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    7/28/2010
    J. Shown: Financial Reform Doesn't Match Kagen's Claims

    Following passage of the financial regulatory reform bill Congressman Steve Kagen issued a press release touting the benefits of the bill. The only trouble is that his description of the bill's consequences don't appear to be accurate. He states:
    Today, we have taken a positive step forward by making it official: there will be no more bank bailouts; no more bad loans to people who can't afford them; banks must pay for their own mistakes, not taxpayers; and the Federal Reserve comes under better control.
    Consider the first and last claim in that list: No more bailouts and that the Federal Reserve will come under better control. Economist Mark Thoma calls the bill a "step forward" but here is what he has to say about the Fed oversight provisions:
    ...I don’t think this was needed, more Congressional oversight is not necessarily a good thing, and I doubt that it will do much to change Fed behavior. This was mostly a political change, the economic effects will be small.
    The claim of an end to the practice of bailouts has to do with the resolution authority in the bill. Thoma notes that the law now allows the FDIC to step in and wind down failing "systemic" firms (with some exceptions). This may represent an improvement over the ad hoc procedure we undertook in the fall of 2008, but is this really an end to bailouts?

    Traditionally, the FDIC's role has been to bail out a bank's creditors when it collapses. Typically those are individuals (like you and I) who have placed their money in the bank primarily for safe keeping. Under the new law, the FDIC will now have the authority to deal with the creditors of institutions that don't look anything like traditional banks. The creditors of these institutions don't resemble the typical bank depositor in any way, shape, or form. Keep in mind that one of the counterparties to AIG when it collapsed was Goldman Sachs. Does anyone think the government ought to be in the business of protecting Goldman in the event that an institution it lends money to goes bankrupt? Apparently Steve Kagen does.

    While there may be a compelling case for bailing out individual depositors of banks, the case for bailing out sophisticated institutions that are owed money by failed firms is much less apparent, if it even exists at all. It's the bailout of creditors, and not of the failed institutions themselves that is important since unwillingness by creditors to enforce market discipline was at the heart of the financial crisis. This new law does little to address that concern or improve control of the Fed, regardless of Kagen's claims to the contrary.

    Jeremy Shown blogs at Rhymes with Clown and frequently hits on politics and economics in Wisconsin and the U.S.




    COMMENTS

    Another in a long line of BAD legislation that WI Dem congress critters voted unanimously in favor of. A short list of my problems with this bill:

    1. Makes bankster bailouts permanent. Bureucrats can subsidize the TOO BIG TO FAIL (which really are not)

    2. Greatly increases paperwork and business costs for little to no avail,

    3. Allows Treasury department bureaucrats to declare an institution bankrupt WITHOUT DUE PROCESS OF LAW. Given the thuggery of the BHO administration, it is not too hard to imagine

    4. Keeps in place the bureaucracy which failed us in the past

    5. DOES NOTHING to reign in the corrupt Federal REserve, which legally counterfeits money mostly for the benefit of the richest people in the world who were a large part of the recent meltdown. In fact, it ENHANCES the power of the FED, when we should be headed in the opposite direction. (The FED created some $2 Trillion out of thin air on top of TARP funds, for the benefit of the big bankers. The FED has been exporting some of its recently counterfeited currency to the EU to keep them afloat, protect them from the consequences of big government, socialist policies which can not be maintained.

    The one time, limited audit included in the bill is a bad joke when compared to the much needed full audit included in HR 1207, which got 319 sponsors, but was gutted, and then thrown in the ditch.

    All in all, this bill furthers the opportunity for corruption despite the false claims to the contrary. The opponents of these incumbents should call them on it.

    fox cities news, appleton, wi
    Ken Van Doren (Fri Jul 30 12:39:20 2010)




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