Category Archive 'Financial Reform'

16 Jul 2010

America Gets Financial Reform

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The New York Times rejoiced in the passage of the massive and occult 2300-page Financial Reform Bill with its customary propagandistic progressive nonsense.

Congress approved a sweeping expansion of federal financial regulation on Thursday, reflecting a renewed mistrust of financial markets after decades in which Washington stood back from Wall Street with wide-eyed admiration.

The bill, heavily promoted by President Obama and Congressional Democrats as a response to the 2008 financial crisis, cleared the Senate by a vote of 60 to 39, largely along party lines, after weeks of wrangling that allowed Democrats to pick up the three Republican votes to ensure passage.

The vote was the culmination of nearly two years of fierce lobbying and intense debate over the appropriate response to the financial excesses that dragged the nation into the worst recession since the Great Depression.

The result is a catalog of repairs and additions to the rusted infrastructure of a regulatory system that has failed to keep up with the expanding scope and complexity of modern finance.

Over the last half-century, as traders and lenders increasingly drove the nation’s economic growth, politicians of both parties scrambled to get out of the way, passing a series of landmark bills that allowed financial companies to become larger, less transparent and more profitable.

Usury laws were set aside. Banks were allowed to expand across state lines, sell insurance, trade securities. The government watched and did nothing as the bulk of financial activity moved into a parallel universe of private investment funds, unregulated lenders and black markets like derivatives trading.

That era of hands-off optimism was gaveled to an end on Thursday as the Senate gave final approval to a bill that reasserts the importance of federal supervision of financial transactions.

The financial crisis, of course, had absolutely nothing to do with usury, banks expanding across state lines, selling insurance, or trading securities. The crisis had everything to do with mortgage lenders who, rather than being unregulated, were specifically federally required to make more risky loans to persons with dubious credit. At the center of the current financial crisis are the federally-created mortgage corporations and they are completely overlooked by the new legislation.

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As the Wall Street Journal explains our saviours are now going to protect us with a bevy of new agencies and a blizzard of yet-to-be-defined regulations, to be worked out later behind closed doors.

The bill, to be signed into law soon by President Barack Obama, marks a potential sea change for the financial-services industry. Financial titans such as J.P. Morgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp. may be forced to make changes in most parts of their business, from debit cards to the ability to invest in hedge funds.

Congress approved a sweeping rewrite of rules that touch every corner of finance in the biggest expansion of government power over banking and markets since the Great Depression.

The Senate passed the bill 60-39 Thursday, following House passage last month. Earlier in the day, three northeastern Republicans joined with Democrats to block a filibuster, allowing the bill to squeak through.

Now, the legislation hands off to 10 regulatory agencies the discretion to write hundreds of new rules governing finance. Rather than the bill itself, it will be this process—accompanied by a lobbying blitz from banks—that will determine the precise contours of this new landscape, how strict the new regulations will be and whether they succeed in their purpose. The decisions will be made by officials from new agencies, obscure agencies and, in some cases, agencies like the Federal Reserve that faced criticism in the run-up to the crisis. …

The legislation creates a council of regulators to monitor economic risks; establishes a new agency to police consumer financial products; and sets new standards for the way derivatives are traded. “These reforms will benefit the prudent and constrain the imprudent,” Treasury Secretary Timothy Geithner said in a press conference. “Strong banks, the well-managed financial innovators, will adapt and thrive under the new rules of the road.”

Republicans said the bill could jeopardize the recovery by constraining credit and crimping the banking industry, and chided the expansion of government power it envisions.

The bill “is a 2,300-page legislative monster…that expands the scope and the powers of ineffective bureaucracies,” said Sen. Richard Shelby (R., Ala.).

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It’s all a farce, of course. The professional political class is simply taking advantage of the financial crisis it created itself to ride to the supposed rescue and carve itself out another huge chuck of power over the economy.

Well-connected people with the right kinds of background and education will regulate in collusion with the wealthiest and most influential financial industry players, friends of the system in Washington will get favors, their less-well-connected competitors will get the shaft, higher entry barriers will be put into place, and regulators when they leave office will move on to more lucrative positions and consultancies. The powers that be will prosper and the public will pay.

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Still the financial system will survive:

Kate Sullivan: One day we’ll smarten up and pass some laws and put you out of business.

Lawrence Garfield: They can pass all the laws they want. All they can do is change the rules. They can never stop the game. I don’t go away. I adapt.

—Other People’s Money (1991)

29 Apr 2010

The Dodd Bill: HuffPo Gets It Right

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Frank Luntz debunks the democrats’ supposed financial “reform” at Huffington Post of all places. This editorial would fit just fine on any conservative blog site.

The New York Times’ headline said it all: “Off Wall St., Worries About Financial Bill”. The Democrats in Washington may think it’s a slam dunk, but the rest of America doesn’t agree.

Look, those who are on the side of significant financial reform are fighting on the side of the angels — and with broad public support. We are fed up with Wall Street abuses and arrogance that makes life for the rest of us on Main Street more difficult. Let’s hold people and businesses more accountable and responsible for what they do and how they do it.

But that doesn’t suddenly equate to support for the legislation now being considered by the Senate. In exactly the same way that the public wanted healthcare reform, just not Obama’s healthcare reform, they want something done to punish the perpetrators of the financial meltdown, but not at the expense of their own checking accounts — or American economic freedom.

The dirty secret of the Senate financial reform bill is that some of its biggest supporters work on Wall Street. Recipients of taxpayer bailout money have no concerns about the bill — in fact, the CEOs of Citi and Goldman Sachs have publicly endorsed it, and several of the other big banks have expressed support. It keeps the “too big to fail” guarantees in place for another generation of financial services companies.

But here’s where it gets really interesting. The Democrats supporting the current legislation have assured an anxious electorate that whatever funds are used to create whatever regulatory scheme created will come from the banks, not the taxpayers. Let me emphasize that so that even casual readers will catch it: the Democrats promise that you won’t pay for their legislation, banks will.

Really?

Since when have corporations ever paid taxes, fees or penalties? Employees end up paying in the form of lower salaries and benefits. Customers end up paying in the form of higher costs.

And in this case, every account holder will be forced to pay higher fees on their checking account and savings account. That’s you, my friendly reader. Can you say “checkbook tax”? I can, and I think lots of candidates will be saying it come November. Is that what you really want to do to your constituents, Senator Lincoln? Is that what you really want to explain on the campaign trail, Senator Bennett?

But it goes deeper than just taxation and regulation. Wall Street can pass it all onto consumers. Main Street cannot. And that’s because Wall Street firms have all those pesky well-connected, nicely dressed lobbyists to ensure that whatever is passed strengthens their hand at the expense of the little guy.

Regardless of what side you’re on, the financial reform bill is special interest heaven — a bill written by lobbyists, for lobbyists, and will probably be implemented by lobbyists. The Dodd bill has carve-outs right from the get-go. Real estate agents, title companies, the Farm Credit system, even Fannie Mae and Freddie Mae are exempt from its onerous and costly provisions. And for everyone else, it’s been a special interest feeding frenzy.

More than 130 companies have publicly hired lobbyists seeking their own loophole. Mars Candy wants to continue to use derivatives to hedge against price hikes in sugar and chocolate, so they’ve hired a lobbyist. Harley Davidson wants to protect dealer financing of their bikes, so they’ve hired a lobbyist. And eBay wants to not harm its subsidiary, PayPal, so they’ve hired … well … a team of lobbyists.

But most average Americans — the ones who bailed Wall Street out in the first place — cannot afford lobbyists, and won’t be exempted from the legislation.

There’s a reason why American trust in government is at an all-time low. Voters believe legislation like this is passed not for the public interest, but for special interests. And that is certainly the case with the Dodd bill.

26 Apr 2010

Financial Reform Bill To Be Voted on Today

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Arnold Kling on the democrats’ “financial reform” bill. Let’s hope they can’t get any Republican votes.

My instinct is to call the proposed legislation a “blame deflection bill” rather than financial reform. But I admit that I have not read the whole bill. Has anyone?…

I have to rant about the notion of a consumer financial protection agency. I know that it’s axiomatic that poor people are helpless victims. But in the case of these mortgages, that is a really hard sell. The banks did not take from poor people. They gave to poor people. If you were lucky enough to get one of these exotic mortgages when house prices were still going up, then you got to reap a nice profit on your house. If you were not so lucky, you lost…close to nothing. I’m sorry, but if you borrowed up to 100 percent of the value of the house or more, then all you really lost were your moving expenses.

What about predatory lending? As I understand it, the idea of predatory lending is to saddle the borrower with an expensive mortgage so that you can foreclose on the property and sell it at a profit. How many times did that happen? Have you read of a single instance in the past three years where the bank made a profit on a foreclosure?

I am always ready to feel sorry for poor people because of their poverty. But I cannot feel sorry for somebody who was given a basically free option on a house and the option didn’t happen to come into the money.

The reason that those of us on the right are left somewhat speechless by the financial reform bill is that it seems to us to be based on premises that strike us as preposterous.

Hat tip to the News Junkie.


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