Harry Ried wants to bring Wall Street Reform to the senate floor next week. The house already voted on this in december, we were so busy with health care on the senate side at that time we missed this. We really need to burn the phones to all senate republicans. Some are wavering to support it so they do not look like they are for big banks and wall street. This reform bill is not just for banks, but all types of corporations that are non-banking.
I am going to summarize the bill below. Please keep in mind we already have 8 regulatory agencies that are to supposedly oversee our banking and money flow, what happened...not enough...NO...we need one more new regulatory agency...oy vey...WE CAN STOP THIS AND WE MUST. I know you are so tired, but its not worth losing our liberties. We have been sleeping way too long, we have already given our government way too much power. George W...wasn't much help on the conservative movment, so we have hard work, but in the end it will be all worth it. Below is the summary:
It creates yet another federal agency, the Consumer Financial Protection Agency, which is supposed to oversee consumer financial instruments like mortgages and credit cards. This will be in addition to the more than half a dozen agencies that already exist to provide this oversight in one form or another, like the OCC, SEC, OTS, FDIC, CFTC, FHFA, NCUA, OFHEO and the Federal Reserve, not to mention consumer protection agencies that exist in virtually every state.
I’m thoroughly pleased that they have decided that creating another regulator will fix everything just like the other eight did!
This leads us to the creation of a Financial Services Oversight Council, the Financial Analog to the Director of National Intelligence. This is a council chaired by the Secretary of the Treasury comprised of a number of regulators, where they are supposed to “to identify global trends and developments that could pose systemic risks to the stability of the economy of the United States or other economies”A reasonable observer would make the argument that the Treasury Secretary and the Fed Chairman should be doing this already without a chartered council, but section 1102 of this bill gives them the authority to get paid even more to do it, to build up a staff to do it, and to operate and conduct meetings without transparency (i.e. exempt from the disclosure provisions of the Freedom of Information Act). Sounds like another Federal Reserve board doesn’t it?
What is disturbing about the creation of this council is what it is chartered to do: to regulate institutions that it deems are “too big to fail”. Per sections 1103-1108 of this bill, it is delegated the authority to do this capriciously , and to single out particular institutions to publicly subject it to greater regulation of its choosing. The criteria which it cites several examples of factors it may use to make this determination, but includes the clause “Any other factors that the Council deems appropriate”. Translation: Effectively, this agency will have the ability to single out particular companies of its choosing for more punitive regulation as it deems fit. In effect, this regulatory agency will reserve the right to impose bill of attainders against them, a power which congress itself is constitutionally barred from employing.
Finally, this bill seeks to impose restrictions on the exchange of so-called Over-The=Counter (OTC) derivatives, such as Mortgage Backed Securities and Credit Default Swaps. The rapid devaluation of these derivative securities was a direct result of the bursting housing bubble and was the impetus for the ensuing bailouts to save hyper-leveraged financial giants from their own stupidity. The proponents of this bill intended to require that all OTC derivatives be traded through an public and transparent exchange (good). But as Adam K White explains on Seeking Alpha due to various bastardizations and amendments, the banking industry has managed to include loopholes in this bill which will ensure that most, if not all, OTC derivatives are exempt from these exchange and transparency requirements. Thanks to these loopholes, nearly half of all OTC derivatives are explicitly exempt from exchange trade, and the other half can trade through “Alternative Swap Execution Facilities” and be exempted that way.
Basically, Congress has, through amendment to this bill, created the mechanism for dark pools of Derivatives to exist. This arrangement will enable many of the largest players to continue business as usual with minimal interruption, while allowing Congress to take credit for passing illusory financial regulatory reform.
The primary economic danger of this bill comes not in the form of increased government power, nor in the creation of super-regulatory committees with unconstitutional powers, or in the creation of illusory exchanges for OTC derivatives with more loopholes than Swiss cheese.
The real danger here comes in the moral hazard, the belief that a safe environment exists which is really based on fraud and illusion, that will be engendered in investors through the addition of another expensive layer of oversight that does nothing to address the real issues of the financial system- most of which it created through its own regulations. Countless individual and institutional investors will be given confidence to jump head first into a financial pool believing it is significantly deeper than it really is.
Congressional Democrats will score points in the short term for ramming this through. But inevitably, they have done little more than provide a haphazard set of Rube Goldberg-esque controls which will in the long run do little to address the systemic problems of our financial system: problems of incentive alignment between investors and financial institutions; credit manipulation by the federal reserves use of the discount rate window as an instrument of domestic policy; market manipulation by the government and its unintended consequences; and the moral hazard induced by the illusion of strong regulatory oversight where little exists.