
Fannie Mae and Freddie Mac are to be cut loose from the government. Franklin Rains and Jim Johnson using the mortgage industry as a social experiment should never be allowed to happen again. There were people on welfare and subsistence receiving mortgages who had credit ratings of less then 200.
The only mortgages that can be allowed for 100% of the value are those guaranteed by the Veterans Administration.
The second piece of litigation The statute of limitations on corporate fraud to be extended from 3 years to 15 years. Also the selling of paper whether it be for gold or home loans the seller has a shared risk for up to two years after the completion of the sale.
I would ask for legislation banning the use of federal dollars to bail out any corporation that fails because of bad management decisions, fraud, or lack of prudence. Corporations that harmed by natural disasters or acts of God will continue to be helped. No more bailouts though.
That is how I would do it and what I would recommend.