Posts Tagged ‘Financial Reform Bill S.3217’
The Dodd-Frank financial regulation reform bill is now law. The bill is being touted as the most sweeping financial legislation since Glass-Steagall, but with 2300 pages of rules and proposals it’s hard to know exactly how it will play out in the market.
Peter Schiff, president of EuroPacific Capital tells Tech ticker it will fail.
1. The bill doesn’t get to the root causes of the crisis. Schiff blames former Federal Reserve Chairman Alan Greenspan’s ‘too low for too long’ interest rate policy, combined with government-guaranteed mortgages for the rise and fall of the housing market. “That’s continuing today, it’s untouched by this bill. In fact, the Fed is more reckless today with zero percent interest rates than when they were one percent,” he tells Aaron in this clip. Plus, with so many private lenders out of business, the government is guaranteeing an even greater percentage of the mortgage market and has given Fannie Mae and Freddie Mac an unlimited line of credit until 2012.(For more on this, see: Give Homeowners the “Right to Rent” and Other Novel Solutions to Housing Woe)
2. The law fails to end ‘Too Big to Fail.’ “This law now guarantees that in the future even if they don’t want to bailout these banks they actually have to,” Schiff protests. “Designating a federally supervised wind-down process for major financial firms, the new structure signals to creditors that lending money to large financial firms will provide more security than loaning to firms too small to qualify for the program. As a result, these firms will enjoy continued advantages in the marketplace which will ensure the continued industry dominance.” (On this point, at least, Schiff is in agreement with progressive economist Dean Baker, who tells Tech Ticker: “Wall Street Got Off Very Easy”)
In contrast to Schiff’s warning, the law does the following, according to Reuters:
“The bill would set up an “orderly liquidation” process that the government could use in emergencies, instead of bankruptcy or bailouts, to dismantle firms on the verge of collapse.
“The goal is to end the idea that some firms are ‘too big to fail’ and avoid a repeat of 2008, when the Bush administration bailed out AIG and other firms but not Lehman Brothers. Lehman’s subsequent bankruptcy froze capital markets.
“Under the new rule, firms would have to have ‘funeral plans’ that describe how they could be shut down quickly.” (For more, see: It’s the Great White House Financial Reg Reform Video, Charlie Brown)
3. More regulation means higher costs for smaller financial services firms, reducing competition. “All the new regulations that are going to be written pursuant to this bill are going to add dramatically to the cost of doing business that is going to disproportionally hit the smaller firms who don’t have the economies of scale,” Schiff says, including his own firm in that mix.
Read the entire article HERE.
Celente on Financial Reform
“The Senate passed a financial “reform” bill today by a 59-39 vote which won’t fix any of the core problems in the financial system, and won’t prevent the next financial crisis.
The bill doesn’t include the Volcker Rule (it wasn’t even debated), doesn’t break up or even substantially rein in the too big to fails, doesn’t stop prop trading, and doesn’t force transparency in the derivatives market.
Senator Feingold said:
The bill does not eliminate the risk to our economy posed by “too big to fail” financial firms, nor does it restore the proven safeguards established after the Great Depression, which separated Main Street banks from big Wall Street firms and are essential to preventing another economic meltdown. The recent financial crisis triggered the nation’s worst recession since the Great Depression. The bill should have included reforms to prevent another such crisis. Regrettably, it did not.
Senator Cantwell agreed, saying:
While this bill takes much needed steps to help prevent a crisis of this magnitude from ever happening again, it fails to close the very same loopholes in derivatives trading that led to the biggest economic implosion since the Great Depression…. Throughout this debate I have fought hard against efforts to weaken this legislation as well as to pass language to strengthen it further. But the fact of the matter is, without key reforms in derivatives trading, this bill does not safeguard America’s economy from a repeat of this crisis.
It sets up a process for responding the next time we have a financial crisis, but it doesn’t prevent this kind of thing from ever happening again. We have to stop these kinds of dangerous activities. We need stronger bans on banks gambling with depositors’ money. We need bright lines – like Glass-Steagall – that separate risky activities from the traditional banking system. We need to refocus our financial system away from synthetic bets and get more capital into the hands of job creators and Main Street businesses. There are good, strong provisions in this bill, and I’m proud of the work we did to get them in there, but I fear that without closing the loopholes primarily responsible for this economic meltdown, we are missing the entire heart of the matter.
Nouriel Roubini said the bill is “cosmetic”, and won’t stop the next crisis.
And as I pointed out last month:
In a letter to Senate majority leader Harry Reid and minority leader Mitch McConnell, luminaries including former SEC Chief Accountant Lynn Turner, former Labor Secretary Robert Reich, hedge fund owner Jim Chanos, former Lehman Brothers Vice Chair Peter Solomon, former S&L investigator Bill Black, former Senate Banking Committee Chief Economist Rob Johnson, economists Dean Baker, Barry Eichengreen and others pointed out that Dodd’s proposed financial reform legislation wouldn’t have prevented the current crisis … and won’t prevent the next crisis.
Dodd himself has admitted that his bill “will not stop the next crisis from coming”.
In fact, the bill is wholly ineffective, failing to address the core things which need to be done to stabilize the economy. See this, this and this.
As I wrote last month:
Senator Dodd is trying to push through a financial “reform” which bill won’t do anything to break up the too big to fails, or do much of anything at all …
For example, Dodd’s bill:
Won’t break up or reduce the size of too big to fail banks
Won’t remove the massive government guarantees to the giant banks
And won’t even increase liquidity requirements to prevent future meltdowns
As Senator Ted Kaufman points out:
What walls will this bill erect? None.
Just this week, a Moody’s report stated: “…the proposed regulatory framework doesn’t appear to be significantly different from what exists today.”
In sum, little in these reforms is really new and nothing in these reforms will change the size of these mega-banks.
Moreover – as Simon Johnson notes – the bill intentionally doesn’t have much in the way of specifics, but just pushes off on regulators the ability to crack down on Wall Street in the future. As Johnson notes, this is a recipe for continued failure to rein in Wall Street:
If legislation can only empower regulators then, given regulators are only as strong a newly elected president wants them to be, the approach in the Dodd bill simply will not work.
Indeed, Democratic Congressman Brad Sherman – a senior member of the House Financial Services Committee and a certified public accountant – said recently:
The Dodd bill has unlimited executive bailout authority. That’s something Wall Street desperately wants but doesn’t dare ask for. The bill contains permanent, unlimited bailout authority.”
Read the entire article HERE.
Article by New York Times: Financial Reform
Summary of Financial Reform Bill S.3217
4/15/2010–Introduced.Restoring American Financial Stability Act of 2010 – Financial Stability Act of 2010 – Establishes the Financial Stability Oversight Council to:
(1) identify risks to the financial stability of the United States;
(2) promote market discipline; and
(3) respond to emerging threats to the stability of the United States financial markets. Establishes within the Department of the Treasury:
(1) the Office of Financial Research (Office) to support the Financial Stability Oversight Council; and
(2) the Financial Research Fund to fund the Office. Grants the Board of Governors of the Federal Reserve System (Board) additional authority to require reports and conduct examinations of certain nonbank financial companies and bank holding companies. Revises supervision and prudential standards for nonbank financial companies supervised by the Board and for certain bank holding companies. Establishes in the U.S. Bankruptcy Court for the District of Delaware an Orderly Liquidation Authority Panel to authorize the Secretary of the Treasury (Secretary), under specified circumstances, to appoint the Federal Deposit Insurance Corporation (FDIC) as receiver of a financial company in default or in danger of default whose failure would have serious adverse effects on financial stability in the United States. Enhancing Financial Institution Safety and Soundness Act of 2010 – Transfers all functions of the Office of Thrift Supervision (OTS) and the OTS Director to the Board, to the Office of the Comptroller of the Currency, and to the FDIC. Abolishes OTS. Prohibits the issuance of charters for federal savings associations. Private Fund Investment Advisers Registration Act of 2010 – Amends the Investment Advisers Act of 1940 with respect to:
(1) the regulation of advisers to hedge funds;
(2) collection of systemic risk data; and
(3) the asset threshold for federal registration of investment advisers. Office of National Insurance Act of 2010 – Establishes within the Department of the Treasury the Office of National Insurance to monitor all aspects of the insurance industry, including identification of issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the United States financial system. Nonadmitted and Reinsurance Reform Act of 2010 – Sets forth procedures for:
(1) reporting, payment, and allocation of nonadmitted insurance premium taxes; and
(2) regulation of credit for reinsurance and reinsurance agreements. Bank and Savings Association Holding Company and Depository Institution Regulatory Improvements Act of 2010 – Imposes a moratorium upon FDIC provision of federal deposit insurance for credit card banks, industrial loan companies, and certain other companies under the Bank Holding Company Act of 1956. Amends the Bank Holding Company Act of 1956 to revise requirements for reports, examinations, and regulation of functionally regulated subsidiaries, including concentration limits on large financial institutions. Over-the-Counter Derivatives Markets Act of 2010 – Amends the Commodity Exchange Act to:
(1) extend joint rulemaking and regulatory authority of the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) to over-the-counter derivatives markets; and
(2) require large swap trader reporting. Amends the Gramm-Leach-Bliley Act to repeal the prohibition against the regulation of security-based swaps. Amends the Securities Exchange Act of 1934 to set forth:
(1) clearing requirements for security-based swaps;
(2) registration and regulation procedures governing security-based swap dealers and major security-based swap participants; and
(3) position limits and position accountability for security-based swaps. Directs the SEC, the CFTC, the Financial Stability Oversight Council, and the Treasury Department, individually and collectively, to consult and coordinate with foreign regulatory authorities on the establishment of consistent international standards with respect to the regulation of certain SWAPS. Payment, Clearing, and Settlement Supervision Act of 2010 – Directs the Financial Stability Oversight Council to designate those financial market utilities or payment, clearing, or settlement activities which it determines are, or are likely to become, systemically important. Sets forth procedures governing examination of and enforcement actions against financial institutions subject to standards for designated activities, including:
(1) financial and operational risks such activities may pose to other financial institutions, critical markets, or the broader financial system; and
(2) information to assess systemic importance of financial institutions engaged in payment, clearing, or settlement activities. Amends the Securities Exchange Act of 1934 to:
(1) establish the Investor Advisory Committee and the Office of the Investor Advocate;
(2) authorize the SEC to restrict mandatory predispute arbitration;
(3) prescribe securities whistleblower incentives and protection; and
(4) revise regulation, accountability, and transparency of nationally recognized statistical rating organizations (NRSROs). Amends the Securities Investor Protection Act of 1970 to increase the borrowing limit on Treasury loans. Amends the Securities Exchange Act of 1934 to:
(1) direct the federal banking agencies and the SEC to prescribe joint regulations to require any securitizer to retain an economic interest in a portion of the credit risk for any asset that the securitizer, through the issuance of an asset-backed security, transfers, sells, or conveys to a third party;
(2) require procedures for annual shareholder approval of executive compensation; and
(3) require disclosures regarding employee and director hedging. Requires the SEC to report to certain congressional committees regarding:
(1) its conduct of examinations of registered entities, enforcement investigations, and review of corporate financial securities filings; and
(2) its oversight of national securities associations. Prescribes standards for:
(1) corporate governance; and
(2) regulation of municipal securities and changes to the Municipal Securities Rulemaking Board. Establishes in the SEC the Office of Municipal Securities. Amends the Sarbanes-Oxley Act of 2002 to authorize the Public Company Accounting Oversight Board to share certain information with foreign authorities. Amends the FDIA to direct the Inspector General of each federal banking agency to report to Congress semiannually on certain losses to the Deposit Insurance Fund. Instructs the Comptroller General to study and report to Congress on the risks and conflicts associated with proprietary trading by and within specified entities. Directs the Office of Financial Literacy of the Bureau to establish a program to make grants to states for enhanced protection of seniors from being misled by false designations. Consumer Financial Protection Act of 2010 – Establishes:
(1) in the Federal Reserve System the Bureau of Consumer Financial Protection (Bureau) to regulate the offering and provision of consumer financial products or services under the federal consumer financial laws;
(2) the Office of Fair Lending and Equal Opportunity;
(3) the Office of Financial Literacy; and
(4) the Consumer Advisory Board. Grants the Bureau supervisory powers and enforcement authority over certain large-sized insured depository institutions and insured credit unions. Excludes from Bureau oversight certain merchants, retailers and other sellers of nonfinancial goods or services. Grants the Bureau specific authorities, including prohibiting unfair, deceptive, or abusive acts or practices. Transfers to the Bureau specified consumer financial protection functions. Prescribes requirements for collection of deposit account data. Amends the Equal Credit Opportunity Act regarding small business loan data collection. Amends the Truth in Lending Act to prohibit certain prepayment penalties. Amends the Federal Reserve Act with respect to emergency lending authority. Authorizes the Comptroller General, under specified circumstances, to conduct reviews of the Federal Reserve Board, a federal reserve bank, or a credit facility. Improving Access to Mainstream Financial Institutions Act of 2010 – Authorizes the Secretary to establish a multiyear program of grants, cooperative agreements, financial agency agreements, and similar contracts or undertakings to promote initiatives to enable low- and moderate-income individuals to:
(1) to establish one or more accounts in a federally insured depository institution that are appropriate to meet their financial needs; and
(2) gain improved access to the provision of accounts on reasonable terms.