We've told you before that the U.S. Federal Reserve puts Wall Street's interest above that of the American public. And yesterday (Wednesday) the central bank proved it… again.
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 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."
News and Related Story Links:
- Money Morning:
Bailout Bandits: The Biggest Borrowers From the U.S. Federal Reserve
- Money Morning:
The Inside Story of How Our Financial Regulators Let Us All Down
- Money Morning:
The Insidious Truth About Federal Reserve Policy
- Money Morning:
The Next Banking Crisis Starts Here
The Federal Reserve: Too Much, Too Little, Too Late
- The Street:
Fed Lays Bank Risk Management Egg
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.