After taking advantage of loose regulations for the past 20 years, it looks like Congress has had enough. Expect much stricter guidelines dictating how Wall St conducts business going forward.
This is what happens when you create a ponzi scheme that can potentially collapse the entire financial system. The politicians are as much to blame as Wall St. for the housing debacle because they simply haven't regulated them in any way.
The banks continue to hide all of their bad debt in things like level 3 assets, SIV'S, and other derivatives. The sad thing is, I don't even think Wall St. understands how to value any of the "financial innovation" that they created. Congress has continued to let them hide their losses and allow them to keep their books closed.
This is why the banks don't trust each other. They don't know how financially healthy each other are. I wouldn't want to lend to another financial institution if they could potentially be insolvent.
Well According to Bloomberg, it looks like Congress may put an end to the wild west of Wall St.
Here are a few highlights from the article:
May 2 (Bloomberg) -- The last-minute rescue of Bear Stearns Cos. by the Federal Reserve and U.S. Treasury may prompt Congress to let regulators move earlier to restructure or shut failing securities firms that run low on cash.
U.S. Representative Barney Frank, 68, chairman of the House Financial Services Committee, plans hearings this month and next on new controls on the $322 billion securities industry. He said today he thinks the panel will pass legislation putting securities firms under the same liquidity and capital requirements as commercial banks.
The result may be a law modeled on the 1991 Federal Deposit Insurance Corp. Improvement Act, or FDICIA. Such a measure would obligate regulators to step in when Wall Street banks fail to meet minimum capital requirements. Securities firms may also face new costs and disclosures in any regulations Congress passes.
``The Fed's going to demand greater transparency into these balance sheets,'' said Todd Petzel, 56, chief investment officer at Offit Capital Advisors LLC in New York, which oversees $5.2 billion. ``You can't have the Fed in a `trust-me' mode.''
Starting in March, securities firms were allowed to borrow from the Fed at the discount rate, now 2.25 percent, what commercial banks pay. The loans, available for at least six months, are the first to investment banks since the Great Depression.
While Fed Chairman Ben S. Bernanke told Congress April 3 that the central bank ``will have to take this window back'' when conditions return to normal, he said Congress ``will want to consider over time, should we make this a regular facility in the future?''
`Market Stability'
Proposals for new securities-industry rules have followed Treasury Secretary Henry Paulson's March 31 call for an overhaul of the financial regulatory structure, recommending that the Fed oversee ``market stability.'' Research groups including the Heritage Foundation, American Enterprise Institute and Brookings Institution are advancing their own plans in a discussion that may last years.
Starting in March, securities firms were allowed to borrow from the Fed at the discount rate, now 2.25 percent, what commercial banks pay. The loans, available for at least six months, are the first to investment banks since the Great Depression.
While Fed Chairman Ben S. Bernanke told Congress April 3 that the central bank ``will have to take this window back'' when conditions return to normal, he said Congress ``will want to consider over time, should we make this a regular facility in the future?''
`Market Stability'
Proposals for new securities-industry rules have followed Treasury Secretary Henry Paulson's March 31 call for an overhaul of the financial regulatory structure, recommending that the Fed oversee ``market stability.'' Research groups including the Heritage Foundation, American Enterprise Institute and Brookings Institution are advancing their own plans in a discussion that may last years.
``Commercial banks and investment banks can do similar things, but the commercial banks have a set of rules that the investment banks don't,'' Frank, a Democrat, said in an interview on Bloomberg Television's ``Political Capital with Al Hunt,'' to be aired today. ``It's kind of like trying to raise identical twins and you give one a curfew of 9 o'clock at night and the other a curfew of 11 o'clock at night.''
My Take:
There is going to be a rude awakening when the investment banks can't leverage up at 30-1 anymore. This will hurt their ability to make profit going forward. This is not tough talk folks. Its going to happen because of the drastic measures that the government has had to take to clean up this mess.
The Wall St. ponzi game is going to be shut down because Congress is starting to realize through the drastic actions of the Fed that the financial system is staring at the edge of a cliff.
The Wall St. profit machine is about to be down and out until the next scheme is devised. Once investor's realize this they will go looking for profits elsewhere. Anyone telling you the fininancials have seen the bottom is doing so on a hope and a prayer.
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