Asset Protection Blog – Asset Management – Asset Allocation

When one of the most powerful people in Congress says, “There ought to be a law,” you might want to duck for cover.  That’s especially true when that person is Barney Frank (D-Mass.), chairman of the House financial services committee. According to Barney, it’s not enough to pass laws that effectively block access by U.S. citizens and residents to offshore banks and brokerages.  Nor is it enough to interpret existing laws to make it very difficult for U.S. citizens to purchase many foreign securities.  Now, Barney wants to forbid U.S. banks from doing business with countries that are, in Barney’s opinion, poorly regulated.  Otherwise, says Barney, they should “forfeit your right to participate in the American system.”  Further, “We will instruct the [Securities and Exchange Commission] and Treasury and the Fed to deny access to the American financial system to any country that holds itself out as a haven to escape our financial regulation.” Talk about the pot calling the kettle black!  While I can’t blame Barney for single-handedly causing the economic crisis in which we’re enmeshed, he played a major role in bringing about this fiasco.  That’s because time and again, Barney prevented Congress and government regulators from investigating mortgage giants Fannie Mae and Freddie Mac.  For instance, in 2003, when the Bush administration tried to thwart some of the more questionable lending activities of these quasi-government entities, Barney said, “Fannie Mae and Freddie Mac are not facing any kind of financial crisis.”  After the Bush White House warned that the collapse of these mortgage giants could cause “systemic risk for our financial system,” Barney complained that the administration was more concerned about financial safety than housing.  According to Barney, “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.” We all know the rest of the story.  In July 2008, Congress enacted a law permitting the federal government to nationalize Fannie Mae and Freddie Mac.  Two months later, the feds did exactly that.  The Congressional Budget Office estimated last year that the bailout would cost US$25 billion.  However, economists outside the beltway have estimated the real cost is likely to exceed US$1 trillion once all the sub-prime mortgages these entities issued are written down to their real value.  Thanks, Barney! Now, Barney wants to export his vision of regulation globally.  And he says the way to do it is to use the same kind of financial sanctions that the United States currently uses against North Korea and Iran.  Here’s how it worked in the case of North Korea.  In September 2005, the Treasury’s super-secret intelligence unit, the Financial Crimes Enforcement Network (FinCEN) issued a “finding” that North Korea was an imminent threat to the global financial system.  This put the world on notice that the U.S. Treasury would be looking to grab assets from the U.S. correspondent accounts North Korean banks, or from any bank doing business with North Korea. All the Treasury needs to do to begin this process is to conduct a secret civil forfeiture hearing, where the targeted bank has no right to participate.  This draconian sanction is authorized in Section 311 of the USA PATRIOT Act.  It essentially prevents blacklisted banks (or entire countries) from dealing in U.S. dollars. If Barney gets his way, and extends this draconian regime to the entire world, how do you think other countries will react?  Their response is likely to be the same as when Congress enacted the Sarbanes-Oxley Act in 2002.  (This law imposed extremely burdensome accounting and disclosure regulations on publicly traded companies.)  According to a study by Wharton Business School, the number of companies delisting themselves from U.S. stock exchanges nearly tripled the year after Sarbanes-Oxley became law. Only this time, with the sanctions much more severe than those prescribed by Sarbanes-Oxley, foreign investors from targeted countries will withdraw assets from U.S. banks and U.S. dollars in droves.  And they’ll likely terminate all relationships with U.S. banks, insurance companies, and other financial institutions.  What do you think that might do to the long-term value of the U.S. dollar?  Barney doesn’t apparently have a clue.  But if Barney succeeds in exporting heavy-handed U.S. regulation to other countries, the prospects for the dollar aren’t good.  Invest accordingly!  Copyright © 2009 by Mark Nestmann [...]