by Pete the Banker
Senator Judd Gregg from New Hampshire terms the pending Financial Reform Bill a “disaster”. Senator Gregg feels that the Bill is badly mis-directed, reforming industries which had nothing to do with the financial crisis, for example, payday lenders , automobile lenders, and pawn shops, while ignoring critical areas which badly need reform including Government Sponsored Enterprises, Fannie Mae and Freddie Mac.“Meanwhile, the provision on consumer protection will expand the reach of government and create conflicts with the banking industry”, Gregg said. The new legislation creates an additional layer of consumer “protection”, but does nothing to consolidate the patchwork of current regulators that cause confusion not only amongst consumers, but also within the financial industry.
But Gregg’s chief complaint is non other than the greatest and most consistent promise of “change” that the Obama Administration has consistently promoted, wealth re-distribution.
“You’ll basically have a consumer protection agency which decides to go out and in the morning and say, ‘well everybody who’s XYZ should have a loan, even though the local community bank says XYZ shouldn’t have a loan, because if we give them a loan, we know they’re not going to pay back,’” he said. “It’s going to become an agency that defines lending on social justice purposes instead of safety and soundness purposes.”
The Financial Reform Bill promises much, delivers little other than political capital and cover those politicians that have acted and continue to act irresponsibly. It feigns alleviating the threat of Too Big Too Fail. It skirts dealing with the real derivatives problem.
But ultimately the Senate/House negotiated Bill will not deal with the major causes of the financial crisis, the capital short fall that left most major Money Center Banks virtually insolvent, nor will it reform the bankrupt centerfolds of the 2007 collapse of the Residential Mortgage Capital Markets, Fannie Mae and Freddie Mac. The proposed Reform Bill will continue and institutionalize the very mortgage lending practices, consistent with CRA and Subprime lending underwriting standards, that ultimately provided the foundation for and caused the disaster that engulfed the Financial System.
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