Finance Bill Power Grab

Ram Emanuel said early in 2009 not to miss the opportunity of taking advantage of a crisis. And so the tidal wave came. It started with the TARP grab of banks and mortgages. Then onto owning GM and an attempt at Ford. Later health insurance companies and student loans. The eyes are on the prizes of national energy through Cap & Trade and Arizona’s boarder. And now a new financial industry crisis.

This newest reform bill provides Obama and his regulators vast control of the financial markets and risk-taking. Essentially, it transfers more ownership over credit allocation and the financial industry to the federal government. Obviously, previous heavy regulation has not stopped the pandemonium, but with this new bill banking will fundamentally become a utility. The free market will tap its breaks to a near stop.

It is uncertain if the new regulations will slow the risk of future financial crisis and bailouts. Regulators will determine those firms that are at risk, set capital and margins, have veto power over executive decisions, and determine compensation. Unelected regulators will determine your pension, not you or the experts who know how to run them.

The distinction between commercial and investment banks as set forth by Glass-Steagall Act of 1932 will be nullified. Now rules will be written by regulators at the Federal Reserve, Treasury, CFTC, FDIC, SEC, etc not elected representatives. During his April 22nd speech, Obama denounced “the furious efforts of industry lobbyists to shape” the bill “to their special interests.” Ironic given he is making speeches to “lobby” the bill to pass. Unless our modern political process radically changes, it is likely lobbying on all fronts will continue.

Passing the bill will bring enormous changes and political influence not seen before. A central regulator will determine which transactions go onto over-the-counter trading. Surely, when trades go bad in the next “crisis” a “too big to fail” solution will occurred and your pension will be “saved” by government ownership. The SEC will have the authority to give shareholders ownership over corporate board elections and compensation. What have been state’s rights to provide over site of corporate law will be federalized. This will provide large and influential activists more leverage to determine agendas on all business. Not “industry lobbyist special interests”, but government’s “special interests”.

Unions will have more influence over corporate decisions, and with cohorts, public pension funds. Easier unionization, energy regulation (cap & trade) and determing which investments go to which businesses and countries. The political class and non-financial organizations will have increasing power over businesses and the economy. The “free markets” that grew the country will no longer be free.

Delaware Democrat Ted Kaufman’s position on the bill sums up what many in Washington and the industry are warning. Recently the Senator stated: “by expanding the (federal) safety net – as we did in response to the last crisis – to cover ever larger and more complex institutions heavily engaged in speculative activities, I fear that we may be sowing the seeds for an even bigger crisis in only a few years or a decade.” The emotional rhetoric missing the facts that is happening now should be abandoned. A serious look at the details and cautious thought on their implications should be made. The opposition should take a lesson from Ram Emanuel and not miss the opportunity of this crisis.