How Bankers Are Manipulating Financial Reform to Get Their Way

Includes: IYF, XLF
by: Kimball Corson
The trick for bankers is to appear reformist, and have their agents in Congress appear to be so too, while all the while making very sure any real reform is left to the discretion of someone who can be “influenced” or “controlled.” This is simply an extension of the Congressional model that the financial industry and others have used so successfully in Washington. The key is to vest discretion in someone controllable, and not to have absolute, positive law apply without room for bribery or influence.
Here is the current example of which you will see more in the future:
Volcker wants an absolute ban on banks engaging in certain types of high risk trading practices. The banks don’t want an absolute prohibition as a matter of law.
The Congressional Banking Committees are already gearing up to block Volcker’s many proposals -- specifically this one, for now. They want to substitute their own suggestion of an arrangement that is more manipulable; one that the bankers can control. This is the evolving pattern, and it makes Congress look reform minded when it isn’t.
Instead of Volcker’s absolute ban on certain types of risky trading activities, Senator Dodd of the Senate Banking Committee -- an arch villain of the first order who is about to leave Congress under a shroud of ethics violations -- suggests instead that a government official(s) be vested with authority to limit and/or perhaps ban, if the need arises in the future, such risky trading activities. It seems very similar to the Volcker proposal, right?
Wrong. There is all the difference in the world. One is an outright ban or prohibition where there is no one to be bribed with an offer of future employment or “influenced” with money in the millions. The other is a perfect set up to do precisely that. The bankers know much more about what they are doing than we do. They are smarter and certainly paid more too.
Now, do you seriously believe for a heartbeat that when good times start rolling again, and profitable risky trades are the order of the day, that a government official or even a commission stands one chance in a hundred of standing up to the banking industry with a ban or serious limitations? It won’t happen. We all know that politics and money will prevail here, and in effect we will likely be left with no ban at all and no effective limitations.
Once again, the regulators will become the captive of those regulated. It is a sorry old American maxim. It cost us big time this last time around, and it will cost us much more again in the future. The finance industry runs Congress. Congress does not control or regulate the finance industry. The situation is going from bad to worse. Unfortunately, too many in the Obama Administration are simply clueless here.
Things in these regards are out of control for the American people. We are being sucker punched.
Disclosure: No positions