The Regulator Down the Hall … Fed and Comptroller of Currency Bolster the Ranks of Staffers 'Embedded' at Nation's Biggest Banks … Memo to employees at big Wall Street banks and securities firms: Be careful what you say on the elevator. You might be surrounded by regulators. As part of a push to prevent another financial crisis, the Federal Reserve Bank of New York and the Office of the Comptroller of the Currency are increasing the number of examiners who go to work every day at the companies they regulate. Much like reporters assigned to a military unit during war, these regulatory "embeds" get unprecedented access to financial firms such as Bank of America Corp., Goldman Sachs Group Inc. and Morgan Stanley. – Wall Street Journal
Dominant Social Theme: Regulators always get it right.
Free-Market Analysis: Is there any justification for this? The dominant social theme "embedded" in the above article is clear: More efficient regulatory endeavors will reduce the kind of financial crises that have been prevalent throughout the history of modern capitalism. Only more and better government regulation is the answer.
Of course, the regulatory answer to big businesses excesses has not worked in the past and there is no reason why it will work in the future. Every regulation is actually a price fix that further distorts the marketplace and transfers wealth from producers to those who do not know how to produce. Nonetheless, this dominant social theme rolls on. Every time there is a financial setback, the US government and its adjunct enforcer the central bank (Federal Reserve) gains more power. This goes for the rest of the Western world, too.
Now regulations are not enough. Regulation is to be abetted by physical presence. But will it really help if Federal Reserve employees work in the same building as the banks they are supposed to regulate? According to the Wall Street Journal, these embedded regulators will be much more focused than previous regulators. They will eat lunch at the company cafeteria and have unprecedented exposure to company paperwork. Here's some more from the article:
It's not a small program either and includes up to about 150 regulators "scattered across banks and securities firms overseen by the New York Fed." That total will double by this fall, according to a person familiar with the situation. As a result, groups of 15 to 20 regulators per company will swell to as many as 35 people. Other banks with on-site New York Fed supervision include Bank of New York Mellon Corp., Barclays PLC, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, J.P. Morgan Chase & Co. and UBS AG. …
The on-site reviews are thorough and can produce friction between the bank examiners and their subjects, according to bankers and regulators. The Fed's latest how-to "Commercial Bank Examination Manual" is 1,808 pages long, and examiners have the power to "review all books and records maintained by a financial institution." In addition to policing the rules, Fed examiners should "identify vulnerabilities early enough to head off major problems," says Daniel Tarullo, a Federal Reserve governor …
Regulators are also pushing examiners to challenge chief executives and boards of directors. "It should be a drop-by relationship," says Sarah Dahlgren, who took over the New York Fed's financial-institution supervision group in January after leading a team that monitored the New York Fed's loan to insurer American International Group Inc. The No. 1 embed at each firm is expected to meet with the CEO at least once a month. Michael Brosnan, an OCC official overseeing supervision of large U.S. banks, says the agency is "increasingly involved in governance and oversight" of the 15 largest banks.
Again, the point to keep in mind when contemplating what is taking place is that every regulation is a price fix and every price fix distorts the economy and produces an impoverishing wealth transfer. Half of America is on one form of government dole or another now; fifty million are on food stamps. When is it enough?
Regulation cannot work, logically speaking. It DOES not work. Not with large financial entities either. But each time a financial crisis occurs, Congress and the Federal Reserve respond with more regulation. Speeches are made; legislation is drawn up. It is beyond cynical. These are not stupid individuals. They know they are participating in a charade. Certainly they should; there is no excuse not to in the Internet Era.
The problem begins with money itself. The system has been cleverly designed to maximize money troubles while giving the appearance of concerned supervision. The Federal Reserve basically creates money from nothing and in doing so creates inflation. The great inflation fighter in this manner is in fact an inflation producer; its mechanisms are entirely tuned in this manner.
It is not accidental. In a free-market, modern money usually devolves to gold and silver. When there is too much gold and silver circulating, the price drops and, once this occurs, mines shut down and hoarders hold onto their money. Prices eventually go back up and mines reopen and hoarders dishoard.
Because Fed bankers do not know (cannot know; don't wish to know) how much money is too much, they inevitably overprint over time. This gives rises to economic booms as people react to the overabundance of money by over-expanding their businesses. Eventually a bust takes place as the boom inevitably subsides. People lose their houses, jobs and businesses. The power elite that has created and runs central banking worldwide then uses the opportunity of the bust to further consolidate power and wealth.
Each economic down-cycle reveals more "corruption" and more systemic difficulties that have to be attacked by better and more comprehensive regulation. This regulation will prove imperfect when the next downturn occurs. Regulatory authorities will claim that the constant evolution of regulation is inevitable because it is important to keep up with the market itself.
But this is not what is happening. The market is not merely evolving; those who are involved in markets are consciously reacting to regulations and seeking out business methodologies that are unregulated. This is not a singular process; in the US and throughout the West it takes place across all industries, private and public.
The West does not have free markets; it has manipulated ones. Via legislation, regulatory democracy inevitably empowers the powerful and enriches the wealthy. The idea that the "people" can "take back" government is illusory, whether by state banking or in any other way.
The only way to guarantee better and more just society is to insist on freedom … free-markets, free-thinking, free-living. If one must have government, it should be as small as possible (as local as possible) and with as little transfer of wealth as possible so that bullies are not empowered and "leaders" are not overly privileged.
Of course, there is always push-back; many justifications are inevitably advanced for regulation including the idea of "market failure." This is the fundamental defense of modern levelers. But those who defend this concept cannot, when pressed, name a single "failure" caused by the market. Inevitably, when one begins to examine this argument, one finds that it was a previous rule or law that set in motion the distortion that the "market" supposedly caused.
Regulation also forces bigness. The US – and the West – long ago passed into a kind of market-fascism where large corporations (themselves a product of regulation) are essentially paired with their regulatory overseers.
It doesn't matter whether the regulations seem to make sense or not. The system is evidently and obviously driven by Anglo-American power elite interests and the end result is intended to be one where markets and corporations are big enough to function within the context of a "one world order."
Concentrating power and authority in a small group of firms also allows the elites to shuffle their facilitators between the public and private sector. May "regulators" at the top level are the same people who work in the entities themselves. The Journal article lists some of these groups: Capital One Financial Corp., U.S. Bancorp, Wells Fargo & Co. and units of Royal Bank of Scotland Group PLC and HSBC Holdings PLC.
Not long ago, Morgan Stanley Chairman John Mack said he "loved" having regulators nearby. But for Mack and others, regulatory authority is merely part of the larger system, one he is helping to build. Such over-regulation also is a major disincentive to competition as only the largest players can afford the massive costs of modern regulatory democracy.
Eventually, regulatory democracy implodes, a victim of its own ludicrousness. As the regulations become ever more burdensome and obviously flawed, public opinion turns against the process. This has other ramifications. With their strategies unmasked, the elites of the day either shove the system toward totalitarianism or take a step back from the precipice. In the modern era, the Internet has speeded up this process.
There are plenty of signs, including this current decision to "embed" regulators, that regulatory democracies are now approaching the far end of regulatory utility. The farcical nature of the system must become evident at some point because it never stops. It begins with public approval and ends by attacking the very methodologies that make survival possible.
As this era of regulatory democracy draws to its deserved end, as it must, Western society begins to confront the nakedness of power itself, stripped of its regulatory disguise. This will surely provide a turning point of one sort or another.