The former CEO of Wall Street’s largest investment bank, Goldman Sachs, now US Secretary of the Treasury, has proposed new legislation that would be the greatest Wall Street reform act since the Great Depression.

The short take on Mr. Paulson’s bank bailout plan is that the Federal Reserve Bank would become an extremely powerful entity, not that it’s not already, but it would become even more powerful with almost unlimited powers to regulate the nations financial affairs, banks, brokerage firms, hedge fund industry, you name it.

The Federal Reserve Bank, headed by non elected officials and often working in strange secret ways, in my view, under Paulson’s plan, would be given more power than any other branch of government. After all, those who control the gold can and will make the rules. Or in the case of the Federal Reserve Bank those who control the printing presses will control the nation. Right up until the entire fiat currency nation collapses.

Hammering Hank and his plans created quite the bang up April Fools rally on Wall Street. Wow! Overnight we no longer have to be concerned about the sub prime lending mess, the billions in writedowns that still have to be taken by the world’s banks, the continued fall in housing prices, rising unemployment claims, falling living standards and income, inflationary influences, or perhaps the biggest and baddest critter of them all, the trillions of dollars in toxic, impossible to evaluate, derivative instruments that contaminate the portfolios of the world’s banks, hedge funds, insurance companies, and private investors.

To think that rearranging the deck chairs to create yet another super regulatory agency by Hammering Hank, one of the men whose adherence to the culture of Wall Street helped to create the mess, is going to suddenly solve the crises is madness. Remember the Homeland (I hate that fascist name) Security Department. That super agency now consumes an enormous amount of resources and yet can’t seem to get out of it’s own way. It is inefficient and wasteful beyond believe. All we need is the same kind of all powerful but often incompetent setup regulating every nook and cranny of America’s financial industry.

For one important thing that American government officials seem to forget is that capital will flow to where it is appreciated and good returns are offered. The over regulation of America’s financial markets will quickly lead to the decline of America’s financial instutions and markets and at the speed of light capital will find more accommodating places of business in Shanghai, Dubai, Hong Kong , Singapore, and other locations where capitalism still is considered the best way to go, ironically even if the nation, like China, is a communist country.

It’s really remarkable that the Chinese have become the best capitalists in the world. But then they are getting a lot of unasked for help by our dim witted congressmen and administration officials at every level.

Madness is what we have when the stock market puts on a 400 point rally on April fools day due to the Paulson plan and the fact that UBS announced a really terrible first quarter and massive writedowns.

Good people we are not out of the woods yet by a long shot. Wishing that we were is not going to make it happen. The conditions leading up to this financial train wreck took a long period of recklessness to develop. It is going to take many years to work through the consequences of the misuse of capital.

My advice. Don’t forget to fade the April fools rally.

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