The Fed's obsession with secrecy is another major problem. Take Congressman Ron Paul's popular bill to subject the central bank to audits like every other federal financial agency. The Fed pushed back vindictively through Alvarez. He warned that, if passed, the bill could cause the Fed to raise interest rates—it remains a mystery how an audit could affect macroeconomic conditions on which rates are based. Even when Geithner—himself a former New York Fed chief—asked for a public review of the Fed's murky governance and structure, the secretive agency declined.

In August, a federal judge granted a Freedom of Information Act request by Bloomberg News to reveal the identities of banks that borrowed from 10 Federal Reserve programs during the peak of the financial crisis last fall, the dollar amounts and the collateral pledged. The Fed claimed that the material was confidential and would hurt the banks' "competitive position." Nonsense. Americans have the right to know how their money is spent, and the information also has historical value in understanding the meltdown. "One way or another," says Florida Representative Alan Grayson, "the Fed is going to have to come clean." Maybe. Maybe not. The Fed won't willingly give it up—unseemly behavior, you would think, for a regulator.

But at least the public would get some measure of satisfaction if executive compensation were reined in, right? That's not coming along well, either. All of the reform packages contemplate limiting executive compensation or, at least, bonuses. The administration plans to support "say on pay," which means that shareholders in public companies would get the right to vote on executive pay. But such votes would be nonbinding on companies' management and boards.

U.S. Treasury Secretary Tim Geithner had a front-row seat to the recent financial meltdown at his post as New York Fed chairman. Critics complain that he fiddled while Wall Street
imploded and question whether he has the will to hold the culprits in the financial collapse accountable now.
AFP PHOTO/Carl de Souza
U.S. Treasury Secretary Tim Geithner had a front-row seat to the recent financial meltdown at his post as New York Fed chairman. Critics complain that he fiddled while Wall Street imploded and question whether he has the will to hold the culprits in the financial collapse accountable now.
President Obama ran on promises to make the financial regulatory system more transparent, but his record so far has been much the same as his predecessors.
White House Official Photographer/WENN.com
President Obama ran on promises to make the financial regulatory system more transparent, but his record so far has been much the same as his predecessors.

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All hope is not lost. The administration and congressional Democrats do support a promising reform called the Consumer Financial Regulatory Agency (CFRA). Obama's 80-plus-page proposal contains yawning gaps that Congress may fill and the financial industry will fight: Insurance isn't covered, neither are 401(k) retirement plans, and the majority of financial consultants and planners (including all the mini-Madoffs out there) evade scrutiny and standards. But the CFRA would actually wrest consumer-protection powers away from the Fed, which has them now and has failed consumers utterly.

Critically, a CFRA could allow scammed consumers to go to court against the securities industry. Of course, this is a bridge too far for the financial industry. Its lobby, the most powerful in recent American history, has won every major legislative battle in the past 20 years. Wall Street's lobbyists and their congressional allies can be expected to fight hard. They'll call in all their markers to ensure that securities fraud and other financial crimes cases won't be heard in front of hometown juries.

There's something more encouraging: The CFRA, at least as now envisioned, would be a model of financial federalism, allowing states to pass even more stringent protections.

The money lobby will have more trouble beating down this reform because of the Supreme Court's Cuomo v. Clearing House Association decision. Though it carries the name of the current New York attorney general, Andrew Cuomo, the 5-4 opinion this past summer amounts to a last big regulatory gift to the consumers from former New York Attorney General Eliot Spitzer, who tried to probe the big national banks about whether their credit interest rates for racial minorities were ratcheted up. The Bush administration sued to block New York from enforcing its laws on national banks, a posture continued by Obama's lawyers. But the high court's four liberals, plus usually arch-conservative business ally Antonin Scalia, collaborated to vindicate Spitzer. The decision appears to give the go-ahead to states to pursue big-time financial criminals even if the federal government won't do it.

Despite their atrocious management and performance, the big banks have been propped up, enabled and enshrined in their competition-thumping oligarchy by Washington. In a pleasant surprise, the court is allowing the states to brandish a whip hand to rein them in.

Too big to contain, probably, are the derivatives, especially the synthetic (also known as naked) CDS that crashed us last fall. Warren Buffett, among others, thinks that this financial plutonium can't be controlled and that it should be outlawed, as it was until 2000. But a new ban may already be off the table. Barney Frank, usually the most avid reformer on derivatives, pointedly left out a ban on naked CDS deals in the proposal he submitted in early October. The Obama team wants default swaps cleared by a "central counterparty"—in other words, on a public exchange. That way, we're told, if the slaughter starts, we'll see it and stop trading before it's too late.

It's not enough. Naked swaps are the equivalent of financial gang rape. As soon as hedge funds, investment banks and big-time short sellers sense that a bond is flailing, they can pile on with as many derivatives as they like to make millions in what are, in effect, side bets in a craps game. Today, electronic trades take five milliseconds, according to the New York Stock Exchange. The central-counterparty market only applies to standard, rather than "customized," derivatives. So if you're savvy enough to put a few bells and whistles on your swap, you can still push it through the dark digital over-the-counter alleys, far from the gaze of prying regulators. We're just as vulnerable as we were in the dizzy days of AIG, JP Morgan, Lehman and Bear Stearns.

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