Financial "Reform" Bill Is Just Another Tax Bill

for the general public to help out big investors (including Goldman Sachs).

SEC announcing civil charges against Goldman Sachs on Op-Ex (option expiration) day which tanked the stocks across the board, as President Obama pushes for his financial reform bill.

The move was so in-your-face and transparent it is not very hard for pundits to come up with a headline like this:

Wall Street suspects Goldman charges 'not coincidental' to financial reform effort (4/16/2010 New York Post), or;

Goldman Sachs case could help Obama shift voter anger (4/18/2010 LA Times)

as Obama threatens another catastrophe unless his financial reform bill passes:

Obama: Fresh crisis without new financial rules (4/17/2010 AP via My Way News)

If you think you heard something like that before, you did. This president said it would be "catastrophe" if his $800-plus billion so-called stimulus bill didn't pass in February 2009. Well, the catastrophe continues on job creation front, which this bill was supposed to be about. It has added to already catastrophic public debt. (See the debt clock ticking on this blog, upper lefthand corner.)

"..."Opposing reform will leave taxpayers on the hook if a crisis like this ever happens again," the president said", according to the above AP article.

Ummm, Mr. President, have you read what Chris Dodd wrote in that bill? The so-called reform will keep taxpayers on the hook for permanent bailout, by creating the $50 billion fund to dismantle "too big to fail" firms in an orderly manner so that the creditors get their money back. Just like Goldman did on credit default swaps it purchased from AIG. And who will those creditors be? They are likely to be big banks, hedge funds, pension funds, private equity groups - i.e. big boys.

Means for orderly dissolution already exists, and it's called bankruptcy. But no, that won't do, because in bankruptcy the creditors will lose some money! Can't have that!

So, my personal take remains that this move by SEC against the biggest corporate donor to the Obama campaign (GS) is to promote the administration's push for their "financial reform" by creating a perfect boogieman (who will likely to benefit from the "reform") to deflect the public's attention, when in fact this financial reform bill is yet another scheme to defraud US taxpayers who will be forced to fund the perpetual bailout in one form or another. Part of it may be increased and/or new tax (or "fees" if they prefer), part of it will be indirect, such as added fees passed on by the financial institutions who will be required to pay for the bailout fund.

If you think the financial institutions as defined by the bill are banks only, you will be in for a surprise. The definition of financial institutions is so broad it could include manufacturing companies who extend credit to customers (auto companies, big IT infra companies come to mind; basically the same companies that were considered "financial" and were protected from short selling, back when the market was rapidly deteriorating in September 2008). It will be another added cost to those businesses. Do you think it will encourage more hiring?

Just like the stimulus bill that hasn't stimulated, various job bills (that secure jobs for public workers), the health insurance "reform" bill, this financial "reform" bill is basically a tax bill. Beneficiaries? Who do you guess will benefit from increased tax?

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East Coast Wants To Kill Silicon Valley Entrepreneurism

As always. This time, they will attempt with "Friend of Angelo" Chris Dodd's 1,300-page financial so-called "reform" bill, which already passed the Senate Banking Committee and now is being pushed through the Senate with hardly anyone paying attention as the stock market continues its melt-up. Financial firms' stocks are leading the way.

Among many other things to hate in the Dodd bill, the bill will require startups to register with the SEC before it attempts to raise funds, and wait for 4 months while the SEC review the application. Investors, who wants to fund these startups, will have to have more than $2.3 million net worth, or more than $450,000 annual income.

In startups, 4 months is an eternity these days.

If you have some brilliant idea and want to run with it, you can't, if the bill becomes the law. You have to apply to an agency under the jurisdiction of the US federal government - an agency who turned a blind eye to Madoff's ponzi, who is yet to do anything about high-frequency trading (or fleecing the investors) by the large Wall Street banks and hedge funds not to mention naked short selling, leveraged financial derivatives, etc.

If you want to invest in someone else's brilliant idea but your net worth is less than $2.3 million, you can't.

It looks like yet another form of restriction of capital flow, which is vital for a free market to function. The federal government wants to control that flow as it sees appropriate, which, in my wild guess, differs radically from what entrepreneurs and investors have in mind.

And yet another way to kill the goose that lays golden eggs.

For more, check out this article: Dodd's Financial Reform Bill Makes the Angels Cry (4/1/2010 Reason.com)

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Dodd Pushes Bill to Freeze Credit-Card Interest Rates

Has Chris Dodd heard about "an unintended consequence"?

According to Bloomberg,

"Senate Banking Committee Chairman Christopher Dodd said he will introduce a bill today to freeze interest rates on existing credit-card balances before a federal law takes full force."

Credit card issuers across the board have already jacked up the rates to stratosphere in anticipation for a new federal law (CREDIT CARD ACCOUNTABILITY RESPONSIBILITY AND DISCLOSURE ACT OF 2009, signed into law on May 22, 2009) which is supposed to regulate the credit card industry to "protect consumers".

So now Chairman Dodd wants to freeze these higher rates in order to protect consumers? How would that constitute a protection? Is this some kind of cruel joke? Or doublespeak, where "protection" means "extortion"?

The damage is already done for consumers by passing this Act. Now Dodd's bill will probably make things worse, as the recent government actions are any indication. So much for "protecting consumers", which is the mantra for every government legislation.

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Ron Paul & Alan Grayson to Chris Dodd: No Bernanke Confirmation Until...

... the Federal Reserve releases documents of their activities ...

Ron Paul and Alan Grayson Want the Answers
(10/8/09 Lewrockwell.com)

Congress of the United States
Washington, DC 20515
10/7/09

Chairman Chris DoddUS Senate Committee on Banking, Housing, and Urban Affairs
534 Dirksen Senate Office Building
Washington, DC 20551

Dear Chairman Dodd and members of the Banking Committee,

We are writing to ask you to postpone the confirmation of Ben Bernanke until the Federal Reserve releases documentation that will allow the public and the Senate to have a full understanding of the commitments that the Federal Reserve has made on our behalf. Without such an understanding, it is impossible to know whether Chairman Bernanke is fit to serve another term and fulfill the Federal Reserve’s dual mandate to ensure price stability and full employment. A list of said documentation is enumerated below.

Since 2007, the Federal Reserve has expanded its balance sheet by $1.2 trillion and taken on substantial credit, interest-rate and foreign exchange risk. It has lent immense sums to some financial institutions against overvalued collateral, while refusing to lend to others with no clear standards as to who was rescued and who was not. It has set up holding companies using no-bid contracts, and guaranteed substantial liabilities of Citigroup, all the while keeping information about its actions secret from the public and Congress. This is in stark contrast to the analogous period in the 1930’s, when the Reconstruction Finance Corporation fully disclosed loans and collateral to Congress.

Today, big banks are being bailed out and have a substantially lower cost of capital through an implicit government backstop even as Americans themselves are seeing their pay cut. This lower cost of capital – at government expense – coupled with increased scarcity of credit is resulting in the banks recapitalizing by charging American consumers higher credit costs, including record overdraft fees and much higher credit card rates.

As you know, the Federal Reserve has a chartered mandate of both price stability and "full" employment. Since 2002, the Bernanke joined the Federal Reserve board has aligned himself with Alan Greenspan’s activities, the incomes of Americans have actually declined in absolute terms, with incomes projected to decline a further 5% in 2009. One quarter of all mortgage holders owe more than they own, with that number projected to rise to nearly 50% by 2010. Consumer asset prices, most importantly housing, continue to fall, and unemployment continues to rise. This raises real questions about Bernanke’s tenure as Federal Reserve chairman, and about where trillions of dollars have gone.

Federal Reserve secrecy must be understood in the context of an intellectual dogma which Alan Greenspan inculcated into the fabric of the Federal Reserve and the economic profession, and which has severely harmed ordinary Americans. Bernanke’s "Great Moderation" speech in 2004 didn’t even consider the idea that the economy was becoming more unstable, even as risks were being built into the system by the politics he encouraged. He ignored evidence of a crisis, saying in 2007 that the turmoil was contained to subprime mortgages, ignoring the bankruptcy of over 100 mortgage originators, and the clear evidence the crisis would spread. Now, even as the crisis is said to be subsiding, we still do not have credit markets that are able to function without substantial government support, we have not addressed institutions that are "too big to fail" which the Fed oversees, bank credit availability is again shrinking (posing risk of further increasing already high unemployment), and toxic assets in the system on the books of both private banks and the Federal Reserve have still not seen price discovery.


Chairman Bernanke’s policy-making errors might be chalked up to errors of judgment, and it’s possible to argue that he has been chastened by the last few years of turmoil. What is more disturbing is how the Federal Reserve has refused to disclose the details of its commitments to the bankers who came close to destroying the economy. The Bernanke Fed’s execution of its dual mandate cannot be judged without consideration of those commitments, which would require the Fed to disclose documents which it still contends the public has no right to see. Specifically, we ask that you postpone the confirmation of the Chairman until after the Federal Reserve discloses:

(1) Information that Bloomberg reporter Mark Pittman has requested via a Freedom of Information Act Request on the Bear Stearns rescue and that the Federal Reserve is contesting in the courts,* and which Manhattan Chief US District Judge Loretta Preska has ordered be turned over by the Federal Reserve.

(2) Information that Rep. Grayson requested in February at a hearing and the follow-up letter on which institutions received the $1.2 trillion added to the Federal Reserve’s balance sheet, how much each institution received, and what was promised in return.

(3) All Federal Reserve documents that went to Attorney General Andrew Cuomo’s office relating to the Bank of America/Merrill Lynch merger in which potentially illegal and coercive activity might have occurred, as well as all Federal Reserve documents relating to the lawsuit pursued by the Merrill Lynch shareholders in the US District court for the Southern District of New York.

(4) Transcripts of all Open Market Meeting Minutes up to and including that of June 2009, transcripts of which are normally withheld from the public for five years.

(5) Full disclosure of all terms and conditions of all off-balance sheet Fed Transactions in the past three years.

The Federal Reserve must become transparent and open with Congress and the public about its behavior during the financial crisis. Thank you for your consideration of this matter.

Best,

Alan Grayson, Member of Congress
Ron Paul, Member of Congress

Cc: Richard C. Shelby Tim Johnson Robert F. Bennett Jack Reed Jim Bunning Charles E. Schumer Mike Crapo Evan Bayh Mel Martinez Robert Menendez Bob Corker Daniel K. Akaka Jim DeMint Sherrod Brown David Vitter Jon Tester Mike Johanns Herb Kohl Kay Bailey Hutchinson Mark Warner Jeff Merkley Michael Bennet

*For all securities posted between April 4, 2008 and May 20, 2008 as collateral to the Primary Dealer Credit Facility, the discount window, the Term Securities Lending Facility, the Term Auction Facility (the "Relevant Securities"), we request copies of:

1. All forms of other documents submitted to the party posting the Relevant Securities as part of the application for the loan;
2. All receipts and other documents given to the party posting the Relevant Securities as part of the application for the loan;
3. Records sufficient to show the names of the Relevant Securities;
4. Records sufficient to show the dates that the Relevant Securities were accepted and the dates that the Relevant Securities were redeemed;
5. Records sufficient to show the amount of borrowing permitted as compared to the face value, also known as the "haircut";
6. Records sufficient to describe whether valuations or "haircuts" for the Relevant Securities changed over time;
7. Records sufficient to show the terms of the loans and rates that the borrower must pay;
8. Records Sufficient to show the amount that the Federal Reserve has accepted of each of the Relevant Securities;
9. Records sufficient to show which, if any Relevant Securities have been rejected as collateral and the reasons for the rejection;
10. All databases and spreadsheets that list or summarize the Relevant Securities; and
11. Records, including contracts with outside entities, that show the employees or entities being used to price the Relevant Securities and the conduct the process of lending.

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