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Archive for the ‘Financial Regulation’ Category

ASSOCIATED PRESS Senate banking committee member Bob Corker says the new consumer agency has “absolutely nothing – zero – to do with the financial crisis.”

By Patrice Hill

The financial reform bill expected to clear Congress this week is chock-full of provisions that have little to do with the financial crisis but cater to the long-standing agendas of labor unions and other Democratic interest groups.

Principal among them is a measure to make it easier for unions, environmental groups and other activist organizations that hold shares to put their representatives on the boards of directors of every corporation in the United States.

The so-called “proxy access” provision, which activist groups say they will use to try to improve oversight of corporate financial practices, has provoked a backlash from the Business Roundtable, U.S. Chamber of Commerce and other major non-Wall Street business groups.

“This legislation includes provisions totally unrelated to the financial crisis which may disrupt Americas fragile economic recovery” and lead to increasing political battles in the boardrooms, said John J. Castellani, president of the roundtable.

Business groups are also rankled that the legislation would impose costly new burdens on airlines, utilities and other non-financial businesses that were victims rather than villains in the crisis, simply because they use financial derivatives to hedge their businesses against risks such as fluctuations in oil prices, interest rates and currencies.

Such hedging practices played no role in the crisis, though they helped many businesses weather the financial turbulence and recession that followed in the aftermath of the Wall Street storm.

Other provisions of the financial legislation, which goes before the full Senate on Thursday for a vote and likely passage, favor Democratic constituencies directly by requiring banks and federal agencies to hire and do more business with them.

The bill would create more than 20 “offices of minority and women inclusion” at the Treasury, Federal Reserve and other government agencies, to ensure they employ more women and minorities and grant more federal contracts to more women- and minority-owned businesses.

The agencies also would apply “fair employment tests” to the banks and other financial institutions they regulate, though their hiring and contracting practices had little or nothing to do with the 2008 financial crisis.

“The interjection of racial and gender preferences into America’s financial sector deserves greater media exposure” before Congress debates and passes the massive 2,400-page bill, said Kevin Mooney, a contributing editor for Americans for Limited Government‘s daily newsletter.

The powerful new consumer protection agency that is the centerpiece of the reform bill also would provide substantial employment opportunities and funding for Democratic and social-activist groups such as the Association of Community Organizers for Reform Now (ACORN), critics say.

Rather than focus on the abuses in the mortgage-lending market that led to the crisis, the new consumer agency would have broad-ranging powers to regulate and punish virtually any company that has a financial relationship with consumers – even those that had nothing to do with the crisis, said Sen. Richard C. Shelby, Alabama Republican.

Mr. Shelby, the ranking member of the Senate Banking, Housing and Urban Affairs Committee, sought to craft a more tailored role for the agency in weeks of negotiation over the Senate bill.

“During our negotiations on the consumer bureaucracy, my Democrat friends were not focused on the mortgage market. Their sights were set on the rest of the economy,” he said. “The new bureaucracy is an enormous reach across virtually every segment of our economy, and a massive expansion of government influence in our daily financial lives.”

Sen. Bob Corker, a Tennessee Republican who also sought to help write a bipartisan Senate bill more narrowly focused on the problems that led to the crisis, said he fears that an activist director of the consumer agency could use agency power to direct loans to favored constituencies, regardless of whether the loans are sound or pose risks to the banking system.

“This may sound a little far-fetched, but you can have the wrong person in this position – there’s no board, there’s really no check and balance – that you can imagine could use this organization to try to create social justice in the financial system,” he said.

Like the corporate boardroom provisions, many of the activities within the reach of the new consumer agency had “absolutely nothing – zero – to do with the financial crisis,” Mr. Corker said. “But this has become a Christmas tree for those kinds of things, because people realize it’s something that’s going to pass.”

The Washington Times

Is it possible to write a 2,300 page piece of legislation that accomplishes next to nothing and is pretty much completely and utterly worthless?  The answer is yes.  Barack Obama has been trumpeting the Dodd-Frank financial reform bill as the “biggest rewrite of Wall Street rules since the Great Depression”, but the truth is that after the Wall Street lobbyists got done carving it up, the bill that was left was so watered down and so toothless that it essentially accomplishes nothing except creating even more government bureaucracy and even more mind-numbing paperwork.  The bill is so riddled with loopholes for the big banks that it is basically the legislative equivalent of Swiss cheese.  The Democrats in the Senate were ecstatic when they announced that they had secured the 60 votes needed to pass this legislation, but when they are asked about what the financial reform bill will do, most of them are left stammering for some kind of cohesive response.  The sad truth is that most of them probably don’t understand the bill and none of them will probably ever read the entire thing.

So will the financial reform bill do any good at all?

Well, yes.

A very, very small amount.

Essentially, it is kind of like going over to the Pacific Ocean and scooping out a couple of cups of water.

That is about how much good this bill is going to do.

But U.S. Senate Majority Leader Harry Reid is making this sound like this is some kind of history-changing legislation….

“We’re cleaning up Wall Street.”

Oh really?

Charles Geisst, professor of finance at Manhattan College recently had the following to say about this absolutely toothless bill….

Like health-care reform, this bill is being drawn up to grab headlines but its details betray it as nothing more than a slap on the wrist for Wall Street. It is true that Wall Street can commit grand theft and apparently get off with nothing more than community service.

The truth is that most of us never expected the U.S. government to truly take on Wall Street.  The relationship between the two is just way too cozy for that to happen.

So does the financial reform bill actually accomplish anything?

Yes.

Let’s take a look at the “sweeping changes” contained in the bill….

*Federal regulators will receive more authority to monitor everything from mortgages to complex derivatives.  (Oh goody!  Just what we needed – more federal regulation!  As if federal agencies have ever been very good at regulating the financial industry…) 

*Financial firms will be required to reduce the debt they take on and to hold more capital in reserve.  (This will make financial firms marginally more stable, but the truth is that the big banks are so good at accounting tricks that this will not really make much of a difference.  When a big firm is going to fail a few extra bucks in reserve is NOT going to make a difference.) 

*The U.S. government will be given extensive power to seize collapsing financial firms.  Federal regulators would keep collapsing firms operating long enough to prevent a massive panic and would slowly sell off its pieces.  (This does not eliminate “too big to fail” – instead it enshrines “too big to fail” into law permanently.  The bill institutes ”orderly procedures” for exactly how to proceed when the U.S. government steps in and takes over failing financial firms.  Just what we need – more socialism!)

*The financial reform bill creates a new Bureau of Consumer Financial Protection at the Federal Reserve that is supposed to help prevent abusive lending by mortgage and credit card companies.  (Wait a second – this bill gives the Federal Reserve more power?  Who came up with that grand idea?  Yeah, let’s give the fox more power to guard the hen house.  The truth is that the Federal Reserve is one of the core problems with our economic system as we have written about previously.)  

*Some rather toothless regulations will be placed on the derivatives markets, hedge funds and credit rating agencies.  (A big emphasis on “toothless”.)

So what does this legislation not do?

-It does not eliminate “too big to fail”.  The truth is that the biggest banks and financial institutions have been systematically gobbling up a bigger and bigger share of the market and this legislation does nothing to change that.  Anthony Sanders, a professor of finance in the School of Management at George Mason University, says that this bill essentially does nothing about the “too big to fail” problem….

“As far as I can see the ‘too big to fail’ problem is still in place.”

In fact, this legislation may cause even more consolidation in the financial industry, because small firms are going to have an especially difficult time complying with all of the new rules, regulations and paperwork created by this bill.

-The financial reform bill does nothing about the horrific bubble in the derivatives market.  Originally it was believed that some tough regulations were going to be imposed on derivatives trading, but the Wall Street lobbyists were all over those provisions like rabid dogs. 

So now there is loophole after loophole in the bill and the “derivatives problem” still ominously hangs over Wall Street.  Not that there is any way to fix it. 

Nobody actually knows the true total value of all the derivatives in the world, but estimates place it at somewhere between 600 trillion dollars and 1.5 quadrillion dollars.

When the derivatives bubble pops, and it will, there won’t be enough money in the entire world to fix it.

-The financial reform bill does nothing about mortgage giants Fannie Mae and Freddie Mac.  They remain financial black holes that the U.S. government will be forced to pour hundreds of billions (if not trillions) of dollars into.

-A proposal to conduct yearly comprehensive audits of the Federal Reserve was left out of the financial reform bill.  Instead, a very, very, very limited one-time audit of a few of the transactions that the Federal Reserve conducted during the height of the financial crisis was included. 

What we really need is a true audit of the Fed.  The Federal Reserve has never been the subject of a true, comprehensive audit since it was created in 1913.  Considering the fact that the Federal Reserve issues our currency, controls our banking system, sets our interest rates and is basically the core of the U.S. economy, you would think that the American people should have the right to see what is going on over there.

But Ben Bernanke and the rest of the folks over at the Fed fought against the comprehensive audit proposal with everything that they had.  They seemed extremely alarmed that the American people might actually get to take a look inside their books.

The truth is that unless something is done about the Federal Reserve, no true “financial reform” is really going to take place.

But the U.S. Congress could have done at least some good with this bill.

Instead, they have given us a 2,300 page mess that is pretty much completely and utterly worthless.

The Economic Collapse

Chris Dodd, Barney Frank, and Barack Obama insist that the new financial regulation bill pending a vote in the Senate is a necessity to restore stability to troubled markets.  Instead, it looks as though Democrats have been more concerned about quota systems than economic growth.  Buried deep within the bill is a requirement for all regulatory agencies with jurisdiction in economic arenas to start beancounting based on ethnicity and gender, as Diana Furchtgott-Roth discovered:

In addition to this bill’s well-publicized plans to establish over a dozen new financial regulatory offices, Section 342 sets up at least 20 Offices of Minority and Women Inclusion. This has had no coverage by the news media and has large implications.

The Treasury, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the 12 Federal Reserve regional banks, the Board of Governors of the Fed, the National Credit Union Administration, the Comptroller of the Currency, the Securities and Exchange Commission, the new Consumer Financial Protection Bureau…all would get their own Office of Minority and Women Inclusion.

Each office would have its own director and staff to develop policies promoting equal employment opportunities and racial, ethnic, and gender diversity of not just the agency’s workforce, but also the workforces of its contractors and sub-contractors.

What would be the mission of this new corps of Federal monitors? The Dodd-Frank bill sets it forth succinctly and simply – all too simply. The mission, it says, is to assure “to the maximum extent possible the fair inclusion” of women and minorities, individually and through businesses they own, in the activities of the agencies, including contracting.

Well, this just applies to the government itself, right? These 20 agencies won’t intrude on the private sector, so there’s nothing to worry about.  Not exactly:

Lest there be any narrow interpretation of Congress’s intent, either by agencies or eventually by the courts, the bill specifies that the “fair” employment test shall apply to “financial institutions, investment banking firms, mortgage banking firms, asset management firms, brokers, dealers, financial services entities, underwriters, accountants, investment consultants and providers of legal services.” That last would appear to rope in law firms working for financial entities.

Contracts are defined expansively as “all contracts for business and activities of an agency, at all levels, including contracts for the issuance or guarantee of any debt, equity, or security, the sale of assets, the management of the assets of the agency, the making of equity investments by the agency, and the implementation by the agency of programs to address economic recovery.”

This latest attempt by Congress to dictate what “fair” employment means is likely to encourage administrators and managers, in government and in the private sector, to hire women and minorities for the sake of appearances, even if some new hires are less qualified than other applicants. The result is likely to be redundant hiring and a wasteful expansion of payroll overhead.

The media has been analyzing this bill for weeks as it moves fitfully to a floor vote.  Yet none of the reports covered Section 342, which has far-reaching impact into the capital markets and banking system.  It effectively puts affirmative action into every financial transaction and gives the government a huge opening for interfering with economic growth on the basis of bureaucratic whims.  Anyone who has dealt with an EEOC issue will understand the arbitrary interventions this will create — and the damage it will do when every contract and trade can get suspended based on a complaint or even suspicion of violation.

Anyone interested in system stability would have struck these requirements the moment they first appeared.  This is a disaster in the making, and yet another indication that Democrats want to exploit the financial collapse for their goals in social engineering.  (via The Corner)

HotAir

By Karl Denninger

So We Now Have “Financial Reform”?

Posted by Karl Denninger

Who are these guys trying to kid?

The most-important part of the bill, stopping derivative abuse, was watered down to the point of irrelevance.  The exceptions and exemptions that remain for OTC trading are big enough to drive 200 West Street through – sideways – and Goldman will do exactly that.

Nor did we re-impose a hard leverage cap.  You know, the one that existed before 2004?

Nor did we reinstate a hard deposit cap limitation.

Nor did we fix The Fed illegally usurping the appropriation power of Congress or impose an actual audit on them.

Nor did we fix the off-balance sheet or “mark to fantasy” BS – in short, the outright lies printed in so-called “financial reports” every quarter.

President Obama came to the podium yesterday afternoon to “applaud” the passage of the rookery bill in the Senate, looking like he had a laser designator on his forehead – or a load that was about to intrude into his pants.  In a delicious bit of irony the sellout he had just perpetrated on the American People was graphically illustrated by nature:

Many commentators have said that’s a rat – but it doesn’t look like one to me, unless someone chopped off it’s tail.  But no matter what it might be on a species basis it’s definitely a rodent.   The Rat in Chief got one-upped by Mother Nature.  If you don’t appreciate the irony…..

On the other side of things we have Europe, which is really just the shape of things to come here in the US in the near future.  Yeah, I know, everyone says it won’t happen here.  Uh huh.  They said Europe wouldn’t have it happen either a year ago.  “They” were wrong then and they’re wrong now.

There is no solution to the mess we’re in found in borrowing and spending more money.  Yet that’s been the “solution” to recession ever since… well…. forever.  At least since 1929. 

Why has it “worked” up until now?  Well it didn’t work in 2003, as the chart I’ve repeatedly posted showed.  All it did was “support” the economy perpetually and embed into the economic fabric structural deficits.  Medicare Part “D” was one of the most-outrageous of these acts undertaken by the Bush Administration, but it was by no means the only one.

We have lied our way into idocracy.  Bwarney Frank stepped up yesterday to attempt to revise history – few remember that in 2005, as the housing bubble was about to pop, he made a statement in public that “housing wasn’t infested with excessive leverage” and that “housing wasn’t like the .COM bubble.”

Everyone on CNBS and elsewhere is trying to find a way to “restart lending.”  Folks, that’s impossible.  The leverage hasn’t come out of the system as we’ve refused to force those who were excessively levered to take their lumps and go bankrupt!

Back in 2008 I wrote a paper called “Our Mortgage Mess” that was faxed to all members of Congress.   It was, of course, ignored.  Note that this white paper predated the collapse in the market.  The prescriptions are no less valid today than they were in early 08, but they’ve been ignored.

There are three sorts of investment, all of which involve lending of capital.  There’s productive investment, where one expends acquired capital to buy a machine or factory that is reasonably expected to produce more in net earnings than the principal and interest over a reasonable period of time.  There’s speculative investment, where one expends capital chasing some sort of return created by a productive investment (e.g. buying an IPO.)  And then there’s Ponzi investment, where capital is expended where the only possible way to recover that capital is to find someone who will purchase that item from you at a higher price than you paid for it.

(Speculative investment differs from productive investment in that the speculator is not directly involved in the creation of value – he is betting on someone else doing that.)

Ponzi investment always ultimately fails.  It did fail in 2000 and again in 2007.  But instead of forcing out the speculation and bankrupting those who caused the problem we instead supported all of them with insane government policies and swept the bad debt under the rug.

Everyone seemed to think that it “worked” in the mainstream media. 

I never believed it, and have been consistent in saying so.

Now, in Europe, the dead fish are stinking up the joint and cannot be ignored any longer.  This will come to our shores, as we’ve done the same thing here they did there.

It is simply a matter of time.

President Obama and Turbo Timmy are going to wind up eating their words on “recovery”, and if they don’t act soon the gangrene that has been ignored and covered up with flannel is going to wind up reaching the head, at which point it simply won’t matter.

Remember the PIMpCO folks who now say that this is “more than a correction” – they were some of the biggest cheerleaders of “stabilization” and “recovery.”  So was the administration, so was Cramer, so was Kudlow, so has been everyone else.

Last night Kudlow looked like he was about to stroke out on TV.  He knows – and so do the rest of these clowns.  They know they misled you.  They know they sucked you back in with the premise of “Pax Americana” and similar bilge.

All of them know.

Now consider this chart, and what it may be telling you.

Compare carefully what people said at the end of 2007 and what they’ve been saying in the last few weeks and months.  Remember the calls of “no recession” out of Bernanke and others, as we’re now hearing “no double dip.”  Remember the claims by Bush that “the economy is fundamentally strong”, along with Paulson, and how we’re “recovering” now.

If you don’t recognize the symmetry you’re blind.

If you get trapped a second time, it’s your fault.

House Committee on Homeland Security Seeks Cooperation from Max Keiser on Financial Terrorism

Here is an email from a member of the House Committee on Homeland Security to Max Keiser regarding Financial Terrorism. Both the email and Max Keiser’s response had me laughing my head off.

Hi Mr. Keiser,

My name is Chris Beck and I work on the staff of the House Committee on Homeland Security in Washington, DC. I have been reading and listening to you regarding the May 6 stock market plunge and the likelihood that this was an act of financial terrorism. I think this is a huge issue that has not been given enough attention, and may warrant oversight by our committee. I would greatly appreciate the chance to talk to you to make sure I understand the nuts and bolts, and to figure out what avenues may be available to correct what appears to be a massive fraud that could undermine U.S. National Security. Can you please contact me and let me know if you are available to talk?
Thank you,
Chris

Chris Beck, Ph.D.
Senior Advisor for Science and Technology
House Committee on Homeland Security

I asked Max Keiser how he responded.

Max Replied “I told him to investigate this financial terrorist crime happening right now! in real time!”

Max went on to say …

I think it’s really incredible how clueless these people are.

Given the recent track record of corrupt regulators in D.C. it’s not hard to imagine that Chris Beck is wittingly or unwittingly just bird dogging intelligence that will be fed to Goldman and used to package ever more exotic Financial Terrorist weapons.

My position is the government IS Goldman and any info gleaned by this type of thing will end up helping no one BUT Goldman.

Here is the video that Chris Beck was responding to. Play the first few minutes of it. It will have you rolling on the floor.

I am also told that homeland security was interested in talking with David DeGraw about his post on Market Oracle Financial Terrorism Operations: 9/29/08 & 5/6/10.

This reads like a spoof straight out of The Onion, but I have phone numbers and email address and a chain of emails to verify.

It is difficult to believe that anyone on a house committee on homeland security would have responded to those, but it happened.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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