Banking Anti-Reform Bill

As usual, the banking "reform" bill is more corporate welfare. The banksters spent a lot of money lobbying. They successfully killed almost every useful provision of the law. They also added some bits that will force smaller banks out of business due to increased regulation.

This article had a good explanation of one negative feature. The burden of regulation will force many smaller credit unions and small banks out of business. If you increase administrative overhead, then small businesses are less viable.

Ron Paul's "Audit the Fed" proposal was gutted. It went from "Congress may have an ongoing audit of the Federal Reserve." to "Congress may do a one-time audit." to "Congress may do a one-time audit of certain things chosen by Ben Bernanke." Congressmen may now claim "We're auditing the Federal Reserve." when they're really doing nothing.

The "Volcker Rule" was also gutted. Banks are still allowed to speculate in the market for "legitimate hedging purposes" or "market making", which is vague enough to allow practically anything.

Banks are allowed to own a max of 3% in hedge funds they manage. Most big banks own less than 3% right now. The lucrative part is the 2/20 management fee. Some hedge fund investors want the bank to have "skin in the game", to ensure they aren't getting ripped off. Now, the bank can say "Sorry! A 3% investment is the legal maximum!" In effect, it's a State endorsement of their marketing practices.

There is no restriction on other ownership. The bank can own 3% of the hedge fund, and the CEO may purchase the remaining 97% of the shares.

If I tried to set up an investment fund, I'd have to borrow at high rates or not at all. The banksters can lend at preferred rates to their favored hedge funds. The bankster scam works really well when you can (1) borrow cheaply from the Federal Reserve and (2) gamble with other people's money, taking a cut of the profits when you're right and declaring bankruptcy/bailout when you're wrong.

Instead of "Bank borrows at the Fed Funds Rate (currently 0.25%) and buys stuff.", the profit formula is "Bank borrows from the Federal Reserve at 0.25%, lends to a preferred hedge fund at 0.5%, and the hedge fund buys stuff." The bank is still on the hook if the hedge fund defaults. There's just another layer of middlemen taking a cut of the profits.

There's also a "bailout fund" for "too big to fail" banks. That's like a formal endorsement of "If a bank is bigger than X, then the State explicitly backs their derivative contracts. If a bank is smaller than X, there is no such backing." In effect, only "too big to fail" banks may now sell derivatives.

The financial "reform" law is just smoke and mirrors. State politicians are publicly saying "We really stuck it to the bankers!" The bank CEOs are publicly saying "Waaah! Stop hurting me!" The new law does not prevent the banksters from stealing. The new law will not prevent another bubble/bust. Due to the Compound Interest Paradox, boom/bust cycles are an inevitable consequence of fiat debt-based money.

The "reform" law is one big evil fnord. The real issues are not discussed. The real issues are "Inflation is theft!", "Inflation concentrates economic power in people who print and spend new money, namely politicians and banksters", and "The Federal Reserve is one huge price-fixing cartel." Even if you don't understand the Compound Interest Paradox, "Inflation is theft!" and "The Federal Reserve is one huge price-fixing cartel!" are sufficient arguments against the Federal Reserve.