STAFF NEWS & ANALYSIS
Punish Wall Street?
By Staff News & Analysis - March 24, 2010

Americans are leery about creating a new federal agency to make consumer-protection rules for mortgages and credit cards and would prefer to enhance the existing powers of banking regulators. Most people interviewed in the Bloomberg National Poll say they don't like Wall Street, banks or insurance companies and favor letting the government punish bankers who helped cause the worst financial crisis since the Great Depression. Almost seven out of 10 people surveyed support using current bank regulators for consumer protection, backing positions held by the financial industry and Republicans over President Barack Obama's proposal to establish an independent agency. "People are generally satisfied with the way consumer protection has worked with banks," said Ernie Patrikis, a partner specializing in banking supervision at the White & Case LLP law firm in New York. "Most Americans could care less about redoing the financial regulatory structure." – Bloomberg

Dominant Social Theme: Wall Street is the problem.

Free-Market Analysis: So now we have a poll showing that many individuals dislike Wall Street and want bankers punished. But we would like to know how this poll was prefaced. Did the individuals doing the polling explain that the financial crisis was caused by easy interest rates? Did they create a scenario in which the mercantilist Federal Reserve, created in secrecy, has cloaked its actions in the color of government while doing the bidding of a small group from the private sector.

The tragedy of the 1930s was that the Federal government pushed through, over time, many regulatory fixes to make sure that a comprehensive regulatory environment would protect Americans. These fixes included specifically the Securities and Exchange Commission, the NASD and the formation of stock exchanges as self-regulatory organizations. Were they effective? In our opinion, they did little or nothing to stop the various continual market breaks of the 1970s, 1980s and 2000s. Americans seemingly lost trillions in these market downturns. One thing, the creation of more government regulatory agencies did do is create the impression that the Great Depression was a failure of private markets when it was evidently a failure of central banking monetary policy. The root cause of the poisonous problem was obscured. And the serpent continues machinating its way through productive economies draining the wealth of unknowing citizens in the process.

The idea being sold – the dominant social them – is that when downturns come, the regulatory structures would salvage investor income by decreasing white-collar manipulatory abuses of the markets. Of course, this is all subjective as the idea that laws decrease crime by frightening those who might commit it into turning away is highly subjective. In any event, the main issue remains, that it is central banking fiat-money expansion that causes the tremendous waves of euphoria that result in Western economic schizophrenia. For those involved in upcoming regulation of American finance, not acknowledging the reality of the financial system does not make the reality go away.

There is no clear-cut proof that financial regulation does anything to make markets more efficient or helps people salvage funds from manipulated markets. The biggest 'private' Ponzi scheme of all just happened recently, conducted by Bernie Madoff, and that was not caught by the regulatory agency, the SEC, that was supposedly set up to scrutinize broker-dealers and investigate such behavior. In truth, all financial regulation is regulatory capture. The large players have the wherewithal to exploit the regulatory loopholes, while the small players do not. The more financial regulation there is, the more small participants go out of business. Large players, efficient at manipulating markets and the regulatory structure will only get stronger as the result of additional regulation. In our opinion, the SEC is not much more than an agency-of-assistance to the same elite hands on the steering wheel of the Fed.

After Thoughts

To place additional regulation under the Federal Reserve as has been suggested, means that one private party (the Fed) regulates other private participants (firms and banks). Not only that, but these entities are familiar to each other, with individuals easily shuttling from regulatory authority to the private market and back again. The regulatory authorities should be concentrating on dismantling the existing structure – and letting the free-market penalize players – not adding to it.

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