Series 23 | Part 6: Trusting Banks To Solve The Very Problems They Create

I want to focus on the FHFA for just one paragraph. I applied to work there and did a lot of research on it, and in addition, having worked in the hedge fund industry for nearly four years from 2008 to 2012, precisely when all this went down, I have seen a real lot of what happened during the mortgage crisis. However, what’s the effect of being able to defund or even fire the Director of the FHFA and take away their role as conservator? Nothing. This issues with risky, syndicated, securitized, unchecked and unreserved, apathetically motivated credit derivatives is not about housing anymore. It’s about student loans and car loans and, coming soon in my prediction, service receivables. Therefore, the role of Treasury in funding FHFA to manage the operations of Fannie Mae and Freddie Mac and provide liquidity to the mortgage market is quite minimal and probably totally unnecessary. Republicans are violating the spirit of FHFA’s role, but the effect on you and me will be quite minimal. If there were a more generalized agency role of providing liquidity to any credit market that now includes securitization, then defunding that would be a monstrosity.

Getting rid of the OLA and FDIC oversight and FDIC assistance in reorganizing banks that have gambled away their liquidity will have the effect of letting them figure it out for themselves. They try to claim that they can do that in a weekend while the markets are closed and no one will get hurt. However, they couldn’t do that before Dodd-Frank created regulations that require them to show how they would do that, and I doubt that their living will has done more than follow the letter of the law and will not be following in implementation when a crisis occurs. With no FDIC oversight, a simple personality observation will tell you that they are going to throw that living will in the garbage. They’ll end up being “too big to fail” once again. If we can get a majority of Democrats in the House and Senate, then we may be able to get regulators to come into these banks and guide their reorganization so that the damage is limited to the private sector and not the taxpayers, but that’s where you come in, getting as many Democrats in office as possible.

Removing the Volcker Rule is also a major problem. The effect is obvious. Allowing proprietary trading will remove the liquidity set aside to make markets and provide stability to the financial markets and credit markets when something goes wrong, a miscalculation or an unforeseen economic event like a spike in defaults. Removing the Volcker Rule allows banks to ignore their responsibility to provide liquidity, which was enumerated as a requirement embedded in the powers given to them by the Federal Reserve decades ago. Therefore, they are claiming that they are not required to care about anyone else in this country and many other countries. True, they are not required, and I’m not sure apathy or a lack of humility should be punished, but I’ve tasted the toxicity of these places, and I know what will happen. They simply do not care about anyone but themselves. That’s the long and short of it all.

Allowing banks to raise the interchange fees on debit card transactions will likely not do much. It could provide relief for checking account holders. This may be a good one. The fee economy, as I call it, has allowed anyone to avoid laws by calling a charge a fee or a penalty. In China, there are monetary penalties for being late to work that push net pay way below a living wage. I should know. My contract there stated a maximum of 20% of my monthly salary for being 20 minutes late to work one day that month, including no pay for that entire day. We don’t do that here, but there’s a trend to charge fees when the company wants more money because you can always call something a fee and not break any laws. With banks, however, interest rates are so low that they actually need to charge you fees otherwise they will immediately take a loss just by having your money. So, while that is unfortunately, the most vulnerable people are hurt by checking account fees and overdraft fees and other fees on the most basic of banking operations. Charging people who can actually afford to buy something is better than charging someone who is still trying to save enough to be able to buy something someday.

So, what can we do about this?

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