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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. 8. Mandate a separation of the roles of Chairman of the Board and CEO for regulated financial institutions.
Without these reforms, our economy remains at risk.
We would like to meet with you at your earliest convenience to discuss these concerns. To contact us, please call Erica Payne at 212-481-8302 or email her at epayne@tesseractllc.com.
Sincerely,
Marcellus Andrews, Barnard College Marshall Auerbach Senior Fellow, the Roosevelt Institute Global Portfolio Strategist, RAB Capital Dean Baker Co-director, Center for Economic and Policy Research Dan Berger Managing Principal, Berger & Montague, PC William Black Associate Professor of Economics and Law, University of Missouri-Kansas City Former senior financial regulator Margaret Cannella Former Managing Director and Global Head of Credit Research and U.S. Corporate Strategy, JPMorgan Timothy A. Canova Betty Hutton Williams Professor of International Economic Law, Chapman University School of Law Jim Chanos Founder and President, Kynikos Associates Bowman Cutter Senior Fellow, the Roosevelt Institute Former Managing Director, Warburg Pincus Raj Date Chairman and Executive Director, Cambridge Winter Center Barry Eichengreen Department of Economics, University of California Thomas Ferguson Professor of Political Science, University of Massachusetts, Boston Senior Fellow, the Roosevelt Institute Jerome S. Fons Advisor, K2 Global Partners Former Managing Director, Moody's Investors Service Michael Greenberger Law School Professor, University of Maryland School of Law Former CFTC division director Teresa Ghilarducci Schwartz Professor of Economic Analysis, the New School University Geoffrey Heal Paul Garrett Professor of Public Policy and Corporate Responsibility, Columbia Business School Leo Hindery Chairman, the US Economy/Smart Globalization Initiative, New America Foundation Arjun Jayadev Fellow, Roosevelt Institute University of Massachusetts, Boston Rob Johnson Senior Fellow and Director of the Project on Global Finance, the Roosevelt Institute Former Chief Economist, Senate Banking Committee Ethan Kaplan Columbia University Mike Konczal Fellow, the Roosevelt Institute Jan Kregel Levy Economics Institute of Bard College Robert Kuttner Former Chief Investigator, Senate Banking Committee Co-editor, the American Prospect Henry C K Liu Chairman, Liu Investment Group Dariush P. Maanavi Former Managing Director and Head of Corporate Equity Derivatives, Merrill Lynch Jeff Madrick Senior Fellow, the Roosevelt Institute Editor, Challenge Magazine Jamie Mai Founder and President, Cornwall Capital Frank Partnoy Professor of Law and Finance, University of San Diego Robert E. Prasch Professor of Economics, Department of Economics, Middlebury College Robert Reich Professor of Public Policy, Goldman School of Public Policy, University of California Berkeley Former U.S. Secretary of Labor Josh Rosner Managing Director, Graham Fisher & Co Peter Solomon Founder and Chairman, Peter J Solomon Company Walker F. Todd Attorney and economist Former legal and research officer, Federal Reserve Banks of New York and Cleveland Lynn Turner Former Chief Accountant, Securities and Exchange Commission Lawrence J. White Professor of Economics, Stern School of Business, New York University Randall Wray Levy Economics Institute, Bard College
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