Thursday, March 26, 2009

What I Would Do To the Markets

*A preliminarily opinion piece that I hope to be able to follow up and expand upon in the future.

Policies of the last 25 years, the last ten in particular, have been snowballing ever so slowly until it just all blew up. After the first financial disaster of the 20th century we had the Glass-Stegall Act that kept companies in check until it was gutted in the last 90s under the Clinton administration by "reform" measures put forth by senators that received large campaign contributions from Wall St companies. This allowed insurance companies, investment banks, and commercial banks to be able to merge. Also, there used to be an eight percent cap on lending whereas now lenders can charge any rate they wish, which has led to loans with rates as high as thirty percent in some cases.

What we need to do, rather than giving the Treasury expansive power, is go back to tighter regulations that prevent companies with massive conflicts of interest from merging together. For massive corporations, the high level executives reap massive rewards from these deregulatory measures, and as such the ability to wield a very powerful influence on Washington policy.

What we should do is 1) reinstate Glass-Stegall in its original form, 2) never allow investment banks, insurance companies, and commercial banks to merge, 3) require greater capital and more collateral in reserve, 4) reinstate a lending cap, 5) put an end to credit-default swaps as a market (a CDS encourages banks to engage in risky lending because they face no loss in capital if the borrower defaults which also encourages making loans to borrowers that will default because the banks are guaranteed the money; which means the insurance company is effectively the lender and they have no say in who can borrow), 6) repel The Accounting and Auditing Act of 1950, which prevents the Federal Reserve from being audited by Congress in section 31, USC 714(b), and 7) centralize the Federal Reserve back under the control of Congress because as it is currently the Federal Reserve is in fact a private institution with no government oversight and currently Congress has no legal right to oversee or investigate ANY of activities and actions by the Federal Reserve. The Federal Reserve is a privately owned and operated central bank with complete autonomy from any and all government action, sanctions, and regulations.

These actions would allow the markets to regulate themselves while protecting the public interest because it prevents institutions from gaining to much power and control; and institutions that get labeled "too big" to fail will not be able to develop. Under these measures the Treasury would have no need for expansive powers that place far too much control in the government.

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