Category Archive 'Financial Reform Bill'

16 Jul 2010

America Gets Financial Reform

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The New York Times rejoiced in the passage of the massive and occult 2300-page Financial Reform Bill with its customary propagandistic progressive nonsense.

Congress approved a sweeping expansion of federal financial regulation on Thursday, reflecting a renewed mistrust of financial markets after decades in which Washington stood back from Wall Street with wide-eyed admiration.

The bill, heavily promoted by President Obama and Congressional Democrats as a response to the 2008 financial crisis, cleared the Senate by a vote of 60 to 39, largely along party lines, after weeks of wrangling that allowed Democrats to pick up the three Republican votes to ensure passage.

The vote was the culmination of nearly two years of fierce lobbying and intense debate over the appropriate response to the financial excesses that dragged the nation into the worst recession since the Great Depression.

The result is a catalog of repairs and additions to the rusted infrastructure of a regulatory system that has failed to keep up with the expanding scope and complexity of modern finance.

Over the last half-century, as traders and lenders increasingly drove the nation’s economic growth, politicians of both parties scrambled to get out of the way, passing a series of landmark bills that allowed financial companies to become larger, less transparent and more profitable.

Usury laws were set aside. Banks were allowed to expand across state lines, sell insurance, trade securities. The government watched and did nothing as the bulk of financial activity moved into a parallel universe of private investment funds, unregulated lenders and black markets like derivatives trading.

That era of hands-off optimism was gaveled to an end on Thursday as the Senate gave final approval to a bill that reasserts the importance of federal supervision of financial transactions.

The financial crisis, of course, had absolutely nothing to do with usury, banks expanding across state lines, selling insurance, or trading securities. The crisis had everything to do with mortgage lenders who, rather than being unregulated, were specifically federally required to make more risky loans to persons with dubious credit. At the center of the current financial crisis are the federally-created mortgage corporations and they are completely overlooked by the new legislation.

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As the Wall Street Journal explains our saviours are now going to protect us with a bevy of new agencies and a blizzard of yet-to-be-defined regulations, to be worked out later behind closed doors.

The bill, to be signed into law soon by President Barack Obama, marks a potential sea change for the financial-services industry. Financial titans such as J.P. Morgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp. may be forced to make changes in most parts of their business, from debit cards to the ability to invest in hedge funds.

Congress approved a sweeping rewrite of rules that touch every corner of finance in the biggest expansion of government power over banking and markets since the Great Depression.

The Senate passed the bill 60-39 Thursday, following House passage last month. Earlier in the day, three northeastern Republicans joined with Democrats to block a filibuster, allowing the bill to squeak through.

Now, the legislation hands off to 10 regulatory agencies the discretion to write hundreds of new rules governing finance. Rather than the bill itself, it will be this process—accompanied by a lobbying blitz from banks—that will determine the precise contours of this new landscape, how strict the new regulations will be and whether they succeed in their purpose. The decisions will be made by officials from new agencies, obscure agencies and, in some cases, agencies like the Federal Reserve that faced criticism in the run-up to the crisis. …

The legislation creates a council of regulators to monitor economic risks; establishes a new agency to police consumer financial products; and sets new standards for the way derivatives are traded. “These reforms will benefit the prudent and constrain the imprudent,” Treasury Secretary Timothy Geithner said in a press conference. “Strong banks, the well-managed financial innovators, will adapt and thrive under the new rules of the road.”

Republicans said the bill could jeopardize the recovery by constraining credit and crimping the banking industry, and chided the expansion of government power it envisions.

The bill “is a 2,300-page legislative monster…that expands the scope and the powers of ineffective bureaucracies,” said Sen. Richard Shelby (R., Ala.).

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It’s all a farce, of course. The professional political class is simply taking advantage of the financial crisis it created itself to ride to the supposed rescue and carve itself out another huge chuck of power over the economy.

Well-connected people with the right kinds of background and education will regulate in collusion with the wealthiest and most influential financial industry players, friends of the system in Washington will get favors, their less-well-connected competitors will get the shaft, higher entry barriers will be put into place, and regulators when they leave office will move on to more lucrative positions and consultancies. The powers that be will prosper and the public will pay.

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Still the financial system will survive:

Kate Sullivan: One day we’ll smarten up and pass some laws and put you out of business.

Lawrence Garfield: They can pass all the laws they want. All they can do is change the rules. They can never stop the game. I don’t go away. I adapt.

—Other People’s Money (1991)

10 Jul 2010

Saturday, July 10, 2010

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James Carville’s own poll finds that 55% of Americans believe Barack Obama is accurately described as a socialist.

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Red China’s People’s Daily says that the Taliban are training monkeys (macaques and baboons imported from the jungle) in Waziristan to use AK-47s, Bren guns, and trench mortars against US forces whose uniforms the monkeys are being taught to recognize.

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Democrat Financial Reform Bill includes racial and gender quotas for US financial industry.

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With the Social Security system soon to go broke, even democrats are talking seriously about raising the retirement age to 70. (Talking Points Memo)

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San Francisco (America’s longest and most impressive exercise in misgovernment) regulated pot brownies and grudgingly tabled a proposal to ban the sale of pets other than fish.

05 Jul 2010

“America the Screwed”

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John Maudlin looks at the economic situation and sees nothing but bad news piled upon bad news.

Unemployment is high and is in reality going higher if you count those who would take a job if they could get one. Incomes are weak. Plans to purchase discretionary items are falling. Housing is likely in for a further drop in prices. The stock market is not exactly booming. Treasury yields are falling, not from a credit crisis or a flight to quality, but because of economic conditions (deflation). Money supply is flat or falling. Prices are under pressure. The list goes on, and all factors are indicative of deflation.

As noted last week, the data suggests we could see weak growth in the last half of the year. Over two-thirds of the past quarter’s 2.7% growth was from inventory rebuilding, which surveys seem to show is abating as inventories begin to stabilize.

I was on Larry Kudlow’s show (links below) last Tuesday, and he gave me some time to air my views. My main concern, as readers know, is that we may have a weak economy in the latter half of the year and then introduce a large tax increase, which my reading of the economic studies on tax increases suggests will throw us into recession. Recessions are by definition deflationary. (Not to mention what another one would do to unemployment and the stock market!) With inflation at less than 1%, could we see the central banker’s nightmare of outright deflation? We very well could. I think that is what the bond market is saying.

Beyond the threat of economic destruction via deflation, we have additionally the reality of dishonest and irresponsible regulation.

    “Why don’t you reform yourselves? That task would be sufficient enough.”
    – Frédéric Bastiat

I’ll finish with this thought. This financial reform bill should be thrown out and they should start over. So much has been tagged onto this bill that has nothing to do with reform but is all about political agendas. It is also far too vague. Essentially, they create all these new committees or empower the bureaucracies that missed it last time to come up with the actual details of regulation. For all intents and purposes, a small number of unelected individuals will be given almost total control to write new rules overseeing a huge part of our economy. No matter how well-intentioned, this is not something that should be done in closed rooms.

We need major reform, of course. And when are we going to get to Freddie and Fannie, which are totally ignored but will cost the taxpayer the most? Local Congressman Jeb Hensarling has it right. He estimates there are about 3 unintended consequences on every page of that 1,200-page bill.

29 Apr 2010

The Dodd Bill: HuffPo Gets It Right

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Frank Luntz debunks the democrats’ supposed financial “reform” at Huffington Post of all places. This editorial would fit just fine on any conservative blog site.

The New York Times’ headline said it all: “Off Wall St., Worries About Financial Bill”. The Democrats in Washington may think it’s a slam dunk, but the rest of America doesn’t agree.

Look, those who are on the side of significant financial reform are fighting on the side of the angels — and with broad public support. We are fed up with Wall Street abuses and arrogance that makes life for the rest of us on Main Street more difficult. Let’s hold people and businesses more accountable and responsible for what they do and how they do it.

But that doesn’t suddenly equate to support for the legislation now being considered by the Senate. In exactly the same way that the public wanted healthcare reform, just not Obama’s healthcare reform, they want something done to punish the perpetrators of the financial meltdown, but not at the expense of their own checking accounts — or American economic freedom.

The dirty secret of the Senate financial reform bill is that some of its biggest supporters work on Wall Street. Recipients of taxpayer bailout money have no concerns about the bill — in fact, the CEOs of Citi and Goldman Sachs have publicly endorsed it, and several of the other big banks have expressed support. It keeps the “too big to fail” guarantees in place for another generation of financial services companies.

But here’s where it gets really interesting. The Democrats supporting the current legislation have assured an anxious electorate that whatever funds are used to create whatever regulatory scheme created will come from the banks, not the taxpayers. Let me emphasize that so that even casual readers will catch it: the Democrats promise that you won’t pay for their legislation, banks will.

Really?

Since when have corporations ever paid taxes, fees or penalties? Employees end up paying in the form of lower salaries and benefits. Customers end up paying in the form of higher costs.

And in this case, every account holder will be forced to pay higher fees on their checking account and savings account. That’s you, my friendly reader. Can you say “checkbook tax”? I can, and I think lots of candidates will be saying it come November. Is that what you really want to do to your constituents, Senator Lincoln? Is that what you really want to explain on the campaign trail, Senator Bennett?

But it goes deeper than just taxation and regulation. Wall Street can pass it all onto consumers. Main Street cannot. And that’s because Wall Street firms have all those pesky well-connected, nicely dressed lobbyists to ensure that whatever is passed strengthens their hand at the expense of the little guy.

Regardless of what side you’re on, the financial reform bill is special interest heaven — a bill written by lobbyists, for lobbyists, and will probably be implemented by lobbyists. The Dodd bill has carve-outs right from the get-go. Real estate agents, title companies, the Farm Credit system, even Fannie Mae and Freddie Mae are exempt from its onerous and costly provisions. And for everyone else, it’s been a special interest feeding frenzy.

More than 130 companies have publicly hired lobbyists seeking their own loophole. Mars Candy wants to continue to use derivatives to hedge against price hikes in sugar and chocolate, so they’ve hired a lobbyist. Harley Davidson wants to protect dealer financing of their bikes, so they’ve hired a lobbyist. And eBay wants to not harm its subsidiary, PayPal, so they’ve hired … well … a team of lobbyists.

But most average Americans — the ones who bailed Wall Street out in the first place — cannot afford lobbyists, and won’t be exempted from the legislation.

There’s a reason why American trust in government is at an all-time low. Voters believe legislation like this is passed not for the public interest, but for special interests. And that is certainly the case with the Dodd bill.


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