Senator Kaufman Proposes Real Wall Street Reform, Finally

I've discussed the grossly inadequate financial reform proposal by Senator Dodd. One of its many glaring omissions is the failure to ban proprietary trading practices by banking institutions. Instead, Dodd's bill merely grants the Federal Reserve an opportunity to research the topic and draft a rule proposal to implement. Basically, it's a do-nothing bill.

In the previous blog, I noted that I see only two potential factors that could put U.S. banking policy back on the track it ought to be on: (1) Buffett and Munger making a media blitz in favor of the Volcker Rule, that will in turn put pressure on Congress to do the right thing, or (2) European lawmakers beat us to the punch and pass landmark financial reform before we do (European lawmakers support the Volcker Rule).

There appears to be an emerging third hope: a Washington politician actually shows some leadership and stands up to the Wall Street lobbyists and proposes true financial reform.

Senator Kaufman of Delaware displays his breadth of knowledge and understanding of a difficult issue, in his latest piece that can be found on his website. Among other things, he explains why he favors the Volcker Rule. Kaufman gets it. Thankfully, someone in Washington does. I will link it below. I encourage you to read it. Here is a snippet from his piece that I appreciate because it captures a faulty argument I hear all the time from those who want to keep the status quo on Wall Street. Please read:

"I start by asking a simple question: Given that deregulation caused the crisis, why don’t we go back to the statutory and regulatory frameworks of the past that were proven successes in ensuring financial stability?

And what response do I hear when I raise this rather obvious question? That we have moved beyond the old frameworks, that the eggs are too scrambled, that the financial industry has become too sophisticated and modernized and that it was not this or that piece of deregulation that caused the crisis in the first place.

Mind you, this is a financial crisis that necessitated a $2.5 trillion bailout. And that amount includes neither the many trillions of dollars more that were committed as guarantees for toxic debt nor the de facto bailout that banks received through the Federal Reserve’s easing of monetary policy. The crisis triggered a Great Recession that has thrown millions out of work, caused millions to lose their homes, and caused everyone to suffer in an American economy that has been knocked off its stride for more than two years.

Given the high costs of our policy and regulatory failures, as well as the reckless behavior on Wall Street, why should those of us who propose going back to the proven statutory and regulatory ideas of the past bear the burden of proof? The burden of proof should be upon those who would only tinker at the edges of our current system of financial regulation. After a crisis of this magnitude, it amazes me that some of our reform proposals effectively maintain the status quo in so many critical areas, whether it is allowing multi-trillion-dollar financial conglomerates that house traditional banking and speculative activities to continue to exist and pose threats to our financial system, permitting banks to continue to determine their own capital standards, or allowing a significant portion of the derivatives market to remain opaque and lightly regulated."

http://kaufman.senate.gov/press/floor_statements/statement/?id=aca5b91a-6e51-4d6b-a367-414ad9641500

Kaufman really does get it. Now, if we can just get a majority of the dumb herd in Washington to follow along, we just might avoid another financial securities calamity.

On another note, I am considering starting a Group on Facebook that will be open to those who are interested in following along with my investment trades. Currently, there are a few of you who are already following my trading activity through texting. Given the fact I am SLOWWWWW at texting, I think I can improve upon the way I pass on my investment trades. Utilizing a Facebook Group may be the better approach. Through it, I can send private messages to the group when I enact a new trade. A message notification will then be sent to your email account. Many of you have Blackberries so you can receive an email notification through your phone. At that point, you can enact your own trades should you choose to follow along. As a few of you know already, within the next couple weeks I will be closing my investment position in a biotech that I own; it should at that time reach what I have estimated to be its fair value. Because of the biotech investment, my portfolio is up just over 300% in less than three months. An amazing year so far to say the least -- I give thanks to God for giving me the opportunity. There are more opportunities on the horizon. I will likely re-enter the biotech stock at a later date (along with a few others) but in the immediate term, there is a more traditional company that I believe is poised to release blockbuster numbers in the coming weeks, and I want to be invested in it as it is currently severely undervalued in comparison to its rivals. Keep a look out for a new Facebook Group in the near future, and feel free to follow along with my trades. Together, I am confident, we can beat the 'pros' on Wall Street.

Sticking with the investment topic, awhile back I started a series on how to invest intelligently. I haven't forgotten about the series and I do plan to finish it at some time in the near future. Law School and Bar Prep will keep me occupied over the next few months, but I will pick back up with the series soon. I will also include an outline of my investment strategy, and how I applied it to increase the value of my portfolio over 300% in less than 3 months. There are some lessons to be learned from these experiences that I think may also benefit you.

“God, give us grace to accept with serenity the things that cannot be changed, courage to change the things that can be changed, and the wisdom to distinguish one from the other." - Reinhold Niebuhr

Peace

Jeremy