@Robert Gentel,
Robert Gentel wrote:
Finn dAbuzz wrote:In reality banks are subject to a massive amount of regulations.
But don't you think core fundamental ones like capital requirements got too loose? And that the many new complex financial instruments are not as well regulated as they should be?
I didn't say that banks should not be regulated, I was responding to the very common misconception that banks are not regulated or are subject to minimal regulation.
The gist of my argument is that the banking industry is
poorly regulated. which causes problems regardless of the number of actual acts and regulations.
Dodd Frank was the Democrat's grand answer to all the problems supposedly revealed by the 2008 economic meltdown and Great Recession. As I noted previously, rather than addressing the issue of financial institutions being too big to fail, it stacked the deck for the largest of them.
It should be perfectly clear to even wild-eyed, hammer and sickle wielding socialists that if regulations, in effect, protect large, long-standing companies from the innate reforms driven by competition, and particularly competition from small new start-ups or small family or regional operations (the operative word is "small") then they are poor regulations indeed.
It should also be clear that they are a disaster if at the same time they are driving small players out of the marketplace, they are allowing the big ones to create the illusion of compliance by spending large sums of money on armies of lawyers and accountants.
One might be able to look on the bright side and see that Dodd Frank and similar grand reforms have created jobs in the Legal and Accounting professions, but that view would quickly darken upon realizing that there were other beneficiaries of these bold and innovative reforms: The politicians who crafted them with the help, largely hidden no doubt, of the very targets of their efforts and who just happened to be major donors for their re-election campaigns (in other words, the
cronies in Crony Capitalism) AND the large companies themselves who have been able to restrict competition in their marketplace to an extent only illegal, unfair trade practices would have managed to otherwise accomplish. It's cost them a pretty penny to mock up a compliant facade, but probably no more than pursuing an illegal, predatory scheme to crush competition; besides, this way they get to pass the costs on to the consumers. After all it's the consumers who are really benefiting from these reforms, right? It's only fair that they pay for their own protection.
I do not have direct experience with the games being played with Dodd Frank, but I have witnessed first hand the massive efforts large companies have financed and undertaken to comply with Sarbanes Oxley. Here again we have reform that created a mini-gilded age for large accounting firms. Companies who wished to be in compliance, found it necessary to hire a minimum of two large firms and often three. The first one would assist the company's accounting departments in assisting the company's operational executives in creating the pages and pages of "controls" which were intended to mitigate the company's numerous areas of risk (ranging from "minimal" to "existentially catastrophic") and prevent companies from either shooting themselves in the foot through incompetence or suffering betrayal and financial ruin at the hands of dishonest brigands, posing as employees.
Interestingly enough, no one of them actually knew what compliance precisely looked like and the government was loathe to tell anyone for fear that it would lose opportunities to find non-compliance down the road and thereby top of it's coffers with fines. With regulations the government always reserves the right to change the rules at any time during the game.
This was the stage during which an executive and his or her staff's knowledge of Alchemy was crucial because in crafting the most effective "controls" with the best chances of proving compliant, it was necessary to wield the powerful and mysterious forces of that arcane science and turn bull-**** into gold, or at least iron pyrite.
Once the controls were in place the first accounting firm or a second one, settled into offices throughout the country to spend weeks and months "testing" them. In our case, the second firm had permanent work space in our offices. The
testing consisted of the accounting firm reminding the division execs that we needed to have someone(s) on our staff "test" the controls. Our designated compliance officers would then ask the Alchemist who developed them (often themselves) if they were working. Our company was especially successful with this process as we regularly had test scores of 95% compliant or higher (lucky for us too because anything below 95% and an executive might have suffered a haircut of his or her bonus).
The final accounting firm entered the picture when it was necessary to actually conduct the testing for
real. Up to that point the hundreds of thousands of dollars being spent had been on dry runs. The real deal tests differed from the dry-run tests only in the fact that it was a different firm reminding us to tell our designated compliance officers to "test" their controls.
These tests were done every quarter. I don't recall if the company was required to attest to the Feds that it had all controls in place; tested and operational, on a quarterly or annual basis. I do know that over the years, we were never audited by the Feds, and if there was any response from them to our attestations, it was always of no significance as it was never spoken of at any board meeting.
Now I assure you that everyone involved in this process took it very seriously and that, at least for us, the controls were always effective and our customers and shareholders fully protected. It was government regulation at its finest.