The financial regulation bill that House-Senate negotiators have finally cobbled together, with ringside support from the White House, is farcical in its failure to learn relevant lessons from 2007-2009 U.S. experience. The bill simply increases the regulatory authority of all government agencies responsible for that crisis, while leaving untouched the unsavory criminals and fraudsters, private and public, responsible for the collapse of financial markets.
The Federal Reserve, which actively promoted the housing bubble and failed utterly to monitor the major banks, is to gain yet more authority to regulate yet more financial institutions. The Treasury, which bailed out some institutions and refused to bail out others, without rhyme or reason to its decisions, is to control a new Financial Stability Oversight Council empowered arbitrarily to determine which companies pose ‘systemic risk’. Rest assured that Goldman Sachs will never be so identified by any Sec. Treas. confirned into office. The Securities Exchange Commission, which created the credit ratings oligopoly and failed completely to identify any of the major scam artists that thrived under its loose jurisdiction, is to have additional powers to control elections to corporate boards of directors.
And the criminals? Fannie Mae and Freddie Mac go completely untouched by government action. Their top officials are feted by the Treasury and the Fed instead of rotting in the same jail as Bernie Madoff for their much more serious crimes. The major banks are not to be broken up to separate commercial banking from casino banking, as yet may be the case in the United Kingdom. Nor are the banks to be seriously constrained by miminum cash reserve to total asset ratios and by minimum tangible common equity to total asset ratios. Instead, all the fault lines that fed the 2008 crisis are to remain in place.
In such circumstances, a major opportunity presents itself to the Republican minority in the Senate. If they hold together, they can filibuster this bad bill, and buy time until November 2010. Because so much financial market lobbying money is sloshing around the Capitol, however, my public choice expectation is that this bill will pass into law.
My advice continues to be: Buy gold and take delivery now! And certainly do not turn that precious metal in when a bankrupt United States government eventually legislates to that end.