Wednesday, July 14, 2010

Smoke and mirrors...

What Does The Financial Reform Bill Do Other Than Being Completely And Utterly Worthless?

So will the financial reform bill do any good at all?

Well, yes.
A very, very small amount.
Essentially, it is kind of like going over to the Pacific Ocean and scooping out a couple of cups of water.
That is about how much good this bill is going to do.
But U.S. Senate Majority Leader Harry Reid is making this sound like this is some kind of history-changing legislation....

"We’re cleaning up Wall Street."

Oh really?

Charles Geisst, professor of finance at Manhattan College recently had the following to say about this absolutely toothless bill....
Like health-care reform, this bill is being drawn up to grab headlines but its details betray it as nothing more than a slap on the wrist for Wall Street. It is true that Wall Street can commit grand theft and apparently get off with nothing more than community service.

The truth is that most of us never expected the U.S. government to truly take on Wall Street. The relationship between the two is just way too cozy for that to happen.

So does the financial reform bill actually accomplish anything?
Let's take a look at the "sweeping changes" contained in the bill....

*Federal regulators will receive more authority to monitor everything from mortgages to complex derivatives. (Oh goody! Just what we needed - more federal regulation! As if federal agencies have ever been very good at regulating the financial industry...)

*Financial firms will be required to reduce the debt they take on and to hold more capital in reserve. (This will make financial firms marginally more stable, but the truth is that the big banks are so good at accounting tricks that this will not really make much of a difference. When a big firm is going to fail a few extra bucks in reserve is NOT going to make a difference.)

*The U.S. government will be given extensive power to seize collapsing financial firms. Federal regulators would keep collapsing firms operating long enough to prevent a massive panic and would slowly sell off its pieces. (This does not eliminate "too big to fail" - instead it enshrines "too big to fail" into law permanently. The bill institutes "orderly procedures" for exactly how to proceed when the U.S. government steps in and takes over failing financial firms. Just what we need - more socialism!)

*The financial reform bill creates a new Bureau of Consumer Financial Protection at the Federal Reserve that is supposed to help prevent abusive lending by mortgage and credit card companies. (Wait a second - this bill gives the Federal Reserve more power? Who came up with that grand idea? Yeah, let's give the fox more power to guard the hen house. The truth is that the Federal Reserve is one of the core problems with our economic system as we have written about previously.)

*Some rather toothless regulations will be placed on the derivatives markets, hedge funds and credit rating agencies. (A big emphasis on "toothless".)


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