Banks Are Worried Their Free Lunch Is Over

“Never Again Will the American Taxpayer be Held Hostage by a Bank that is ‘Too Big to Fail’"

Wow, my ears are still ringing from the sudden and shocking statement made by the President today. All of my readers know all to well that I am a strong advocate for bringing back the Glass-Steagall act.

The statements made by President Obama today, while falling short of actually reinstating Glass-Steagall, still has many merits that I strongly support. It is a good start.

Wall Street – Watch out, your free lunch may be coming to an end.

As I have written and voiced in my market videos over the past many months, the advances have been a bear market rally within a broader secular bear market. The rise in equity prices over the past six months has been, for the most part, a result of easy money at the expense of the tax payers. And a free lunch card is no way to create a healthy and organically robust economy. Today, President Obama has threatened to cancel the free lunch card for good.

The White House

Office of the Press Secretary

For Immediate Release

January 21, 2010

President Obama Calls for New Restrictions on Size and Scope of Financial Institutions to Rein in Excesses and Protect Taxpayers

The proposal would:

1.   Limit the Scope – The President and his economic team will work with Congress to ensure that no bank or financial institution that contains a bank will own, invest in or sponsor a hedge fund or a private equity fund, or proprietary trading operations unrelated to serving customers for its own profit.

2.   Limit the Size – The President also announced a new proposal to limit the consolidation of our financial sector.  The President’s proposal will place broader limits on the excessive growth of the market share of liabilities at the largest financial firms, to supplement existing caps on the market share of deposits.

In the coming weeks, the President will continue to work closely with Chairman Dodd and others to craft a strong, comprehensive financial reform bill that puts in place common sense rules of the road and robust safeguards for the benefit of consumers, closes loopholes, and ends the mentality of “Too Big to Fail.”   Chairman Barney Frank’s financial reform legislation, which passed the House in December, laid the groundwork for this policy by authorizing regulators to restrict or prohibit large firms from engaging in excessively risky activities.

As part of the previously announced reform program, the proposals announced today will help put an end to the risky practices that contributed significantly to the financial crisis.

I am truly impressed. Now the question is will it ever see the light of day? Almost immediately following Obama’s statements came a whole bunch of opposing opinions. Some view the measures, if made into law, would prevent the big Wall Street firms from being able to compete on an international level. My response to that is – tough shit.

Some have said that the new rules could hamper the banks from operating efficiently in the future. My response to that is – too bad, learn how to make money the old fashioned way, by earning it, not placing tax payer funds at risk.

And various congress critters are chiming in and they think it will destroy the banking system. My response – It has already been destroyed, now lets fix it.

The markets sold off significantly today as the idea of the free lunch card may be taken away. Some will criticize President Obama for crashing the stock market. Sorry, it is not his fault the market tanked today. The reason it sank is that it was being propped up on air in the first place. Reality sucks, doesn’t it. If the free lunch is cancelled then equities will be forced to price to reality, not goosed by the taxpayer being robbed every day.

Now we have to make this become a reality. Any senator or representative that opposes the new constraints on Wall Street will be showing his or her cards, and those cards will have been paid and supplied by Wall Street. In that case throw the bum out!

If any financial institution, who has been sucking on the taxpayer teat for the past two years does not like the proposed changes, then I have only one thing to say to them – Live with it, or fail. We won’t shed a tear if you go out of business.

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Tagged as: Glass Steagall, Paul Volker, President Obama