April 14, 2010
The Honorable Harry Reid The Honorable Mitch McConnell
United States Senate United States Senate
Washington, D.C. 20510 Washington, DC 20510
Dear Senators Reid and McConnell:
Nineteen months after the most devastating financial crisis since the Great Depression, our financial system remains at risk. Neither the bill passed earlier this year by the House, nor the one currently under consideration in the Senate would have prevented the crisis. Without serious restructuring, they will not prevent a future crisis.
Sound financial markets are the bedrock of a strong economy. Over the last decade, under both Democratic and Republican leadership, our financial sector moved away from core market principles -transparency, competition, free flow of information and the essential discipline of failure - that allowed the US economy to thrive. Restoring the integrity of our financial markets and providing the foundation for economic recovery, requires re-committing to these principles.
We, the undersigned, call on you to fulfill the responsibilities of your position by joining together in nonpartisan cooperation to pass legislation that AT A MINIMUM would have prevented the crisis we just endured. Such legislation must include ALL of the following reforms or be considered incomplete:
1. Eliminates a perpetual system of government sponsored corporate bailouts financed by the government or private industry.
2. Increase minimum capital requirements for banks to no less than 8%. Apply additional riskweighted capital requirements for: a) risk concentration, b) significant interconnectedness with other financial institutions and c) illiquidity which assumes a decline in collateral values. Create standard metrics for these variables.
3. Require on balance sheet reporting of all liabilities with disclosure of related material information including all contingent claims (including but not limited to swaps, SIVs and VIEs). Provide a private right of action for failure to comply and for knowingly aiding and abetting securities fraud.
4. Require all standardized derivatives to be traded over exchanges and central clearinghouses with pricing transparent to market participants include a strong presumption that most existing OTC transactions would be standardized. Require all inter-bank and inter-dealer contingent claims (including but not limited to derivative and swap transactions) that cannot be standardized to be reported on a daily basis to a regulated transparent clearinghouse. Mandate significant and consistent margin and regulatory requirements across standardized and OTC contingent claim transactions.
5. Create standardized Pooling and Servicing Agreements and mandate the timely availability of electronically usable loan level information for asset backed securities, covered bond and similarly structured transactions prior to sale. Provide a private right of action and personal liability for sponsors of securitized underwritings.
6. Establish a timeline for the resolution of Fannie Mae and Freddie Mac.
7. Mandate that credit rating agencies be subject to the same legal standards as other market participants.
Sincerely,
Marcellus Andrews, Barnard College
Marshall Auerbach,Senior Fellow, the Roosevelt InstituteGlobal Portfolio Strategist, RAB Capital
Dean BakerCo-director, Center for Economic and Policy Research
Dan BergerManaging Principal, Berger & Montague, PC
William BlackAssociate Professor of Economics and Law, University of Missouri-Kansas CityFormer senior financial regulator
Margaret CannellaFormer Managing Director and Global Head of Credit Research and U.S. Corporate Strategy, JPMorgan
Timothy A. CanovaBetty Hutton Williams Professor of International Economic Law, Chapman University School of Law
Jim ChanosFounder and President, Kynikos Associates
Bowman CutterSenior Fellow, the Roosevelt Institute
Former Managing Director, Warburg Pincus
Raj DateChairman and Executive Director, Cambridge Winter Center
Barry EichengreenDepartment of Economics, University of California
Thomas FergusonProfessor of Political Science, University of Massachusetts, Boston
Senior Fellow, the Roosevelt Institute
Jerome S. FonsAdvisor, K2 Global PartnersFormer Managing Director, Moody's Investors Service
Michael GreenbergerLaw School Professor, University of Maryland School of LawFormer CFTC division director
Teresa GhilarducciSchwartz Professor of Economic Analysis, the New School University
Geoffrey HealPaul Garrett Professor of Public Policy and Corporate Responsibility, Columbia Business School
Leo HinderyChairman, the US Economy/Smart Globalization Initiative, New America Foundation
Arjun JayadevFellow, Roosevelt InstituteUniversity of Massachusetts, Boston
Rob JohnsonSenior Fellow and Director of the Project on Global Finance, the Roosevelt InstituteFormer Chief Economist, Senate Banking Committee
Ethan KaplanColumbia University
Mike KonczalFellow, the Roosevelt Institute
Jan KregelLevy Economics Institute of Bard College
Robert KuttnerFormer Chief Investigator, Senate Banking CommitteeCo-editor, the American Prospect
Henry C K LiuChairman, Liu Investment Group
Dariush P. MaanaviFormer Managing Director and Head of Corporate Equity Derivatives, Merrill Lynch
Jeff MadrickSenior Fellow, the Roosevelt InstituteEditor, Challenge Magazine
Jamie MaiFounder and President, Cornwall Capital
Frank PartnoyProfessor of Law and Finance, University of San Diego
Robert E. PraschProfessor of Economics, Department of Economics, Middlebury College
Robert ReichProfessor of Public Policy, Goldman School of Public Policy, University of California BerkeleyFormer U.S. Secretary of Labor
Josh RosnerManaging Director, Graham Fisher & Co
Peter SolomonFounder and Chairman, Peter J Solomon Company
Walker F. ToddAttorney and economistFormer legal and research officer, Federal Reserve Banks of New York and Cleveland
Lynn TurnerFormer Chief Accountant, Securities and Exchange Commission
Lawrence J. WhiteProfessor of Economics, Stern School of Business, New York University
Randall WrayLevy Economics Institute, Bard College