Obama’s Regulatory Reform Removes the Punchbowl from the Fed

Add to Google Published by WallStreetWeather.net

Capricorn and its planetary ruler Saturn represent government, structures, and rules and regulations. With transformative Pluto in Capricorn from 2008 to 2024, all types of structures get reformed, as well as the government agencies in charge of overseeing them.

The Sun represents leaders, and with the Sun opposing Pluto, President Obama yesterday released the Administration’s plan for “Financial Regulatory Reform A New Foundation: Rebuilding Financial Supervision and Regulation.”

Planetary oppositions represent opposing forces, and the Sun opposite Pluto describes the turf battles that took place behind the scenes between the executive branch, leaders of the financial regulatory agencies, members of Congress, and industry executives and lobbyists to preserve their power and influence. Although the Office of Thrift Supervision and the Office of the Comptroller of the Currency will be combined to become the National Bank Supervisor within the Treasury, the Administration failed to combine the Commodity Futures Trading Commission (CFTC) and the SEC due to objections by the House and Senate Agriculture Committees.

The Sun/Pluto opposition is transiting the Federal Reserve’s natal Sun in Capricorn opposite its Pluto in Cancer, reinforcing the need to shed light on the Fed’s secretive dealings and restructure its identity. Planetary oppositions involve a give and take interaction between the two energies in order to achieve equilibrium. The reform proposal would increase the Fed’s powers as the Fed would become the Systemic Risk Regulator in charge of all financial institutions that could pose a systemic risk to the financial system, including hedge funds and insurance companies. General Electric (GE) through its GE Capital unit is an example of a company that would come under the Fed’s supervision if Congress approves the Administration’s plan.

At the same time the Fed will have to give up some powers. The Fed Chairman will be a member* of a newly created Financial Services Oversight Council chaired by the Treasury Secretary. The council would decide what firms pose a systemic risk, identify regulatory gaps, and recommend firms to be classified as financial holding companies (FHC) that would fall under the Fed’s supervision. The Fed would not be able to make loans under Section 13.3 unless approved in writing by the Treasury Secretary. Several members of Congress would like to have the Fed’s regional bank presidents be confirmed by Congress rather than be appointed to their position by the banks they regulate.

As the planetary ruler of debt, Pluto rules mortgages and all types of loans. Pluto also rules anything occult (hidden). The good news for consumers is that the Fed would have to relinquish its regulation of consumer products over to the Consumer Financial Protection Agency (CFPA), a newly created independent agency to oversee credit, mortgage, and savings products, that would provide greater transparency so that documentation for mortgages, credit cards, and other financial products are easier to understand. The Justice Department would closely cooperate with the agency to ensure the CFPA’s rules are being enforced, and the CFPA would create an outside advisory panel that would coordinate its efforts with other regulators to ensure that no financial product goes unregulated.

These proposed changes correlate to a post I wrote in September 2007 on “The Fed’s Future” where I stated that the Fed’s purpose and scope would be transformed during this time. I also predicted that Ben Bernanke would not be reappointed Chairman and might even resign before his term expires on January 31. The Administration is calling for a “comprehensive review” of the Fed’s organization and structure, and if Bernanke is truly against the Administration’s plan to turn consumer finance over to a new agency, it’s hard to imagine President Obama will reappoint him for another term.

The Fed’s natal Sun/Pluto opposition also describes that the central bank is too beholden to the financial institutions it regulates. The Fed’s Capricorn Sun reflects that the Chairman for the most part is too enamored with the power and prestige that come with the job and Wall Street’s chief executives seek to use this to their advantage. Needless to say financial institutions are against taking away the Fed’s power to regulate consumer financial products. Or as one Wall Street executive told the Financial Times: “If the industry had a choice of an overall regulator, it would have chosen the Fed.”

The Fed’s chart shows that its actions have hurt rather than helped consumers. The Fed’s Pluto is in Cancer, a sign ruled by the Moon. The Moon represents consumers, and with the Fed’s natal Moon in Pluto-ruled Scorpio in the area of the chart representing financial speculation, the Fed has catered to the “shadow” banking system at the expense of consumers. To support “financial innovation,” the Fed chose to ignore the deceptive practices in consumer financial products from financial advisors through non-conventional mortgage products that led to the housing and credit bubbles. And the Fed refused to raise margin requirements which led to the dot com bubble. If the CFPA had existed, retail investors would not have been allowed to purchase such esoteric products as auction rate securities.

Just like his predecessor Alan Greenspan, Bernanke has made no attempt to balance the Fed’s Sun/Pluto opposition to strike a fair balance between the interests of financial institutions and consumers. In fact, both Bernanke and Greenspan tilted the scales in favor of financial innovation at the expense of consumers. Thus Bernanke’s hostility toward the creation of the CFPA is understandable but not very politically astute.

The level of suspicion over the Fed’s lack of transparency and secretive maneuvers is so high at this point that both parties are supporting Rep. Ron Paul’s bill (HR1207) and its Senate companion bill (S604) to audit** the Federal Reserve.

President Obama stated yesterday: “We seek to create a framework in which markets can function freely and fairly, without the fragility in which normal business cycles suddenly bring the risk of financial collapse; we want a system that works for businesses and consumers.”

Clearly creating the Consumer Financial Protection Agency is the key to mitigating the boom/bust cycle President Obama describes as it takes away the punchbowl from the Fed.

Related Posts: “Bernanke and the Fed’s Bogus Transparency”, “Bernanke Behind Threat To Oust Ken Lewis”, “Bernanke’s Bubble Lab

*Other members of the Council will be the Chairmen of the CFTC, FDIC and SEC, and the Directors of the FHFA and the plan’s proposed new agencies, the Consumer Financial Protection Agency and the National Bank Supervisor.

**Congress already passed legislation authorizing the GAO to audit the Fed on AIG.

No disclosures.

No comments: