Feds miss the mark on bank regulation
The derivatives market poses the most fundamental risk, so disallowing banks from commodity trading seems punitive.
Just this week we learned about how the Federal Reserve is looking in to the ability of banks to stockpile and trade physical commodities. So is the Commodities Futures Trading Commission, according to today's New York Times. That comes on top of last week's story about how the Federal Energy Regulatory Commission is fining JPMorgan Chase (JPM) for energy trading.
Notice I didn't say "illegal" energy trading, as I am not sure what is legal or illegal in energy trading. However, it's pretty sure that FERC is making it up as it goes along, something that is certainly within the bailiwick of a regulator. Concerning commodities trading and stockpiling by banks -- this business is, again, totally legal and no one is disputing it. Suddenly, though, the Federal Reserve has decided it might be too risky for banks to perform. That's unless the Fed just doesn't like it from the point of view of the consumer and is trying to kill it, though I doubt that theory holds much water.
In the meantime, the endless drive for banks to raise more capital has crimped earnings and created a bizarre world where a surfeit of capital is bad news for earnings, because there's no higher-yielding place to put the stuff.
So the regulators want the banks to raise capital, still, even at the cost of potential new loans -- because we can't have both at the same time. They want to discourage energy trading. They want to discourage -- or they wouldn't be looking at it -- commodity trading.
They just want banking.
Now, what's so ironic in all this is that there's an undercurrent here that anything can be justified in the name of "too big to fail." Any rules that cut back on anything risky can be justified as a way to cut down on the ability of banks to fail.
What's so amazing, though, is that none of these issues is at the core of what causes or has caused investment banks to fail. It's not commodities, or energy trading, that we need to worry about. It is the derivatives market that poses the most fundamental risk to banks, and it's there that the banks have fought tooth and nail to keep disclosure to a minimum, in part because that's where the money is. The less regulation, the more you can charge the customer and get away with it. Yet the book of derivatives has been instrumental in bringing down every bank that did fail, with the possible exception of the banks that did "low- and no-doc" and "no money down" mortgage lending.
I don't know what will come of all of this. I do think the banks trading energy will pull back from that market, because the fines are huge and the infractions seemingly totally legitimate. Who can possibly navigate those waters safely?
Can the Fed decide that a business it has blessed forever -- commodity trading -- suddenly be placed off-limits? That's almost a confiscation, for heaven's sake, as this has been a totally legitimate and up-and-up business for years and years for these companies.
Nonetheless, it shows regulators' powerful reach when it comes to banking. They can do whatever they want -- except to the derivatives markets, the one area that truly is responsible for the failure of banks that were too big. There they are toothless, and it is there that they need the real fangs. Everything else, to me, is just punishment for the past, not contingencies for the future. In other words, it's all punitive but not practical and, at this point in the game, I will take practical over punitive any day of the week.
Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long JPM.
More from TheStreet.com
it's all about the Benjamin's!
when banks become too big to fail, they also have pleanty of cash to buy off whoever tries to control them.
it's a wonderful leak in the dam that will never get plugged.
Instead of giving away free toasters they should give away free Vaseline.Those 1% CD`s
are just juicy.
If there's fraud or illegal activity taking place, go after them and prosecute to the fullest extent of the law. But the safety nets we have in place now do nothing more than encourage risky, irresponsible behavior.
It's very obvious to this person, that Banks cannot work in a NON-regulated enviroment..
Think the "Bush Era" proved that point; It has also happened long before then and is happening now.
It has happened throughout History, even Ancient Times.
Yes "free markets" are fine, if not run by "crooks"
Vegas works real fine for all involved, correct ??
Even for the bus loads and plane loads, That "show up" to make their Fortunes".
Plenty of Banks have failed the last few years and "who has paid the tab." ???
Not all is covered by their FDIC contributions and then the time in Courts and Auditors,adjusters,etc.
Yeah, the crooked bastards should be in jail....Or executed, at least stripped of everything they have amassed...EVERYTHING.
Steve....Think there are a few Banks around, but better yet Credit Unions; That are offering 1% or more slightly on CDs....Usually have mins. and are longer term 13-30 months..
Min. can start @ $1000, maybe lucky @ $500.
Credit Unions are a little more realistic with Members, then Banks are with Depositors..
Banksters are greedier and want $2500 or better and over 30 months.
There are CUs around that "just about anyone can join now", not just a workplace thing.
Ours started taking "outsiders" about a year or so ago..
Miss Lilly has some getting 1-2%, most of the better ones have since rolled over to lower rates.
They were better, at 2-3%.
She has some for G-kids and GG-kids getting close to 2%, because they were put in at longer time periods, those mins were about $500-1000 each.
Good Luck...Check out a CU.
Shouldn't Banks and Investment houses be totally different entities ??
**edited** For accept maybe guaranteed instruments or investments.
AND....The great revelation today is: "Feds miss mark on Bank regulation."
"On the road again"....
Copyright © 2014 Microsoft. All rights reserved.
Jobs numbers expected later this week will shed more light on the economy. 'The Fed has to be delighted,' one economist says.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.