"We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America."
"All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside."
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After the Great Depression, the United States reformed its financial system to make it the envy of the world. Well regulated markets gave us consistently cheap sources of funding, a reliable currency and solid economic growth for the middle class for a generation. In recent years, however, middle class incomes have stagnated or shrunk even as productivity has grown. Meanwhile, the financial sector has expanded and expanded the portion of the national income it appropriates enormously, giving a small number of people truly astonishing incomes. Along with this vastly increased cost, Wall Street and the new aristocrats of the corporate CEO offices have generated a disturbing number of crises, each larger than the last.
The cost -- in lost employment, tax payer funded bailouts, and hidden subsidies from the Federal Reserve -- of (partially) cleaning up after the most recent bubble, now seems likely to exceed all the profits Wall Street has made for a decade or more. In other words, Wall Street is no longer making money -- it is simply taking it from the rest of us.
Major reform is needed. Markets are our most powerful tool for creating general prosperity. But under current rules, the financial markets are merely fleecing the population for the benefit of a privileged few, not supporting economic growth and good jobs for ordinary people.
The Financial System Preservation Act.
Whereas many financial innovations of the last decades appear to be forms of insurance designed to evade insurance regulation, or instruments designed to enable fiduciaries to evade their responsibilities to their beneficiaries, to further deception of customers, or to evade regulation or taxation, and
Whereas, some instruments have created insurance in assets where the holder has no insurable interest, thus creating incentives to destroy value and even life, and
Whereas, some states have abandoned traditional rules of insurable interest designed to prevent insurance from creating incentives to injure the assets and lives of others, and
Whereas, evasion of the law threatens the effectiveness of our regulatory system and the stability of our economy,
now therefore, be it enacted that:
No financial instrument may be sold on a securities exchange, by a registered securities dealer or broker, by any Federally insured institution, or by means of an instrumentality of interstate commerce unless it has been declared by the SEC to be both safe and effective. The burden of proof of establishing safety and efficacy shall be on the issuer, seller or other proponent of such a finding.
For purposes of this statute, safe shall mean "not presenting any significant or new risk to the stability of the financial system or the enforcement of any law regulating such system or any part of it, or having benefits significantly outweighing any such risk." No instrument shall be deemed safe unless it is readily understood by the persons to whom it is marketed and for the use to which it is meant to be put.
For purposes of this statute, effective shall mean "providing an identifiable benefit to an identifiable customer or consumer, not readily available with preexisting instruments."
Any instrument that is, in substance or effect, a form of insurance shall not be deemed safe or effective unless it is subject to ordinary state-law insurance regulation.
No person shall be permitted to sell insurance or any instrument that is substantially insurance to a person who does not have an insurable interest in the asset or life being insured. This provision shall apply to all contracts or instruments, whether characterized as insurance, financial instruments or otherwise, that are negotiated, agreed to or have effect in the United States and which affect interstate commerce, or where the seller, buyer or holder thereof makes use of any instrumentality of interstate commerce in negotiating, approving or enforcing such instrument.
No instrument with a primary purpose of deception or regulatory evasion shall be deemed safe and effective.
Increasing a seller, holder, trader or other person's ability to evade otherwise applicable internal or regulatory supervision, regulation or taxation shall be deemed a risk and not a benefit. Regulation by a state or other authority shall not be evidence of safety or efficacy.
The SEC may issue rules and regulations to further this Act or its enforcement. Violations of this provision or rules or regulations hereunder may be enforced by the SEC or a private action for damages.
The Anti-Bubble Housing Affordability Act.
Banks have abandoned their traditional role of policing creditworthiness. One of the consequences was a credit-driven housing bubble, that drove housing prices to levels that are not affordable for ordinary Americans. Although it is difficult to force banks and other lenders to act responsibly, we can at least make them bear the consequences of their actions.
This statute does three things.
First, it makes mortgages non-recourse, so that lenders must lend based on actual security. In practice, banks rarely pursue deficiency judgments, so this provision mainly removes unfair threats from lender/borrower negotiations.
Second, it requires lenders to appraise residences based on fundamental value, thus eliminating a major path to the real estate bubble, in which banks loaned unreasonable amounts to allow borrowers to pay unreasonable amounts because they were confident that when the borrower ran into trouble, the property could be sold for an even more unreasonable amount.
Third, it explicitly bars the bubble practice of qualifying borrowers on the assumption that they could sell the property to pay the loan. Borrowers who cannot pay back the loan from income will be forced to use their other assets or borrow based on those assets, rather than bootstrapping a loan to support bubble prices by assuming a continuing bubble.
The expected result of the Act will be to reduce reckless lending and restore banks to their traditional role of enforcing credit responsibility. This will necessarily reduce the ability of some people to borrow -- especially those who are unlikely to be able to repay. However, it should also lower housing prices generally and reduce the likelihood of future bubbles, thus benefiting all future homeowners and allowing our national savings to go to more productive uses.
No Personal Recourse. Every loan secured by the borrower's primary residence shall be non-recourse.
Fundamental Value Appraisals. No Federal agency, and no other lender that benefits from Federal deposit insurance or other explicit or implicit Federal insurance or guarantee, shall make or guarantee any loan secured by the borrower's primary residence, unless the lender shall first determine that the amount of the loan, together with all other outstanding or contemporaneous loans secured by the property, does not exceed 90% of the replacement, rental or market value of the property, whichever is lower.
No Liar's Loans or Predatory Teaser Rates. No Federal agency, and no other lender that benefits from Federal deposit insurance or other explicit or implicit Federal insurance or guarantee, shall make or guarantee any loan secured by the borrower's primary residence, unless the lender shall first determine that the borrower is capable of repaying the loan and interest from the borrower's income without refinancing.
In the event that the loan has floating or varying interest rates, the calculation shall be made using the highest permissible interest rates under the loan contract. Any portion of a loan that exceeds the amount permitted by this provision shall be unenforceable.
For purposes of this provision, the borrower's income may include reasonably determined income from the property being financed.
Any determination of a borrower's income must be based on reasonable documentation, such as IRS forms or their equivalent. In the case of borrowers with substantially variable income, the lender must have a reasonable, documented, basis for determining that future income is likely to exist.
Securitzation. The provisions of this Act and any defense it creates shall be enforceable against lenders and their transferees, including holders in due course.
The Volker Rule.
No bank, corporation or other entity holding Federally insured deposits or otherwise benefiting from an explicit or implicit Federal guarantee shall trade in financial securities for its own account.
No bank, corporation or similar entity that trades in financial securities for its own account shall engage in the businesses of (1) accepting demand deposits, or (2) brokering or advising clients with respect to trades in financial securities.
No bank, corporation or similar entity shall control or be controlled by any bank or corporation that engages in businesses that it would be barred from engaging in directly, nor shall any such bank or corporation be controlled by any bank, corporation or similar entity that controls a bank, corporation or similar entity that engages in such barred activities.
The Rapid Trading Taxation Act.
Whereas, rapid computerized trading of financial securities has minimal social value but creates harmful instability in financial markets, now therefore:
A tax of one tenth of one cent per share, bond or contract is hereby imposed on every trade on a public market.
The Chief Executive Anti-Aristocracy Act.
Excessive pay leads to poor incentives, disconnection from the realities of the organization and bad decision-making, regardless of the structure of the pay. When executives believe that they may be paid enough to be independently wealthy, they may be tempted to focus on the short-term, game incentive systems, distort accounting results, or reduce expenditures that are essential for the company's long term prospects in order to maximize short term profits. Executives paid so much that they can view themselves as fundamentally different from or separated from those whose lives their decisions affect are unlikely to make sound decisions.
No officer of any corporation or similar entity with securities traded on any public exchange or regulated by the Securities Act, or having more than 1000 employees and engaging in interstate commerce, shall be paid more than 25 times the median American wage.
For purposes of this act, pay includes wages, salary, bonus, deferred or contingent compensation, grants of stock, options and other securities or derivatives, carried interest and all other monetizable payments, grants or privileges.
Transferable instruments with a market value shall be valued at no less than market value at the time of grant.
Instruments with no readily ascertainable market value shall be valued by comparison with similar instruments or based on the value of a derivative constructed to approximate sale, whichever is higher.
Any instrument with limits on transferability or no readily ascertainable market value at the time of grant shall be revalued five years later and at the time of any realization event (within the meaning of the IRC) and any value at the revaluation date that exceeds the value that would have been permissible on the issue date shall be forfeit.
This act may be enforced by the SEC, any affected corporation, or any employee or shareholder of an affected corporation.
If the plaintiff shall prevail on the merits or otherwise, plaintiff shall be entitled to 1/3 of any recovery. The remainder shall be forfeit to the US Treasury as an excise tax.
The Act for Executive Answerability.
Every employment contract offered to an Officer or other employee by a corporation or similar entity with securities traded on any public exchange or regulated by the Securities Act, or having more than 1000 employees and engaging in interstate commerce, shall be unenforceable if it provides for pay (including bonus, deferred compensation retirement benefits and all other monetizable emoluments) exceeding 10 times the pay of the lowest paid employee in the firm, unless the contract is approved by
(1) majority vote of the shares of the corporation, voting in the manner specified in the corporation's articles of incorporation or the applicable state statute,
(2) majority vote of the shares of the corporation voting on the basis of one vote per human shareholder, and
(3) majority vote of the employees of the corporation voting on the basis of one vote per employee.