According to a recent article in Forbes.com, more than 60 percent of stock owners believe the market is rigged for insiders. They favor stricter regulations on financial institutions and nearly 90 percent believe the federal government has failed to limit the power of Wall Street.
With no lack of irony the House Financial Services Committee met this week to increase the power of Wall Street by eliminating regulations and enhancing the ability of insiders to manipulate markets. Committee Chairman, Jeb Hensarling, called the meeting to repeal the recently passed Dodd-Frank financial reform legislation. Hensarling claims it is an unreasonable burden on economic freedom.
If economic freedom is the goal of Chairman Hensarling, it is worth considering the recent history of economic freedom and deregulation:
Savings and Loan Industry
1982 Savings and Loans (S&L) industry deregulated.
1987 S&L deposit insurance fund declared insolvent
1989 S&L industry implodes. $160 billion taxpayer bailout for 1,034 failed S&Ls.
Commercial Banks/Investment Banks
1999 Deregulation of investment banks & commercial banks
2000 Deregulation of derivatives, futures and credit default swaps
2008 Implosion of investment & commercial banks. $700 billion TARP bailout
It took only five years from the deregulation of the S&L industry to the day its insurance fund went bankrupt. It took only nine years from the deregulation of the commercial and investment banks until they were at death’s door.
To date, the balance sheets of banks, hedge funds and shadow banking institutions are as opaque as ever. The Dodd-Frank reforms called for greater transparency, but banking lobbyists have derailed more than half of the regulations written to enforce the act. Moreover, the six largest U.S. financial institutions are nearly 40 percent larger than they were before 2008.
But these are the old problems that might be considered the last war.
Since the 2010 passage of Dodd-Frank, a new industry of dark pools and high-frequency traders (HFTs) have proliferated. HFTs take no risk and rip off investors from the smallest retail traders to the largest institutional mutual funds. Their activities have been well documented by Scott Patterson in Dark Pools and Michael Lewis in Flash Boys.
Rather than going to work on this issue, the House Financial Services Committee held a meeting to chastise those who expressed a concern about HFTs.
Dodd-Frank might have been fighting the last war but it did provide some protections for consumers, investors, depositors and taxpayers.
The House Financial Services Committee appears to be waving the white flag of surrender on these protections. Will Congress, once again, put the economic future of the U.S. in the hands of Wall Street?