The chance of the banking deregulatory locomotive – which is ready to leave Washington Station when Donald Trump is inaugurated – running off the tracks is high.
If that happens, the train – including big banks, capital markets, consumer protections, and the whole American economy – could crash and burn.
America's been taken down the financial services deregulation path many times before. Everything goes well for a while, and sometimes a good while… But eventually the embers of greed that fuel financial services gamers turns into a conflagration, consuming everything in sight.
I've got an easy, five-step approach to avoid catastrophe and make deregulation great again.
But before I show you, I want to talk about what usually goes wrong with deregulation juggernauts – why what can happen always happens.
And most importantly, what the American public must demand of our new president and his lieutenants to ensure we're not headed off another cliff…
Banking Regulation Is a Reaction to Bad Behavior
First, it's instructive to understand that the regulation of banks and financial services in the United States has never been arbitrary or capricious. All the rules and regulations that have ever been put in place have resulted from what's gone wrong – from the banks and the greed-mongers screwing up.
In other words, if banks didn't blow themselves up on a regular basis throughout the history of our republic (and in the process blow up depositors, borrowers, businesses, and the economy), there wouldn't be any need for the seemingly over-the-top regulations financial services companies subsequently try and wrangle out of.
Take the U.S. Banking Act of 1933, more commonly known as Glass-Steagall (named for Sen. Carter Glass and House Banking and Currency Committee Chairman Henry Bascom Steagall, who shepherded the act through Congress).
Glass-Steagall became the law of the land on the heels of 5,000 banks failing between 1929 and 1933. Those failures hit depositors with more than $400 million in losses. Things were so bad that President Franklin Roosevelt took the extraordinary step of shutting down the entire banking system for four days to calm the public and stem costly bank runs.
Prior to the 1933 act, banks were free to traffic in securities. But a congressional investigation led by prosecutor Ferdinand Pecora unearthed a culture of recklessness, cronyism, and fraud in the use of depositor funds and in the promotion of securities for sale to the public.
A top executive of Chase National Bank (the precursor of today's JPMorgan Chase) enriched himself by short-selling his own bank's shares during the stock market crash. National City Bank (now Citigroup) took millions of dollars of failed loans to several Latin American governments, packaged them as securities, and unloaded them on unsuspecting U.S. investors.
That's what spawned the encompassing wet-blanket regulation regime known as Glass-Steagall – it was all because of what the banks did.
But old rules don't always make sense when the economic landscape expands.
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. He provides specific trading recommendations in Capital Wave Forecast, where he predicts gigantic "waves" of money forming and shows you how to play them for the biggest gains. In Short-Side Fortunes, Shah shows the "little guy" how to make massive size gains – sometimes in a single day – by flipping large asset classes like stocks, bonds, commodities, ETFs and more. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.