› Bailouts and Congress now BFFs

With the recent House passage of the “Wallstreet Reform and Consumer Protection Act of 2009″ I’m assuming there are few in Washington that actually know what it does beyond allegedly reforming Wallstreet and protecting consumers.

The WRCP actually seems to be the final nail in our financial system’s coffin.  Since bailouts and stimulus bills are finally perceived as the lackluster solutions to nothing; Congress decided to do something they have grown to love: Change the name but don’t change the meat.  Now, they’ve passed another bailout of the financial system and blatant power grab by using the words, Wallstreet reform rather than bailout.

Simply put, and I’ll quote Democratic Congressman Jim Oberstar, WRCP was intended to create “a mechanism meant to establish an alert system, a safety-net and protection for consumers.“  They are claiming these protections were instituted originally with FDR in the New Deal and were undone just a few years back in 2002 by the previous administration.  Even our own Rep. Boswell has done nothing but blame the previous administration as well.  It seems than, from what I’ve read and heard from the proponents, that their entire intent was to institute PREVENTATIVE measures.

Let’s see what alleged preventative measures were passed:

The House agreed to give the Fed the power to give $4 trillion in emergency funding to TARP banks.  Sounds a bit more like a reactive bailout then preventative alerts to me.  The question I’m asking is where the Fed is going to get $4 trillion in emergency funds?  My advice is if this happens again, Hasbro should quadruple the price of Monopoly because Bernanke may be calling with a hefty order.

David Reilly of Bloomberg.com made a great point regarding these funds: “the Federal Reserve and Treasury Secretary can’t authorize these funds unless “there is at least a 99 percent likelihood that all funds and interest will be paid back.” Too bad the same models used to foresee the housing meltdown probably will be used to predict this likelihood as well.”

The House also agreed that the government will back the debts of these large financial firms in the middle of a crisis so they don’t default on what they owe.  Does this mean they will back your savings account or IRA?  Probably not.  They probably mean other large firms that hold the debt.  After all, we aren’t too-big-to-fail.

Reilly made another great point.  “The legislation does create a council of regulators to spot risks to the financial system and big financial firms. Unfortunately this group is made up of folks who missed the problems that led to the current crisis.”

The bill allows the government to prohibit incentive based bonuses for employees.  As far as I’ve seen this provision did not specify only TARP banks.  This has two huge issues:

• These bonuses are not restricted to executives.  Meaning, those hard working sales representatives who live off commission could very well have their bonuses restricted even after a year of very hard work.
• The government is now restricting pay in the private sector.  It’s only a matter of time before they push for an additional power grab where they can restrict bonuses and executive income in other industries as well.  Maybe this is how they plan on paying for the $4 trillion in bailouts or the impending healthcare debacle with a 100% tax rate on bonuses.

Furthermore, this bill expands the size of government by forcing new positions like the Director of Minority and Women Inclusion which a number of agencies will be creating as Presidential Appointees.  Not really sure how that one is going to fix Wallstreet and protect consumers, but nothing else in the bill really does either.  The bill will also create a new agency, Consumer Financial Protection Agency.

Strangely, this bill is supposed to “re-instate” those protections that Bush allegedly wiped out in 2002.  Well, in this bill, the Credit Risk Retention Act of 2009 actually amends the Securities Act of 1933 which was set up to regulate the offering and sale of securities.

It comes down to this.  This bill does not eliminate the “too-big-to-fail” concept that Senator Dodd and Rep Barney Frank were “hoping” for.  Instead it gives them $4 trillion and some in case they screw up again.  It creates bigger government.  A bigger government that is willing to leverage YOU for power and increases their illegitimate intrusion in the private sector.