Will The Volcker Rule Make Us April Fools By 2015?

“A government big enough to give you everything you want is a government big enough to take everything you have.”- Thomas Jefferson

The Volcker Rule was implemented this past April fool’s day and will restrict banks from holding certain “covered funds” in their long-term portfolios which includes Collateralized Debt Obligations, C.D.O.s. These are the riskiest parts of securities that were re-packaged with other debts to allegedly make them safe. This was the “mechanization” that would have ruined Citigroup in 2008 had the government not bailed them and others out at the tax payers’ expense. These covered fund provisions will force banks from assuming high-risk financial exposure in the future. This rule limits profit-seeking proprietary trading at commercial banks. C.D.O.’s, of the past, are basically worthless today and now banks will be forced to realize their decade old losses on their current bank holdings. Accounting at banks currently allow the bank to hide these planned future loses on their books as “holding to maturity” paper. The Volcker rule, to be fully implemented by July 2015, will insure that all corporate banks, big and small banks, credit unions and savings & loans will have to either sell off their worthless C.D.O.’s (which no one will buy), re-label “for sale” and assume the bank loss as they write-down their values to the fair market value. Let’s hope that this isn’t another of their best and our worst cruel joke ever, played on the American public, which could turn us into just another banana republic.

Don’t expect this single piece of legislation to bring back what once was.  Wall Street and corporate interests control Washington today.  In short, what the Volcker Rule will do is to set limits between commercial and investment banks, much like what happened after the passage of Glass-Steagall.  It also will severely limit the amount of hedging allowed by a bank to offset their financial shortcomings. It is expected that several hundred regional and community banks will be forced to realize loses of $1-$2 M. per bank. This amount could create multiple banking failures and eliminate any future lending in these communities. Banking regulators have reminded bank officials that “the Final Rules provide a number of express exclusions” as to whether C.D.O.’s must be classified as covered funds and dumped or if they could be contorted and then reclassified as an acceptable exempted asset.

“The FINAL RULE places limits on the trading activity of insured depository institutions (except for certain limited purpose trust companies) and entities affiliated with a depository institution and provides a number of exceptions. Trading activity includes any purchase or sale of any security derivative, commodity future, or option on any such instrument for the purpose of benefitting from term price movements or realizing short term profits.”

It appears that banking regulators will make accommodations for banks by assisting in saving their livelihood and future. It is, however, illogical to believe that regulators would bend over backwards to save one community bank from their actual loses. This is the link to the FDIC’s exclusion of community banks from the Volcker Rule.

http://www.federalreserve.gov/aboutthefed/boardmeetings/volcker-rule-community-bank-20131210.pdf

The Volcker rule will also ferret out other banking balance sheet inconsistencies as well, which would be a very good thing, possibly restoring confidence and preventing future banking blowups. If the regulators cave on the Volcker Rules intent and reverse the intent to interpretation and exclusions in the rule, I’d expect little hope if ANY financial reform in the banking industry which could have restored the faith of man in the system. Remember rules are made to be broken and these days laws as well!

In every endeavor today the standard seems to be, “He who makes the rules, breaks the rules!”

If your community bank has participated in covered trades you could expect the F.D.I.C.’s 2012 regulation implemented. The U.S. and the U.K. legislative reforms, already made in response to the financial crisis, provide new powers for resolving failed or failing Globally Systemic Important Financial Institutions.

“The FDIC and the Bank of England have developed resolution strategies that take control of the failed company at the top of the group, impose losses on shareholders and unsecured creditors—not on taxpayers—and remove top management and hold them accountable for their actions. These strategies provide an efficient path for returning the systemically important parts of the GSIFI to the private sector by exchanging or converting a sufficient amount of creditor claims from the failed company into capital in the newly resolved entities. Because the resolution action is taken at the top of the group and by the home authorities, continuity of all critical services would be maintained and subsidiaries (foreign and domestic) would remain open and operating with access to sufficient liquidity. As a result, the strategy achieves the important goals of imposing market accountability and maintaining financial stability in all jurisdictions in which the firm operate.”- Federal Deposit Insurance Corporation & the Bank of England

http://www.fdic.gov/about/srac/2012/gsifi.pdf

The share holder, but not senior shareholders if the bail-ins can be accomplished by using the common shareholder funds, will fund the next bail-in of big banks for their latest derivative scam of the past 5 years. They claim that you, the tax payer, won’t pay for their malfeasance, once again, and that the bank executives will be fired and held responsible. Small banks will be allowed to fail as systemically unimportant, those held responsible will be released and show up for work at a crony’s bank a few blocks away once the dust has settled. Shareholders may bail-in local banks deemed “too small to bail” and next they will be taken over by the big “chosen few” named banks. We will see even bigger banks than we bailed out in 2008 but this time at the shareholder/depositor’s expense.

Today, trying to beat the market is the worst objective an investor should attempt. Preservation of assets should be paramount for prudent investors in light of the rigged mechanizations seen everywhere today to steal your wealth. Do you really think that they won’t use the regulation they have already written which allows them to take your deposits? Do you have investments that you can afford to lose? Do you have money in the bank that you could afford to lose? Could you end up bailing in systemically important banks or your old newly consolidated “systemically important” bank under this F.D.I.C. and B.O.E. joint resolution? Unbelievable you say? Impossible even! I wouldn’t bet against it with my money! But you can go ahead and take that chance if you think this is too fantastic! Don’t expect to hear anything on your local news either, until after it happens. You see, that is their plan to steal everything they can from you!

Is there anything that is not manipulated today? If everything is being manipulated today then why would you not entertain the idea that the prices of precious metals are being manipulated down as well in order to keep you a captive in their paper systems? Everyone is getting use to gold at $1280 and silver at $19 but don’t expect it to last and enjoy it why you can! People buy on emotion when the price goes up while the savvy gold bugs buy on the dips to dollar cost average their stash and just keep on stacking! Which are you? Don’t end up reliant on a government to feed, clothe and administer healthcare to you and your family? Get out of their systems, flee from their grasp and protect your family!