House Approves FinReg, Awaits Senate

As expected, the House passed the financial regulations (237-192) that will surely regulate 'small people' a whole lot more while giving a pass at TBTF Wall Street banks and completely ignoring Fannie and Freddie as if they don't exist.

The Senate will follow suit, I have no doubt even if the vote is being delayed. The usual suspects in GOP who always side with Dems (why don't they just switch parties?) will vote for it, and Scott Brown, who was carried into office with the Tea Party mantra of fiscally conservative, smaller government, may vote for this massive bureaucracy creator of a bill because $19 billion bank tax has been dropped. (People of Massachusetts, be sure to vote this guy down the next chance.)

House OKs sweeping bank rules; Senate vote awaits
(6/30/2010 AP via Yahoo Finance)

"WASHINGTON (AP) -- Nearly two years after a Wall Street meltdown left the economy reeling, the House on Wednesday passed a massive overhaul of financial regulations that would extend the government's reach from storefront thrifts to the executive suites of Manhattan.

"Senate support for the far-reaching bill remained in flux, however. The Senate was forced to delay its vote to mid-July, denying President Barack Obama a victory before Independence Day. Democrats struggled to secure the votes of a handful of Republican senators even after meeting their demands and backing down on a $19 billion tax on big banks and hedge funds.

"The legislation, swelling to more than 2,000 pages, would rewrite the nation's regulatory books. Simple supermarket purchases and exotic derivatives trades would be subject to new laws. And the entire financial system would be placed on a risk watch in hopes of thwarting the next threat of a financial crisis." [The article continues.]

No one knows exactly what's in it or how it may or may not work, as admitted by none other than Chris Dodd, whose name is attached to the bill for history.

Derivatives 'regulation' is just a sop, as it doesn't regulate the bigger chunk of $600 trillion (notional) derivative markets - interest rate swaps and currency swaps. The 'regulation' on prop trading and investing in hedge funds by TBTF Wall Street banks will likely to benefit, not harm, these TBTF banks. It won't reduce risks; on the contrary, it may increase risks as banks will not be required to put a big stake in the venture.

But it squarely puts the private institution (a banking industry cartel or co-op) - the Federal Reserve - in charge of "protecting" the consumer by making decisions on and creating new regulations for all financial transactions that 'small people' do - from mortgage application to grocery shopping using debit card.

One of the promotional line fed to 'small people' is this: "The regulation will put the cap on the interest and fees banks can charge on the credit card." It may sound great, but what it is doing essentially is to put a price control on money. Price control never works in lowering the price of goods and services. Goods and services will simply disappear and go underground. Ask ancient Roman citizens.

$19 billion bank tax has been dropped, and instead the TARP money will be used. That's the money extorted by Hank and Ben and the obliging Democratic Congress against the overwhelming opposition from taxpayers. So we are paying for it.

How is regulating 'small people' going to prevent the next financial crisis? (Did you know that we were out of the previous financial crisis? I thought we're still in the middle of it.) Derivatives control will not be there in any meaningful way, Fannie and Freddie will likely cost $1 trillion and the government refuses to deal with them while the FHA and Ginnie Mae churn out government-backed subprime mortgages.

Besides, the next big crisis, as it has been shaping up for the past few months over there in Europe, may be of totally different character anyway. Instead of private debt crisis (mortgages, credits, ABS, MBS, CDO, CDS on these debt instruments), it is going to be sovereign debt crisis and currency crisis. Instead of CDS, we will have the blowup of interest rate swaps and currency swaps, which this so-called regulation doesn't address. There's no need to remind you that the US government is the world-largest debtor and keeps on getting larger.

My conclusion is therefore highly cynical. The only purpose of this bill is to regulate us the 'small people' so that the government can keep track of one of the most vital and most important activities in life - finance. Free flow of money and capital is what defines a free and productive society. This bill is about the government CONTROL of that flow. You can guess what kind of society that they want, can't you?

And the government doesn't even have the guts to do it directly; it has delegated that authority to a private industry cartel. It is selling us the 'small people' down the river.

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