Tuesday, October 11, 2011

Spread the Enlightenment Liberally or else

The so-called Volcker Rule (named for Paul Volcker, Fed Chairman under Carter and Reagan) is another step closer to being implemented after a 3-0 vote by the FDIC. Part of the Dodd-Frank Act this rule would reinstate one of the core principles of the Glass-Stegal Act that prohibited banks that accept deposits from using their own money to gamble with on the markets. The rule still requires the approval of the SEC and the Treasury Dept, but is on track to be implemented after the end of the public comment period on Jan 13.

Conservatives argue that the government has no right to tell the banks that they can’t use their own money anyway they want, or do what ever they want with your money for that matter. Proprietary trading was banned on June 16, 1933 only 90 days after FDR took office amid the wholesale collapse of the banking system. This Act also created a firewall between banks and other institutions like investment banks as well as insurance companies and lasted until the Gramm–Leach–Bliley Act or the Financial Services Modernization Act of 1999. It could be more accurately described as the Return to 1929 Act.

By 2006 the banks were already under water and in 2008 they were wiped out. A 14 trillion dollar bailout from the Federal Reserve was the fix and the 700 billion TARP funding from Congress was just window dressing that the banks could pretend to pay back. This made the Wall Street parasites appear to be the Masters of the Universe again when they were still trillions in the hole.

The problem with proprietary trading is that the bank is risking the capital it’s supposed to hold to protect depositors from any shock to the bank. The Bush Adm also dramatically reduced the capital reserve requirements so that the banks basically had no money to backup the bets they were making anyway, let alone protect depositors.

In fact the Dodd-Frank Act will eliminate a big chunk of the cash flow on Wall Street, and the banks are already starting to lay people off. If things get bad enough they maybe required to actually start loaning money to small business again, just to have something to do.

There is a problem with Dodd-Frank in that it gives the Federal regulatory agencies broad powers to write rules to control the banks and even break the big banks up if they get out of hand again, but that all of this can be undone if the Republicans ever come back to power. On the other hand this is nothing new, the Federal Government already has expansive powers to keep corporations and banks from doing most of the things that the Occupy Wall Street protesters are outraged about. Laws that are still on the books from the New Deal and even from the Progressive Era before that, they just have been ignored for the last 30 years.

The word Liberal comes from Liberal Enlightenment, the idea that all the people are enlightened (that is they can make decisions for the benefit of all) and not just royalty and the church are capable of such things. Today conservatives measure enlightenment or the “right to rule” as being a function of wealth, the more wealth they have, the more enlightened they are. Until enough people understand what is really going on, the “right to rule” will continue to be a function of wealth. Spread the enlightenment liberally or get used to being ruled by the rich.  www.prairie2.com

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