The U.S. Federal Reserve Lets Big Banks Off The Hook… Again (XLF, FAS, FAZ, BAC, GS, C, JPM, WFC, SKF, UYG)
Confronted with the opportunity to enact meaningful change to the regulatory system, the Fed punted on its responsibility to protect the public from the very banks (NYSEARCA:XLF) that brought down the global economy.
This once again proves that the Fed, far from being a guardian of public welfare, is actually on the side of big banks.
“The Fed is an agent of the banks and, as such, it continues to come up with new ways for them to make money, risk free,” said Money MorningCapital Waves Strategist Shah Gilani.
This time, instead of proposing strong guidelines that would actually do something to avoid another crisis caused by too-big-to-fail banks, the Fed put forth a plan that lacks key details and leaves important decisions in the hands of international regulators in Basil, Switzerland.
Specifically, the Fed proposal is hazy on capital requirements and minimum liquidity levels, which are crucial to ensuring a bank survives a financial emergency.
Delay has been a common theme for agencies charged with creating the regulations set out in Dodd-Frank. As of the beginning of December – 18 months after Dodd-Frank was signed into law – fewer than 25% of its hundreds of new rules have been finalized.
On Tuesday, it was the Commodity Futures Trading Commission (CFTC) voting to delay until July of next year regulations governing derivatives - the financial instruments that were at the very heart of the 2008 financial crisis.
And by forfeiting its chance to effect change, the Fed left the United States even more vulnerable to another financial crisis.
Now, not only have these vital regulations been delayed, but the process gives well-connected Wall Street bankers three months to “comment” – read “influence” – on the proposals.
Following the Fed’s announcement, the banking industry didn’t seem particularly worried that the finished regulations, when they do arrive, will cause them much of a headache.
“While these rules will require considerable review and comment from the industry, we are pleased to see the Fed is taking a phased-in approach to a number of these measures,” Ken Bentsen, an executive vice president the Securities Industry and Financial Markets Association trade group, told Bloomberg.
A headline on CNBC summed it up nicely: “Banks Breathe Sigh of Relief Over New Fed Rules.”
Indeed, Wall Street isn’t concerned because at the end of the day, it knows the Fed is its ally.
“The average American has no idea how protected the big banks in this country really are,” said Money Morning’s Gilani. “Maybe that’s because the biggest bank in the world is the U.S. Federal Reserve. And it happens to be a creation of – and 100% beholden to – the banks that it is a master shill for. It also lies to us and covers up Wall Street’s misdeeds.”
[Note: For a more thorough account of those misdeeds and the perpetrators behind them sign up for Shah Gilani's free newsletter Wall Street Insights & Indictments. There, the former hedge fund manager really gets nasty.] Gilani pointed out that between 2006 and 2010 the banks increased the amount they spent on lobbying by 33%. So they know how to sway policymakers.
“Banks have done a good job of hiding the truth,” he said. “And they wanted to have more time for their lobbying efforts.”
Given Washington’s growing susceptibility to Wall Street’s siren song, it could be a long wait before we see any banking regulations with real teeth.
“We won’t get another chance to fix the system until the next crisis,” Gilani said. “And the next time it will be worse.”
Related: Financial Sector ETF (NYSEARCA:XLF), Direxion Daily Financial Bull 3X Shares ETF (NYSEARCA:FAS), ProShares UltraShort Financials ETF (NYSEARCA:SKF), Direxion Daily Financial Bear 3X Shares ETF (NYSEARCA:FAZ), ProShares Ultra Financials (NYSEARCA:UYG).
We’re in the midst of the greatest investing boom in almost 60 years. And rest assured – this boom is not about to end anytime soon. You see, the flattening of the world continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially; and a technological revolution even in the most distant markets on the planet. And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact, we believe this is where the only real fortunes will be made in the months and years to come.