According to BBC News [newsvote.bbc.co.uk], 18 June 2008, US Treasury Secretary Timothy Geithner proposed banking reforms, including
• A dedicated agency to protect consumer interests and regulate mortgages and credit cards.
• Consolidating some regulatory agencies and giving the Federal Reserve greater oversight powers
• A new oversight council uniting the heads of existing agencies to improve regulation
• Greater financial cooperation internationally.
- As to the first point, another Federal agency is historically not in the interest of US citizens and only serves to further grow, entrench, and secure the Federal government. The biggest improvement in consumer protection may be effected with a simple usury law.
At present there is no Federal usury law and lenders may legally charge in excess of 30% effective interest under State's laws. This rate was set in the early 1980’s when inflation was high and approaching the near 20% usury interest rate limits that had been in place at the time. New usury rates were, unfortunately, set at an absolute or fixed rate rather than a relative rate that may float with market conditions. Thus, we have been experiencing the results of lenders charging about 30% as their cost of money has fallen below 3%.
The usury rate should be set as a ratio of a market indicator, including a Federal Reserve rate, inflation rate, or prime rate. The experience of the early 80’s indicates that a usury rate of 3/2 the Prime rate would be fair. And, there is no reason other than greed that the usury rate should not include all fees and charges.
An effective Federal usury law may look like:
No lender shall impose an effective fixed interest rate, including actual fixed interest rate and all fees and charges, greater than 3/2 the Prime Rate at the time the fixed interest rate is fixed. In the alternative, no lender shall impose an effective adjustable interest rate, including actual adjustable interest rate and all fees and charges, greater than 3/2 the Prime Rate at the time the adjustable interest rate is adjusted.
Further, simple bolstering of financial institutions may be effected by legislative establishment of a high ratio of secured to unsecured investments, say 70:30. An effective investment limit law may look like:
No bank, no credit union, no insurer, and no other financial institution that generally provides either savings account or insurance services shall invest more than 30% of new receipts in any non-secured investment, shall in any way convert secured investment funds to any non-secured investment, and shall in any way invest proceeds of a secured investment in any non-secured investment. This provision shall expressly not apply to investment of funds of each of an individual, a closely held private entity, and a publicly traded entity having invested assets not greater than one billion dollars, which invested asset valuation shall be in dollars adjusted to year 2000 dollar value.
- As to the second and third points of regulation, we have not had unregulated capitalism since before anyone living may remember. Unknowledgeable Congresses and Presidents have meddled with the US economy for decades, if not generations. Most notably, loose credit policies have been pressed since at least as early as the 1970’s. The forming of Fannie Mae and of Freddie Mac by Congress was a feeble attempt to provide safety nets under loose credit policy. That has not worked.
Specifically as to the Federal Reserve, the “Fed” is a non-US financial company (actually a British company, perhaps) that has been around since the early 1900’s without effecting the financial stability for which it was established. We could have had an equally unsettled financial experience without the “Fed.” A better plan may be to diminish and ultimately eliminate the “Fed.”
As before, another Federal council is historically not in the interest of US citizens and only serves to further grow, entrench, and secure the Federal government. The biggest improvement in regulation may be effected with consolidating and diminishing Federal agencies and councils. Too much of US resources [the economy] is expended on government itself, which does not produce anything and is aptly identified as a parasite on the US economy.
A community with a great number of doctors is a sick community. Likewise, a country with a large government is a sick country, not free and robust.
