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If financial reform is passed — and it looks like it will be — how can we tell if it’s working? Mike Konczal offers a couple of metrics:

The most obvious problem would be if the market finds resolution authority non-credible and starts lending to the five biggest firms as if they had a permanent government and Federal Reserve backstop….The next thing to watch is whether derivatives are reformed, and how much the laws are gamed in general. Will Goldman Sachs drop its bank holding company status, add a 20 percent non-financial wing and declare itself an end-user, and whatever other complicated acrobatics the lawyers are dreaming up? That all depends on the wink-winks that the regulators will give, and we will never see those on the outside. All we can do is watch for the effects.

I’d add a couple of other things. The first is leverage. This is easy to hide and hard to measure, so it’s imperfect. Still, there are various good measures of leverage in the banking industry, and if reform works they should stay at moderate levels even when the economy picks up.

The second is easier: industry profitability. If reform works, Wall Street should be less profitable. Not because anyone is trying to punish them (though obviously plenty of people would like to), but because a safer, more real-world-oriented banking sector is inherently less profitable than the trading and finance-oriented one we have right now. If industry profits stay at 2005-07 levels, it’s solid evidence that nothing has changed and they’re acting pretty much the same way as always. So that’s four things to watch for:

  • Borrowing rates for large banks
  • Derivatives trading
  • Leverage ratios
  • Industry profitability

My guess is that on all four of those metrics, we’ll end up improving on where we were in 2005-07 but not by as much as we should. But at this point, any improvement at all is a big win.

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is the first thing despots go after. An unwavering commitment to it is probably what draws you to Mother Jones' journalism. And as we're seeing in the US and the world around, authoritarians seek to poison the discourse and the way we relate to each other because they can't stand people coming together around a shared sense of the truth—it's a huge threat to them.

Which is also a pretty great way to describe Mother Jones' mission: People coming together around the truth to hold power accountable.

And right now, we need to raise about $400,000 from our online readers over the next two months to hit our annual goal and make good on that mission. Read more about the information war we find ourselves in and how people-powered, independent reporting can and must rise to the challenge—and please support our team's truth-telling journalism with a donation if you can right now.

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