The omnibus spending bill will pass the senate on Monday in all likelihood. Because it has hundreds of provisions in it besides the actual spending authorization, there is something in it for everyone to dislike. Then there are all the things that did not make their way into the bill, another cause for legislators to be unhappy. So what is the media covering? Basically, all the focus in the mainstream media is on two items: the change to the Dodd-Frank regulations and the modification to maximum contributions to political parties. In the last day, I saw three different networks cover the story, and each one highlighted one or both of these issues. The standard reporting narrative is in three parts. First, the senate is considering the bill. Second, senator Elizabeth Warren is courageously trying to prevent the senate from setting the stage for the federal government to bail out big Wall Street banks in the future. Third, senator Ted Cruz is trying to throw a monkey wrench into the system in order to prevent passage of the bill without first holding a futile vote to stop funding for president Obama's immigration directives. PBS did not mention Cruz, but it did all but declare Warren a saint for her "principled" stand. Realize this is PBS praising the prospect of a government shutdown. CBS hit all three points and was particularly harsh in criticizing Cruz for threatening a government shutdown over immigration. The same network then spoke highly of Warren for doing the same thing for a different reason.
Here's the point, though. Despite the media bias, all is not as it seems. First, the issue is not a Wall Street bailout. It is, instead, whether or not certain types of derivative investments can be made from funds insured by FDIC. The investment in derivatives will be allowed under the current regulations, but the banks have to set up separate funds outside the umbrella of the FDIC in order to make these investments. The net effect of this rule is to prevent smaller banks from competing with the larger ones. Only the large ones have the ability to set up such non-FDIC investment funds in sufficient size to make the investments worthwhile. Once again, the Dodd-Frank rules operated to provide a competitive advantage for the big banks over their smaller competitors. No one, however, ever bothers to explain this. Instead, they fall completely for the story that this is a fight against a Wall Street bailout. Remember, if these funds were to fail, there would need to be a federal bailout whether or not FDIC funds were used.
The simple truth is that the only way to end "too big to fail" is to force the biggest banks to be broken up into smaller units. The Dodd-Frank bill does not do this even slightly. Senator Warren was one of the architects of that bill as an advisor before she was elected to the senate. She is to Dodd-Frank what Jonathan Gruber is to Obamacare. The Democrats had total control and they chose NOT to break up the big banks. It is ridiculous to think that they care about the subject now.
Here's the point, though. Despite the media bias, all is not as it seems. First, the issue is not a Wall Street bailout. It is, instead, whether or not certain types of derivative investments can be made from funds insured by FDIC. The investment in derivatives will be allowed under the current regulations, but the banks have to set up separate funds outside the umbrella of the FDIC in order to make these investments. The net effect of this rule is to prevent smaller banks from competing with the larger ones. Only the large ones have the ability to set up such non-FDIC investment funds in sufficient size to make the investments worthwhile. Once again, the Dodd-Frank rules operated to provide a competitive advantage for the big banks over their smaller competitors. No one, however, ever bothers to explain this. Instead, they fall completely for the story that this is a fight against a Wall Street bailout. Remember, if these funds were to fail, there would need to be a federal bailout whether or not FDIC funds were used.
The simple truth is that the only way to end "too big to fail" is to force the biggest banks to be broken up into smaller units. The Dodd-Frank bill does not do this even slightly. Senator Warren was one of the architects of that bill as an advisor before she was elected to the senate. She is to Dodd-Frank what Jonathan Gruber is to Obamacare. The Democrats had total control and they chose NOT to break up the big banks. It is ridiculous to think that they care about the subject now.
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