The lackluster Republican opposition to Senator Dodd’s
Financial Reform bill is focused on whether or not the Democratic
proposal allows for or prohibits additional bailouts. A secondary hot
topic is the supposed derivative limitations. Frankly, these are both
red herrings. They serve to mask an even larger danger that no one is
talking about: a huge new government agency that will control all
financial institutions in the US—and not just the "too big to fail"
ones. It’s called the Financial Institutions Regulatory
Administration (FIRA)
, and its authority absorbs and supersedes
every other banking, thrift and stock market regulatory agency
including the SEC—though it technically doesn’t actually eliminate any
agency (as we might expect of government).

Shannon Croll tells us the establishment
excuse given for the new regulation scheme: "The Financial Institution
Regulatory Administration proposes that a single U.S. bank regulator
would combine parts of the Federal Reserve, the Federal Deposit
Insurance Corp., the Office of the Comptroller of the Currency, and the
Office of Thrift Supervision. Since regulatory supervisory duties are
split between four independent agencies this allowed for Banks to shop
for the supervisor of their choice; certain regulatory agencies have
been known to be easier in the examination process than others."

While that may be true, this new proposal does much more
that is dangerous and doesn’t even close that minor loophole—since
insiders from the big banks will always control FIRA and secretly grant
exceptions to their friends. The language in this bill is so general
as to give FIRA virtually unlimited powers to expand into any area of
regulation and control. The record keeping requirements it can mandate
will make the IRS look benign. And, because this bill contains no
specific limiting criteria, this agency will still be able to do almost
anything with total discretion—including covering for the financial
evils of the insider banks that brought on the financial crisis of
2008, just as the SEC did before. This is a con job folks and is just as
big a leap into socialism as the Health Care reform bill was to
medical freedom
. The Republicans, as usual, are utterly
failing to oppose it properly.

The closest thing I can come to describing the scope of
this mega-agency (which could easily absorb all of the $50B premiums
taken from the largest banks just for administrative costs) is to
compare it to the creation of the huge umbrella agency over national
security in the USA —The Department of Homeland Security.
It’s just that big in both scope, cost, politicization, and potential
bureaucratic inefficiency.

The reason I sought out a copy of the bill was to see for
myself whether or not it allowed for future bailouts or not. Yes, there
was non-binding language that indicated it was the intent of the bill:
"To promote the financial stability of the United States by improving
accountability and transparency in the financial system, to end
‘too big to fail’, to protect the American taxpayer by ending bailouts
to protect consumers from abusive financial services practices, and
for other purposes."

But it is those "other purposes" that should worry us—and
there are bailout provisions which I will cover later. In the name of
protecting us from these Wall Street predators (which are real) it
encircles us with new agencies that have the power to mandate all types
of compliance and record keeping requirements that eliminate one’s
liberty to do business without big brother watching over us.

What the bill actually does: The general powers of
FIRA are huge:

1) power to collect any information from any other agency,
including state government agencies—giving it superiority in scope in
all investigations,

2) mandate companies who "pose a threat to the US financial
system" (which could be widely applied to almost anything) to register
with FIRA and submit to FIRA risk management policies–yet to be
written. Later portions force the inclusion of all "private pools of

3) mandate record keeping on all private financial entities
with no limitations on what government may require.

4) monitor all financial services

5) promulgate regulations to establish heightened
risk-based capital, leverage, and liquidity requirements that increase
on a graduated basis for certain bank holding companies (totally
arbitrary, with no guarantee that the real problem ones like Goldman
won’t be let off the hook);

6) regulate derivatives and hedge funds (these are so
complex, however, that loop-holes will surely abound)

7) control all banking and thrift institutions of whatever

8) control issuance of Municipal securities

9) regulate all credit practices, and mortgages

10) control credit rating agencies

There is no doubt that certain controls are necessary to
prohibit fraudulent practices (naked shorts, no capital backing,
collusion, misrepresentation etc), but with virtually no
specific language in the bill for us to determine if it will do as
claimed, passage of this bill is simply a carte blanche grant of
unlimited regulatory power

The bill also creates a Consumer Financial
Protection Agency
(CFPA) which has wholesale powers to
regulate all sales claims, and business practices of any financial
company of any size. "It shall be unlawful for any person to advertise,
market, offer, sell, enforce, or attempt to enforce, any term,
agreement, change in terms, fee or charge in connection with a consumer
financial product or service that is not in conformity with this
title." The actual regulations and rules, however, are not in the bill.
They will be written later. This supposed consumer watchdog has the
power to impose fines, and record keeping requirements on all business

An Office of National Insurance is created
as well which appears to be a larger and more powerful FDIC,
supposedly funded by $50B in fees from the "too big to fail"
institutions. $50B is peanuts compared to the $500B –and still
counting—in funds the FDIC has gone through in the past two years. It is
in this provision that bailouts will still occur.

The reported on Sen. Mitch McConnell’s similar
objection. McConnell "argued that the bill’s $50 billion
industry-supported fund wouldn’t be enough to cover the costs of future
crises and that taxpayers would be left to foot the rest of the bill."
However, "Deputy Treasury Secretary Neal Wolin sought to refute
several arguments made by the senator, saying: ‘The legislation makes
clear that if the $50 billion fund is insufficient, then the
institutions themselves, the industry, will be assessed to make up the
difference… There are no more taxpayer-funded bailouts. Period,’
Wolin said."

It certainly isn’t that cut and dried. As Andrew
wrote for CounterPunch: "More recently, there are
reports that the bill will be stripped of a provision requiring a levy
on the ‘too big to fail’ banks as an insurance fund in the event of
possible future defaults. However, anyone who believes official
trumpetings about ending mega-bank bailouts should take a look at the
paragraph on page 1379: ‘During times of severe economic distress,’ it
reads, the Federal Deposit Insurance Corporation [under the
new direction of the Office of National Insurance
‘shall create a widely available program to guarantee
obligations of solvent insured depository institutions
or solvent
depository institution holding companies (including any affiliates
)…’ In plain English, this means that the next time
they bring the system to ruin, the banks and bank holding companies
will get bailed out by the taxpayers, just like this time. However
disgruntled they may feel, the banks are not undone just yet."

I expect we have the same feigned cry of protest that the
big banks put on in 1913 to make the public think they were against the
passage of the Federal Reserve Act—which they had in fact conceived at
the secret meetings on Jekyll Island.  The public is being feted with
horror stories about Goldman Sachs which, though true, are only being
aired in order to create a demand for passage of this larger control
agenda. The big banks will always have people they control named to the
managment board of FIRA, just like the SEC before it.  This is easy to
do given that all recent Secretaries of the Treasury, which nominate
these heads, have been former high officials of major Wall Street
investment banks. 

For arguments sake, let’s suppose that large scale bailouts
won’t be forthcoming even if still permitted by the fine print as a
"just in case" clause. Certainly, there would be a huge public outcry
even though the PTB know the public can’t do anything about it even if
it happens. The point is: the bailouts have already been done. The
worst offenders of these huge speculative con-jobs that brought down
the economy have already been made whole and are prospering like no
other banks—not only because of their access to TARP funds and other
off the books bailouts, but zero interest loans from the FED, to which
they have applied to low risk carry trade investments that have reaped
steady profits in the billions.

If FIRA makes good on its promises to start liquidating
problem firms, who will be the beneficiaries of that liquidation
process? The big banks, of course—because only they have the new
liquidity to be offered first choice in buying up the good assets of
the failing institutions. This is precisely how the FDIC is operating
today. Slowly but surely, the good assets of all failing banks are
being transferred to the stronger and the poor taxpayer is having to
pick up the tab for the bad assets nobody wants. This is the process
that is being institutionalized on an even larger scale in this phony
reform bill. Result: the big get bigger and the small get smaller and
can’t compete.

Also, it is important to note that the Senate version of Ron
Pauls Audit the Fed proposal
, it would not allow the GAO
to look into the Feds massive purchase of toxic assets, its hundreds
of billions in foreign currency swaps with other central banks or its
open market operations
, among other restrictions.

In the end, we have to look at all these attempts
to reform major corrupt institutions by Congress as futile or worse.
Campaign Finance Reform didn’t stop the political payoff system and
only restricted private political speech. Health Care Reform did
nothing to stop all of the evils of the government and business
subsidized insurance system, but it did destroy our liberty to choose.
Likewise, Financial Services reform was written many months ago by
insiders who will give it the appearance of reform, but it will do
nothing by put a regulatory noose around those few financial
institutions that remain in this country–who were not part of the

© 2010 Joel Skousen

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