More than a week ago the residents of Massachusetts decided that yes the open seat left by the death of Ted Kennedy was in fact the people’s seat. Thus voting in Mr. Brown over the Democratic candidate. Not that I really believe Mr. Brown’s rhetoric, but since then the market has done a Louganis and swiftly sank 5%. We must take notice. So everyone in America is pointing to that event to explain President Obama’s plan to ban Prop Trading across Depository Institutions. If it was that singular event or not President Obama needed to do something big to turn around those sagging poll numbers. It's those poll numbers that need to improve so that the Democrats can continue to allow Wall Street to loot the tax payer. I know - Like the Republicans would change course. He suddenly became extremely populist, to which many on Wall Street and Media blamed him for. Let me see. Do what the masses want you to do? Do what people elected you to do? Listen to the ones who elected you? Yes. This is bad. One definitely can’t be populist in times of looting by corporations. When did being a populist President be a bad thing? Only in America.
They love to blame Obama for everything. Obama is a socialist (Wrong). Obama is spending like there is no tomorrow (False). Obama is the reason the markets fell 5% (Ludicrous). The reason the markets ran up some 72% was because of Government. If there was no government intervention in the credit markets and yes the stock markets, we all would be living in caves at the moment. If there was an alternative plan I am sure Obama would have taken it. BTW – The alternative plan was a full scale nationalization of the financial/banking sector and economy. If that happened we would be planning a national funeral for our leader. The idea that Obama is a socialist doesn’t hold water. The reason he gets hammered is primarily over Health Care and the Auto Bailouts. I don’t like the Health Care plan either but guess what America? Wake Up! Health care is already socialized! It’s called Medicare. Obama is merely trying to insure the roughly 50 Million people who are not covered who are putting an undo strain on the rest of us. He just framed it incorrectly to the rest of us and thus it failed to get across the hearts and minds of the public.
Anyone who though the Auto Bailouts were wrong really should hang themselves right now. America other then Financial Engineering doesn’t do much anymore in the areas of production. This is the blatant bottom line truth. The financial economy has taken over/hijacked the real economy, even though its the real economy that pays the bills. There was simply no way the economy would be able to get back in gear without an auto sector – Healthy or not. The aftershocks emanating from an auto bankruptcy would have been felt for decades throughout the supply chain. Just imagine where unemployment would be if GM/Chrysler went under. Ford would not have been far behind. The blue prints that were used in regards to the Auto Bailouts were correct. If only they were as tough on the banks and their creditors as they were on the Auto executives and hedge funds. The auto gang knew that they had to get their house in order. No excuses. Just execute. Creditors will look long and hard when handing out loans to them. This is what should have happened on Wall Street as well. Make no mistake about it. I used to be a trader on Wall Street for 15 Years, they caused the credit crisis. Not homeowners. Not the Community Reinvestment Act. Not Foreign Investors who needed mortgage exposure. Not the ratings agencies. Wall Street caused this crisis and they were enabled by the Federal Reserve who kept rates so low that risk was under priced. We can talk till the cows come home that the regulators, bond insurers, investors, etc were to blame. NO WAY JOSE! All of these entities took their cue from Wall Street. Wall Street strong armed the bond ratings agencies to make crap look like gold. From this the bond insurers also under priced risk. You don’t have to look far then Wall Street. They started the fire, bought insurance against the fire that they set, and waited for government to bail them out so they can do it all over again. Too Big To Fail are new buzz words, but this concept has been around for decades. It’s the dirty little secret in lower Manhattan.
But the simple fact that Obama’s prop trading plans and Wall Street tax caused this recent collapse is borderline asinine. The reason the markets are weak is because of China. The Chinese have already started to curb bank lending to head off excess. This is the true real reason.
But whatever Obama is trying to legislate will be hard to come by. It doesn’t really attack the problem at the core. The market structure of the financial system has got to change. Restricting Prop Trading is very broad. What is Prop Trading? I used to trade firm money so I have a good understanding what it is, thus I have millions of ways the banks will get around this. Most of the money made from so called “Prop Trading” is made from taking the other side of a customer’s order. For which the Obama plan exempts. So what good is it? But separating customer deposits from the hands of recent business school graduates is a very good idea nonetheless. There should be no co mingling on this front.
For every rule and regulation there will be shady lawyers looking for loop holes. The only way to truly fix the problem is to change the market structure.
I have a novel idea! Instead of insuring the banks versus depositors, why not insure depositors from the banks themselves. I understand that the FDIC does this via deposit insurance, but it’s a veiled attempt at trying to act like they are on the side of the public, when they are not. Protect taxpayers and depositors not bankers and institutions. This is the first step. I don’t understand why in the world when they are only 4-5 large banks left that I still pay an ATM Fee? Why? It’s a joke. The banks make hundreds of billions of dollars off of ludicrous fees. Fees that never should be levied in the first place. The bank lobbyists will fight this tooth and nail. But perhaps what we need is a double dip recession to let these people know that this type of bad bank behavior is unacceptable and reprehensible. The next credit correction will make the events of 2008 seem like a walk in the park.
They government should try to diffuse the current market structure in its current form. Banks should be allowed to fail. There should be a default mechanism to deal with this before it happens. Not after. The administration’s stance on Resolution Authority just legalizes Too Big To Fail. They must impose taxes and tariffs to prohibit reckless risk taking. Successful banks and investment companies should grow organically by division not by accumulation and acquisitions. This was the real failure of repealing Glass Steagall. The banks grew larger and larger because they were incapable of growing organically. From this the banks were able to game the regulatory system.
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