The second major piece of legislation is the Dodd-Frank Financial Services Industry Reform legislation. This piece of legislation was cobbled together as a result of the Great Recession and bank bailout activity from several years ago in what looks like a vain attempt to prevent the similar set of circumstances coming together in the future to cause another economic downturn. This legislation was almost as long (thousands of pages) and almost as complicated as Obama Care and unfortunately, it looks like it will be just as cumbersome and ineffective in its goals, based on four early indicators:
1) The first indicator of failure was the relatively sudden bankruptcy of MF Global, a major financial services industry player, that had been headed up by Jon Corzine, former U.S. Senator and former Governor of New Jersey. Previous to entering politics, Mr. Corzine had been the head of Goldman Sachs, one of the major banking institutions in the world. His experience in both the industry and in Washington should have made him savvy about Dodd-Frank like very few others in this country, what it was intended to do and how it intended to do it.
It is my understanding that three of the attributes of Dodd-Frank was that the law was supposed to provide transparency in the bookkeeping of a company, it was supposed to provide advanced warning if a major financial company was getting into trouble, and provide an orderly way for that troubled company to dissolve itself without causing undue harm to its clients or the market. Since I believe that MF Global was the 8th largest bankruptcy in the history of this country, it certainly was big enough to fall under the auspices of Dodd-Frank's regulations.
However, the legislation did none of that relative to MF Global. There was no warning/transparency prior to the the company folding, very few in government or the industry saw it coming before it happened. There was no orderly dissolution of the company. And worst of all, and the biggest failure of Dodd-Frank, there is a Federal criminal investigation underway since over $1 billion of client money is missing and may have been illegally invested on behalf of the company, not the clients. Dodd-Frank provided no warning or insight to this misbehavior.
2) The second warning of failure of this legislation comes from news reports from a few months ago. Late last year, in an article in the November 11, 2011 issue of The Week magazine, it was reported that although the Dodd-Frank financial reform bill was signed into law 15 months prior to November, the government agencies responsible for writing the required regulations of the law had missed more than 75% of the law's implementation deadlines. What good is passing any kind of legislation, even bad legislation like Dodd-Frank, if it is never implemented?
3) Another article from The Week, this one from the April 6, 2012 issue, pointed out that Dodd-Frank was written so poorly that there was enough wiggle room that foreign banks with U.S. subsidiaries could simply "redefine" themselves and escape all of the legislation's requirements. Germany's Deutsche Bank sidestepped the regulations on Dodd-Frank's minimum capital cushions by switching its U.S. branch's legal classification from "bankholding company" to "domestic entity - other." Barclay's of Britain did a similar move, a move that allows the banks to avoid having to pump billions of dollars of extra capital into their U.S. subsidiaries.
There are two major problems with Dodd-Frank in this area. First, it is not much of a law if a company can simply say it is something else to avoid the burdens of the law. Second, by allowing foreign banks to easily escape the burden of the regulations so easily, it will put our own banks at a marketplace competitive disadvantage. They will have to tie up this capital to fulfill this domestic law while foreign competitor banks simply snap their fingers, change their name, and avoid the same burden.
4) However, the most damning indictment of this legislation comes from within the Federal government's financial community, someone who should know what they are talking about. In a recent Bloomberg Television interview, Federal Reserve Bank of Richmond President Jeffrey Lacker said a major part of the Dodd-Frank legislation, the so-called Volcker Rule, which restricts proprietary trading at banks and which is scheduled for enactment in July, may be “impossible” to implement. Fabulous, according to an expert in the field, not only is the legislation bad, it may also be "impossible" to implement.
The Volcker rule is named for its original champion, former Fed Chairman Paul Volcker. Its purpose is aimed at reducing the odds that banks will make risky investments with their own capital and put depositors’ money at risk.
However, Lacker said the rule is bad for any number of reasons:
- This was not a major cause of the financial and economic meltdown in 2008 so it should not be the high priority for implementation is getting today.
- He is quoted in the interview as stating the rule is “fairly difficult if not impossible to implement in a way that is at all reasonable” and that 'said it would be “high on the list” of things he would change if he could.'
- He feels that the Federal government's financial entities should be working on other parts of Dodd-Frank that help prevent future taxpayer bank bailouts rather than waste resources trying to figure out how to implement the Volcker rule.
- The article reporting on this interview pointed out that while the rules and regulations for the Volcker rule are supposed to be in place by July 21, 2012, even Fed Chairman Ben Bernanke has already stated that the rules and guidelines for the implementation of the Volcker rule will not be in place. Great, we passed a law, we will miss the deadline for implementing how to administer a major piece of that law but we will proceed with its requirements anyway. Is there any doubt why businesses are cautious when it comes to expanding when there is so much uncertainty coming out of Washington on so many issues?
It failed a major test in that more than a year after it passed, the Federal government bureaucracy could not get 75% of the required rule making work done.
It failed to protect U.S. banks from unfair competition by allowing foreign banks to avoid the burdens of the law by simply renaming themselves.
And it failed the sanity test by installing the Volcker Rule that fails to address the major issues of the Great Recession, a rule that will not be implemented by its self imposed deadline and a rule that might never be enforceable or any good to begin with.
But the best description of the Volcker rule came from another government financial insider when former Federal Deposit Insurance Corp. Chairman Sheila Bair testified in front of Senate lawmakers. She stated that the Volcker rule is so complicated that regulators "should consider starting over." Maybe that is good advice for the whole Dodd-Frank legislation, given its major shortfalls and non-existent benefits so far: start over.
"We invite all readers of this blog to visit our new website, "The United States Of Purple," at:
http://www.unitedstatesofpurple.com/
The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.
The United States Of Purple's website also provides you the formal opportunity to sign a petition to begin the process of implementing a Constitutional amendment to impose fixed term limits on all Federally elected politicians. Only by turning out the existing political class can we have a chance of addressing and finally resolving the major issues of or times.
Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.
Please visit the following sites for freedom:
http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment/
No comments:
Post a Comment