By upstaging U.S. Federal Reserve Chairman Ben S. Bernanke at the International Monetary Conference in Atlanta on Tuesday, JPMorgan Chase & Co. (NYSE: JPM) Chief Executive Officer Jamie Dimon drove home a crucial point: The U.S. version of "financial reform" just doesn't work.
The fact that Dimon is one of Wall Street's own – and that he stole the show from Bernanke, who made a speech at the conference – made for high drama. More importantly, though, I believe the incident served as a reminder of why Washington's attempts at financial reform don't work.
In his speech to international bankers, a tired-looking Bernanke conceded that the U.S. economy was functioning "below its potential," something that's become very clear following a spate of recent reports that show weak output and scary job trends.
Dimon – a longtime critic of financial reform (particularly the Dodd-Frank Wall Street Reform and Consumer Protection Act) – said he fears that the attempted fixes are actually stifling the recovery. He even asked Bernanke if people won't come back in 20 years and write a book showing that the Fed and our bailouts were too heavy- handed and have become a hindrance instead of a help.
"Has anyone bothered to study the cumulative effect of all these things?" Dimon asked Bernanke. "Is this holding us back at this point?"
The Big Government Blues
Bernanke admitted that he's not certain of the exact effects that heavy regulation and financial reform have on economic growth.
But the results seem pretty clear to me, and I don't think it'll take 20 years to show it: Bigger government equals a smaller wallet.
Protectionism and big government have never produced sustained growth, even in good times.
Never forget that the things we take for granted today – everything from cell phones to ATMs and computers – were the products of private-sector "risk capital," not a government that presumes it knows how to spend money better than the free markets.
So if governments have never been able to engender economic growth over long periods of time, why on earth would they do that now?
Productive "Financial Reform"
We are in the pickle we are today because the U.S. government has aimed to keep Wall Street happy. The Obama administration, to paraphrase U.S. Treasury Secretary Timothy Geithner, has saved Wall Street – but at the expense of Main Street.
If the Obama administration really wants to make a difference, quit wasting time with half -baked ideas about financial reform and noble concepts and get down to brass tacks. Bring in somebody who really knows how money works instead of more academics. Give them the ability to make Wall Street mad by dragging them into the harsh light of public scrutiny, the way the Pecora Commission did in the 1930s – then you'll know you're on to something.
That being said, if what "keeping Wall Street happy" means is to engender higher stock prices, that course of action is fairly clear: Smaller government equals bigger profits.
Cut taxes, eradicate rules that make hiring punitive, eliminate regulation and stabilize the U.S. dollar – giving Wall Street a reason to repatriate for investment here the trillion dollars it's parking offshore . This will help small businesses, too, because now people who would otherwise be restricted from borrowing or who are priced out of the market by inflation will use the money to do constructive things and rebuild our national wealth at all levels.
News and Related Story Links:
- Money Morning:
Sorry Mr. Bernanke: There Will be a Double-Dip Recession
Text of Bernanke's speech on economy
Jamie Dimon gripes to Bernanke
- Money Morning News Archive:
Stories by Keith Fitz-Gerald.
Dodd-Frank Wall Street Reform and Consumer Protection Act.
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.