Thursday, April 22, 2010

Financial Reform is a Cruel Joke

Obama is gearing up for another congressional battle, this time over financial reform.

Instituting a system to ensure that “American taxpayers are protected in the event that a large firm begins to fail.”

Imposing the so-called Volcker Rule, named after Paul A. Volcker, the former Federal Reserve chairman who proposed limits on the freewheeling trading and risks taken by banks.

Setting new transparency rules for derivatives “and other complicated financial instruments.”

Assuring “strong consumer financial protections.”

Instituting “pay reforms” to give investors and pension holders “a stronger role in determining who manages the companies in which they’ve placed their savings.”

In many ways, he is trying to protect people from their own bad decisions, which in my opinion makes it more likely that they will make those bad decisions.

Obama is also trying to reign in the derivatives markets that allowed the mortgage backed securites to grow and spread so quickly and so far.

All of this seems logical and fair, however it is not real reform. Financial giants still hold all the cards, because they still have access to the Federal Reserve.

It may interest you to know that banks are currently borrowing from the Federal Reserve at 0.5% interest, then using that money to buy Treasury bills, which pay 3%. You read that correctly. Our government has set up a system whereby banks can make money without lifting a finger using the Fed's money machine.

Why would our government allow this practice? The answer is simple. The Fed prints the money, lends the money to banks, then the banks lend the money to the government via T-bills. The government is borrowing against the dollar, against the wealth of the American people, and they are laundering their dirty deed through banks, while paying a 2.5% premium for the laundering service.

Congress is not interested in real reform, and neither is Obama. The government needs the financial system to work the way it does, because without it, we wouldn't be able to run trillion dollar annual budget deficits. We have given tremendous amounts of power to the financial system, and we are surprised when they misuse that power.

This is not reform, this is shuffling paperwork. Real reform would require reforming or ending the Federal Reserve, but our leaders have no interest in killing the golden goose.

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