by Pete the Banker
Seemingly endless Senate negotiations are formulating the Financial Reform Bill, but the process is anything but transparent.
Despite the uncertainty over the final format, it is a near certainty that the Bill will establish an “Independent” Consumer Protection Agency likely housed in the Federal Reserve. It is rumored that the likely head of the agency will be Eric Stein, Deputy Assistant Secretary for Consumer Protection in the Treasury Department who was appointed by Obama and has a long history of supporting CRA, expanded housing programs and liberalizing institutional underwriting/approval standards for home financing through his association and leadership of organizations like the Center for Responsible Lending and Center for Community Self-Help. Such an appointment would simply fortify and continue those failed and destructive housing policies of the past.
The Financial Reform Bill is likely to institutionalize Too Big Too Fail. It is also likely to lower the cost of capital of major financial institutions by implying lower risk, while ironically simultaneously increasing the potential for “moral hazard” or risky behavior by the same institutions. We can almost be assured that any future Government action and future bailout with the rumored $50 Billion reserve (if it survives) will be insufficient for such future crises. The taxpayers will certainly be asked to support any amount over and above that held in the reserve. (here)
The Bill will regulate payday, pawnshop and unsecured lenders. This seems a rather ideological tangent, since these financial providers had little impact on the 2007 capital/credit market crisis.
Credit Rating Agencies will receive further regulatory “scrutiny”, likely from the SEC, however, even given the magnitude of their past rating failures on Mortgage Backed Securities, Collateralized Debt Obligations and other more exotic securities the new regulatory regime will likely not significantly impair the industries monopoly nor restrict their influence in rating securities issues. The bill will likely allow expanded consumer lawsuits of the credit agencies, forcing the issuers to downgrade ratings across the board, raising the ultimate price of raising capital fro businesses and homeowners. (here)
Despite Congressman Frank’s and Senator Dodd’s assurances of a “Comprehensive” Financial Reform Bill (Here), as currently proposed by the Senate Democrat majority the Bill will not:
- Deal with the reform of Fannie Mae and Freddie Mac,
- End Too Big Too Fail, or
- Effectively address any of the major risks which resulted in the 2007 collapse of financial markets in turn leading to the current economic recession. It will not address nor mitigate the Federal Reserve Banks easy money bias, the Federal Government’s aggressive housing policies, Fannie Mae’s, Freddie Mac’s and FHA’s overly lax home loan programs, the use of Credit Default Swaps nor the continuing trend toward International Banking/Accounting mandates that preceded and aggravated the financial collapse and persist today.
While perhaps ideologically and politically popular pabulum for the left, this Bill will not avert a future financial crises, nor mitigate the real risks facing the capital and credit markets and ultimately the American economy.
Tell ’em where you saw it. Http://www.victoriataft.com
