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Financial Reform Follies: By Upstaging Bernanke, JPMorgan's Dimon Shows Us Where Washington Went Wrong


Protectionism and big government have never produced sustained growth, even in good times.

By upstaging U.S. Federal Reserve Chairman Ben S. Bernanke at the International Monetary Conference in Atlanta on Tuesday, JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon drove home a crucial point: The U.S. version of "financial reform" just doesn't work.

The fact that Dimon is one of Wall Street's own -- and that he stole the show from Bernanke, who made a speech at the conference -- made for high drama. More importantly, though, I believe the incident served as a reminder of why Washington's attempts at financial reform don't work.

In his speech to international bankers, a tired-looking Bernanke conceded that the U.S. economy was functioning "below its potential," something that's become very clear following a spate of recent reports that show weak output and scary job trends.

Dimon, a longtime critic of financial reform (particularly the Dodd-Frank Wall Street Reform and Consumer Protection Act), said he fears that the attempted fixes are actually stifling the recovery. He even asked Bernanke if people won't come back in 20 years and write a book showing that the Fed and our bailouts were too heavy-handed and have become a hindrance instead of a help.

"Has anyone bothered to study the cumulative effect of all these things?" Dimon asked Bernanke. "Is this holding us back at this point?"

But the results seem pretty clear to me, and I don't think it'll take 20 years to show it: Bigger government equals a smaller wallet.

Protectionism and big government have never produced sustained growth, even in good times.

Never forget that the things we take for granted today -- everything from cell phones to ATMs and computers -- were the products of private-sector "risk capital," not a government that presumes it knows how to spend money better than the free markets.

So if governments have never been able to engender economic growth over long periods of time, why on earth would they do that now?

Productive "Financial Reform"

We're in the pickle we are today because the U.S. government has aimed to keep Wall Street happy. The Obama administration, to paraphrase U.S. Treasury Secretary Timothy Geithner, has saved Wall Street, but at the expense of Main Street.

If the Obama administration really wants to make a difference, quit wasting time with half -baked ideas about financial reform and noble concepts and get down to brass tacks. Bring in somebody who really knows how money works instead of more academics. Give them the ability to make Wall Street mad by dragging them into the harsh light of public scrutiny, the way the Pecora Commission did in the 1930s, then you'll know you're on to something.

That being said, if what "keeping Wall Street happy" means is to engender higher stock prices, that course of action is fairly clear: Smaller government equals bigger profits.

Cut taxes, eradicate rules that make hiring punitive, eliminate regulation and stabilize the U.S. dollar, giving Wall Street a reason to repatriate for investment here the trillion dollars it's parking offshore. This will help small businesses, too, because now people who would otherwise be restricted from borrowing, or who are priced out of the market by inflation, will use the money to do constructive things and rebuild our national wealth at all levels.

Editor's Note: Keith Fitz-Gerald is the chief investment strategist for Money Morning, an online investment research site.

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No positions in stocks mentioned.
Fifteen trades. All profitable. Since launching his Geiger Index trading service late last year, Money Morning Investment Director Keith Fitz-Gerald is a perfect 15 for 15, meaning he's closed every single one of his trades at a profit. And he did this during one of the most volatile periods for the U.S. stock market since the Great Depression. Fitz-Gerald says the ongoing financial crisis has changed the investing game forever, and has created a completely new set of rules that investors must understand to survive and profit in this new era. Check out our latest insights on these new rules, this new market environment, and this new service, the Geiger Index.

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