Banking System Under Stress

Banking System Under Stress

The plethora of banking regulations, mostly from the 2010 Dodd-Frank Act, has rendered the U.S. banking system almost toothless. Those various regulations, designed to minimize risk, have taken one of the stronger systems in the world and weakened it to the point where another crisis is inevitable.

 

The myriad, confusing and often contradictory regulations coming from the numerous agencies with a finger in the banking pie, have only exposed the inherent problem any investment holds that being no investment can be guaranteed 100% safe. Yet, through the regulations, the government wants to make it appear so.

 

The backroom deals have weakened the profitability for the investor without insider ties. Inside the financial system, the rewards are skyrocketing, but outside the banking system it is difficult to find something that offers even a 5% return. This is because the regulations are designed to eliminate risk.

 

The regulations offered by Dodd-Frank have not been felt yet since many of the most onerous provisions went into effect only three weeks ago. Among the more egregious and mostly misunderstood provisions is the banking system can be shutdown, without notice, by the government at any time.

 

Bill Clinton opened the floodgates in 1993 when he bought off the banks' cooperation with the IRS by repealing many of the restrictive investment laws put in place during the Great Depression. In 1994 JP Morgan introduced the first credit derivative swaps trades and the ball began rolling towards the 2007 subprime collapse. The efforts to "equalize" opportunities since have only given the banks greater leeway to reap the benefits supplied by an unsuspecting taxpayer who will ultimately be responsible for the rash decisions from the Federal Reserve.

 

Those decisions include the zero interest rate for loans to banks on one hand but guaranteeing a return on monies coming in from the banks to prop up the sales of the U.S. Treasury sales.

 

The real disaster coming Main Street's way is in the form of the regulations that Dodd-Frank inspired but have not yet been written. Looking at the history of those regulations, the bite is going to be severe when the regulations are finally in place. Among those regulations are, again, new, (thought-to-be) improved rules for the mortgage securities market and stronger guidelines for the credit-ratings companies. The corruption that will not be regulated is the companies "payment" program where anyone can obtain a better rating by simply paying the asked-for price for a better rating. 

 

The idea of a risk-free banking system is an unattainable utopia envisioned by Progressives. Sheila Bair, Chair of the FDIC during the 2007 crisis, said, "It is disappointing. Pretty big chunks [of the regulations] haven't been finished. All the regulations are further behind than I thought they'd be." If you think you are hearing a repeat of the Obamacare rollout, you are.

 

Many bankers joined Republicans to originally oppose the Dodd-Frank Financial Reform Act of 2010. That opposition faded away under the surge enjoyed by the Fed's printing press run. The problems are still there and very visible to all who wish to see.

 

Jaime Caruana, head of the Bank for International Settlements to the Guardian "conditions for a global financial meltdown have not changed since 2007."

 

Caruana noted the world's investors are seeking yield but that the governments are tightening policies. "The markets are convinced monetary conditions will remain easy for a very long time. This is the impression they have been given by central banks. It may not be the impression the bankers wanted to give but it is the one they have developed. As such, they can only see an upside to markets. Soon, possibly in nine month or less, the system will implode in inflation."

 

Arturo Bris, professor of finance at IMD business school in Switzerland, definitively placed the financial collapse happening by next April. He, however, went deeper in explaining the problems. He listed eight main reasons: stock market bubble, the China banking crisis, energy, real estate bubble (again), corporate ratings and bankruptcy, war and political conflicts, poverty (or the disappearance of wealth) and hyperinflation due to individual banks receiving funding from the central banks and recycling it back to the central banks.

 

Internationally, nationally or merely on your own Main Street, it is becoming obvious the financial system is in a critical mode. The guy in the mirror will be counted on to pick up the pieces of this wreck by the politicians involved in letting this happen.

 

If the politicians had not deferred acting on their monetary obligation back in 1963, the U.S. would still be the kingpin and sitting above the chaos. They didn't then, they aren't now and they won't in the future take on this Constitutional burden. Thus Americans will also be caught up in this collapse and the drop will be like falling from Everest.

 

Whatever the result the system we have become accustomed to, the system developed during the Depression that wasn't perfect but managed to put America's economy first, will no longer exist. One of the leading culprits will be Dodd-Frank.

 

"I have sworn on the altar of God eternal hostility to every form of tyranny over the mind of man."--Thomas Jefferson

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