Financial Reform Bill Will Not Stop the Next Meltdown

By Greg Hunter’s   

The much awaited financial reform bill was finished up in an overnight marathon House and Senate committee session last week.  Now it appears there is a holdup in the Senate because of the $19 billion bank tax contained in the legislation.  Several Senators on both sides of the isle want to remove the tax leaving a bill that must be paid for by taxpayers or not implemented at all.   This bill came about as a result of the near collapse of the financial system brought about by reckless bankers with little oversight and regulation.  It is supposed to reign in the banks and not allow any bank to be “too big to fail.”

Some of the bill’s highlights, according to published reports, include:  A provision called the Volcker Rule was supposed to ban banks from investing with hedge funds and private equity funds.  Back in the 2008 financial meltdown, the Fed bailed out hedge funds and private equity firms because they were in business with the banks.  Their losses could have caused major banks to become insolvent.  The Volcker Rule was watered down in the bill so banks can still invest there but with a little less money.

The more than $600 trillion derivatives market was supposed to get some tough regulation and force banks to spin off risky trading operations.  Loopholes were created for the banks so they can keep trading those profitable but risky securities.  There are some new restrictions, but in the grand scheme of things, it’s not nearly enough.  (Some say the real value of the derivatives market is more than a $1,000 trillion.)

The rating agencies that gave top grades to toxic debt dodged a bullet.  The new bill makes it harder for investors to sue the bond rating companies for losses.  Also, not much will get done until after a two year study on the rating agencies is done by regulators.  These folks vouched for trillions of dollars of insolvent junk that was supposed to be equal to the “risk free” return of treasuries.  Those wildly optimistic ratings helped cause the financial crisis, and nothing is going to be done for two years?  In my view, this is simply outrageous and borders on a criminal cover-up. (Click here for an overview of the bill from The Wall Street Journal.)

There are going to be some increased capital requirements for the banks and financial industry.  Will more cash on hand and the rest of the financial reform bill end the idea that some banks are “too big to fail?”  FDIC Chairman Sheila Bair says yes it will.  (Click here for the Bair story.) Former FDIC Chairman Bill Isaac says it will not, “We have 5 banks that control over 50% of the banking system, and none of those five banks are ever going to be allowed to fail no matter what this bill says. . . The bill ends “too big to fail” if you are not too big and, also, if the economy is not in too much trouble.”   When the economy does get into trouble, expect déjà vu all over again.  Isaac says, “If we are in the middle of a crisis, they’re going to do the same thing next time as they did this time.  They stop the crisis by stopping failures.”  (To see Isaac’s complete interview on CNBC click here.)

 There is no telling how lobbyists will sway regulators to implement the new bill after it is signed into law.  Some say the legislation is more advantageous to big banks.  One Wall Street watcher says it might just allow them to get bigger than they are now.  Others say the new bill might make them smaller, but everyone agrees it could have been much worse for the big banks. Their stock prices all rallied on Friday after the announcement the bill was finished.  I predict consumers will be the big loser.  Bank fees on everything will be going up to pay for additional costs to the banks for the new regulations.

One small bright spot, the one time audit of the Federal Reserve is still in the bill.   According to a Bloomberg story, U.S. central bankers face a one-time audit of emergency loans and other actions taken to combat the financial crisis since 2007. Under another change, the central bank, after a two- year delay, will have to identify firms that borrow through its discount window and participate in the Fed’s purchases or sales of assets, such as mortgage-backed securities.”  (Click here for the complete Bloomberg story)  That’s not much, but it is a step in the right direction.

What this so-called financial reform bill did not address was failed mortgage giants Fannie Mae and Freddie Mac.  The federal government took them over in 2008.  The two represent more than $6 trillion in liability to taxpayers.  I guess if Congress ignores this budget busting black hole, it will just disappear.

As I said earlier, this legislation is supposed to end “too big to fail” and reign in the banks to prevent another financial meltdown.  It will do neither.  Bill Isaac says, “There is no reform of the regulatory structure that brought us this problem.  I don’t see this bill doing much good at all.”  

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  1. Chris

    This bill should be called the Big Bankster Final Mop-Up Bill. As it seeks to take to the cleaners any effort to hold them criminally liable for all the financial white collar crime the Mega-Vampire Banks resort to, the chief of them Goldman Sachs and JP Morgan Chase. This bill will give the Federal Reserve even broader powers to takeover everything from a hot dog stand to a Fortune 500 company. This will allow the Black Hole Federal Reserve to grow even larger and more authoritarian. Good Job sellout transnationalists!

    • Greg

      Good name. I wish I would have thought of it. Thank you!

  2. George

    I have not had time to read the entire 2,000+ page bill. Of course, neither have the people in Congress that vote on it. Please explain how this is going to help the people. From what I can see, the people’s cost will go up and Wall Street prospers.
    How can some one vote to re-elect someone who has voted for ONE bill without reading it? Some Dems and Republicans have voted for three or more! Vote the BUMS OUT.

    • Greg

      Bravo George.

  3. Steve

    Well, this is typical. For how long have lawmakers on both sides of the isle been receiving financial benefit from the banks and corporations? There’s your answer to the problem. Look at the Federal Reserve and how it is run. It’s a prviate corporation. That says it all. Who gets to invest in this private corporation (club)? Lawmakers, dignitaries of other countries, ambassadors to other countries, etc. Why would a CEO of a large corporation take a job to be the ambassador to some country with such a small salary compared to what he/she earned as CEO of a major corp? why? Because they get to invest in the Federal Reserive. Why is that significant? How much does the american people get charged to make or borrow money from the Federal Reserve? How much do the people that get to invest in the Federal Reserve make everytime they role billions and trillons out of the Federal Reserve? For every dollar bill they charge the american people 1 dollar plus 10%. For every 5 dolar bill they charge the people 5 dollars plus 10%, 20 dollar bill, 20 dollars plus 10%, etc, etc. If you could leave your job as a CEO of a corp and invest in the Federal Reserve how much could you make in a year for every dollar you invest when they role billions out of it every year? So this answers the question why it was so easy to just give the banks a trillion dollars in the name of saving the economy. This is why China will continue to back our money. The leaders are making a killing off us. The lawmakers are so bought off it is rediculous and they won’t hurt the banks because it would cut their noses off to. John F. Kennedy was going to get rid of the Federal Reserve. You don’t believe me? Go to any coin shop and ask them for currency from the days of the Kennedy administration and they will produce for you currency that does not have on it “Federal Reserve Note”. Why because Kennedy had set up printing presses and starting producing our money outside of the Federal Reserve and he was in process of shutting it down completely and was going to get us back on the gold standard to back up our money. To bad now because it is pretty much to late to do that. We are a global economy now and it would be impossible to go back to the gold standard or get rid of the scamming Federal Reserve. But you bet your sweet a@@ the lawmakers and the diplomats and the dignitaries of the world will be cashing in on our continual debt.

    • Greg

      At this point you can only try to protect yourself. Thank you for the comment.

  4. Lynn Roberts

    This financial reform bill gives MORE power to the private bank: Federal Reserve. They will be producing regulations that impact all financial institutions – banks, loan companies, credit unions, on & on. I haven’t read the entire bill, but I read enough to realize this is not for the people of the U.S. This is for the benefit of the shadow gov- the same people making $$ from this current crisis.

    Greg lists links to Wall Street Journal & FDIC to get more info about this bill. These are the people who benefit from this monstrosity – do you think they’re really telling you what’s in the bill? NO! I’ve heard news-readers explain what’s in the bill & how it will benefit the people … WRONG. I’ve heard all sorts of explanations – all misstating what’s in the bill and all sidestepping the real issue: this is just further entrenching the Federal Reserve Bank into the lives of U.S.

    The Constitution charged Congress with coining money. There is NO provision allowing Congress to delegate their jobs to private banks. They need to just do their job rather than delegating, then doing all these other jobs that don’t even need to be done & aren’t authorized by the Constitution.

    • Greg

      Very good info and points on the subject!! Thank you.

  5. Marla Murray

    Obama intends to sign new legislation on this coming up Wednesday. Of course there is nothing concrete yet and the rules are lax at best. This will give the banks time to get their 2 cents in and influence things. This will give Goldman Sachs the time it needs to rebuild its empire. Of course Bank of America will have it say too. BAC at $14 a share might be an interesting long term buy here.

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    Great story!

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