U.S. reforms will nick, not nuke, big banks

May 20, 2010

A sigh of relief is due on Wall Street. The procedural finale for the Senate’s debate on financial reform came just in time for banks. The bill got tougher as the talk dragged on. But it could have been worse. While banks’ future activities and profitability may get pinched, their core business model appears intact.

Had President Barack Obama prioritized bank reform over healthcare at the height of the crisis, the biggest players might have been broken up, hard caps placed on balance sheets, and banking and investing operations separated. More recently, the Securities and Exchange Commission’s lawsuit against Goldman Sachs  in April helped re-energize advocates for such changes.

It’s safe to say the most radical ideas have fallen by the wayside. A “systemic risk council” of federal regulators will recommend new capital and leverage rules to the Federal Reserve, which will be the most influential bank regulator. The Federal Deposit Insurance Corp will have the power to wind down any failing large, systemically interconnected institution.

In addition, large, complex financial firms will have to submit plans for their rapid and orderly shutdown should they go under. And for the first time the derivatives that are currently traded privately will mostly be forced to go through clearing houses and in some cases trade on exchanges. Bank lobbyists have defended their corner: it’s not the regulatory reign of terror their clients’ most vociferous critics wanted. But it’s hardly a “light touch” regime, either, and it does involve real changes.

There’s still the chance that the bill’s limitations on banks’ derivatives activities could be further tightened. And the Senate’s final effort will then need to be blended with the House version, a process during which restrictions on derivatives and possibly proprietary trading — the so-called Volcker rule — will really be hammered out. So the book isn’t yet fully written.

Meanwhile, Wall Street’s continued unpopularity will no doubt spawn further attempts to tax, regulate and restrict the sector. And that’s ignoring the inevitable empty rhetorical attacks in this election year. For now, though — perhaps surprisingly — pragmatic policy has trumped punitive politics.


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The current so-called financial reform Bill will give to the huge monopoly banks, through their own created banking club, i.e., the Federal Reserve, control over their remaining banking competition, such as, credit unions, Fidelity, Vanguard, Charles Schwab, American Century, etc… which act like banks with checking accounts, savings, mutual funds, lending and brokerage services.

In three years, using their Federal Reserve, the monopoly banks of the “old” financial order have bankrupt, bought, or gained control of much of their banking competition, which they label by their media as “the shadow banking system”.

Their past banking competition included the likes of Lehman Brothers, Country Wide Financial, Bear Stearns, AIG, Merrill Lynch, Washington Mutual, CIT, etc…

These monopoly banks will be the only king in the United States who has a money creating machine and who decides interest rates. Their competition will be controlled, bought or bankrupt.

It should be no surprise that the largest monopoly banks left in power are Citibank, J.P. Morgan Chase, Wells Fargo, Bank of America, Morgan Stanley and Goldman Sachs.

All, except Bank of America, are part of the “old” financial order that mushroomed into power about 150 years ago during and after Lincoln’s Tax War. Remember, Lincoln declared in his First Inaugural Speech (paragraphs 4, 21 and 32) that he started his war solely to collect import taxes under the Morrill Tariff Act of 1861.

With the passage of his National Bank Act of 1863, Abraham Lincoln, a puppet of Northern banks and industries, re-established Alexander Hamilton’s centralist banking system in the United States, which set the foundation for the present day Federal Reserve System.

Under his First Legal Tender Act of 1862, Lincoln printed worthless paper money displaying images of Alexander Hamilton and Lincoln’s Treasury Secretary Salmon P. Chase (as in Chase Bank), which ultimately destroyed State banking.

Right now these monopoly banks are borrowing from the Federal Reserve at 1% and lending to consumers, via credit cards, at up to 30%. Price gouging is always the result of establishing monopolies.

Reminds one of J.P. Morgan’s government contract with Abraham Lincoln, where Morgan bought Federal rifles from the U.S. government for $3.50 and then sold them back to the U.S. Army for $22. J.P. Morgan’s rifles were notorious for blowing off the thumbs of the soldiers.

Posted by jebahoula | Report as abusive

The empire strikes back!

So, after all the public posturing by Washington
politicians over the front-running, double dealing, ponzi-scheming, arrogant, corrupt, Wall Street investment banks, rating agencies, and other assorted less than useless Wall Street and Washington scoundrels feeding off America and it’s people, it’s back to business as usual? Is that what your article is trying to say?

Is it just me or is there an underlying tone of smugness to this article. A sort of gloating at the success of the industry lobbyist’s efforts at protecting this favored class of powerful and elite at the expense of ordinary citizens. Let them eat cake, eh!

Posted by garrisongold | Report as abusive

I was going to respond to this article in length but I could not have said it any better than “jebahoula”! Same to “garrisongold” Both great outlines. You are brothers in mind! How many times do they have to pull the wool over American taxpayers’ heads before we realize what’s going on. The article has a kind of sophomoric naivety when it plays out that big banks have in any way anything to fear from politicians and their regulations when it is through over-regulation that the monopoly grows as it absorbs the truly well performing smaller banks that are choked out of life by government intervention.

Posted by usbychoice | Report as abusive

A Stock Market Does Not an Ecomomy Make

I’m sure that the “Bush/Obama Plunge Team” has been very busy lately.All these articles that in hindsight give the reasons why the market goes up or down never give the plunge free marketeers any credit. Their signiture is that firstly there’s a downward movement (the plunge) followed by a radicle resergence upward,usually with some overshoot. If there’s a real stock market crash, of course, the market will in short order continue its abrupt decent, and the only thing to do would be to close the markets. If the market isn’t really crashing, this price control activity gives an appearence of market instability that portends a coming market catastrophe.

It seems to me that this euro thing has been a mixed blessing to Obama, Bernanke, the big banks, et al.. Sure the problems caused many people to question whether the “recovery” is little more than a fiction of idle minds, but it also raised the dollar, sells government bonds, and calls attention away from the set of real problems facing the US economy. (I leave it to the reader to decide if there is any truth to the charges the several big US banks have for a long time been in the making of this euro crisis. Certainly this has been a great US victory in the covert dollar vs euro war.)

Posted by gAnton | Report as abusive

So, investment bankers are back in their offices tonight smoking cigars and laughing at America — is that the story…? Everyone knows that Wall Street is run by gangsters and sociopaths — it’s time to put more of these people in orange suits…

Posted by mckibbinusa | Report as abusive

“The Federal Deposit Insurance Corp will have the power to wind down any failing large, systemically interconnected institution.”

Yeah, unless they are Freddie and Fannie. Both were part and parcel of the derivitive market but are conspicuously absent from any congressional scrutiny. Gee, I wonder why? Aren’t they “systemically connected” to Chris Dodd and Barney Frank?

Posted by DavidMac1556 | Report as abusive