Financial Overhaul Bill Set for Final Passage

[Frodo]

Financial overhaul measure elicits cheers and concern

By Tomoeh Murakami Tse
Washington Post Staff Writer
Saturday, June 26, 2010

The massive financial overhaul approved by key lawmakers early Friday was hailed by many reform advocates as offering landmark protections for consumers, even as others expressed disappointment at key omissions and wondered whether big business would exploit the bill's loopholes.

Although praising the establishment of a consumer protection agency, advocates chafed at an exemption granted to auto dealers as well as a provision that would put oversight of controversial annuities out of the reach of the Securities and Exchange Commission.

Some measures, such as stricter standards for brokers who give investment advice to individual investors, could go into effect only after a study is conducted. This frustrates some consumer activists who say it leaves the door open for continued influence from lobbyists for large financial companies.

"It's not everything we could have hoped for, but this is a big deal," said Barbara Roper, director of investor protection for the Consumer Federation of America. "There are battles that we lost, but we won the war."

The bill heads to a vote before the full Senate and House. Lawmakers have vowed to deliver it to President Obama before the July 4 holiday.

Consumer advocates pointed to a number of new rules set forth in the bill. For example, it would require lenders, insurance agents, credit card companies and others to provide free credit scores to consumers who get turned down for a loan or are quoted a higher interest rate because of less-than-stellar credit histories.

The bill also would prohibit prepayment penalties for homeowners with adjustable-rate and other complex mortgages, which advocates say have unfairly trapped homeowners in unfavorable loans. Another provision aims to reduce incentives to create risky loans by banning bonuses to bankers and mortgage brokers based on the type of loan they sell to consumers. So-called liar loans, which helped fuel the housing bubble by putting families in homes they could not afford, would also be banished.

The provision receiving the most accolades from consumer activists was the establishment of an independent consumer protection bureau -- to be housed within the Federal Reserve -- with its own budget and a director appointed by the president and confirmed by the Senate.

[Kaine for Senate '18]

Fantastic!

[Torie]

It seems like a sensible bill, but with the modifications, is somewhat toothless, and has less than meets the eye in it now, is my impression. That may or may not be a good thing. This derivatives thing gives me a headache.

[cinyc]

Yay! More useless government bureaucrats on the public dole!  More senseless regulation to protect Americans from themselves!  Yay!  Just what we need!

[Torie]

Yay! More useless government bureaucrats on the public dole!  More senseless regulation to protect Americans from themselves!  Yay!  Just what we need!

Any more specifics?

[cinyc]

Yay! More useless government bureaucrats on the public dole!  More senseless regulation to protect Americans from themselves!  Yay!  Just what we need!

Any more specifics?

Specifics?  Most of this bill has absolutely, positively nothing to do what it was supposed to address - the so-called banking crisis.  In fact, the bill doesn't even address two of the biggest causes of the mortgage mess - Fannie Mae and Freddie Mac.   I haven't read the final bill, but the previous iteration gave the government way too much power to wind up companies it thought were harmful to the economy - something I could see being used in a Chavez-like way to take down companies that run afoul of the government.

What does the bill actually do?  Limit debit card swipe fees?  Why is that the government's business?  What did Visa merchant fees have to do with the collapse of Lehman Brothers?   It creates a new bureaucracy with a nice Orwellian name, the Consumer Financial Protection Agency, to "protect" consumers from themselves.  And it imposes fees (a.k.a. taxes) on big banks and hedge funds - the latter of which will just now hopefully move offshore to avoid it.

No thanks. 

[Torie]

Well I agree with you on Fannie and Freddie, Cinyc, but at this point it is probably too late. The government basically owns the bulk of the mortgages out there as far as the downside risk goes (it is kind of dumb isn't it to just "own" the left side of the bell curve, but whatever), which means it has every incentive to try to prop up the housing market artificially going forward, which is another bad idea on top of a bad idea. And so it goes.

[Beet]

Actually, Torie, the government has every incentive to prop up the economy as a whole, because that is where its revenue comes from. The government is like a landlord whose income depends on the income of his tenants. A portion of his tenants' income will always go to him, no matter what, but it does not follow that his tenants will always have jobs. It is up to him to use his power to ensure that his tenants remain employed, and fortunately he has many tools at his disposal to do so. If he does not, then he permanently loses income and it may even become so severe an income loss that his own creditors start to lose faith in his ability to pay his debts to them.

And that, I suggest, is the point of owning Fannie and Freddie in the first place. You have the casual relation backward. The government owns Fannie and Freddie because it wants to prop up the economy because it needs to protect its own revenues. Not vice-versa!

[Sam Spade]

Haven't read through the bill yet of course (who has?), but my general sense based on what I already know is that it really doesn't do that much (as there are a lot of major loopholes there) but it should depress bank future earnings potential a decent bit.

A few observations:

1) The derivative provision was weakened considerably as stuff like interest rate and currency swaps were exempted from forced separation and most of the regulation.  Banks mainly operate in those two areas, not in CDS (red herring it is here), so little will change in the derivatives area.

2) The capital requirements and the Volcker rule were severely watered down to where I doubt they have much of an effect on anything.  Basically, it will temper bank risk-taking a bit, but there are enough loopholes to where, eh...  not seeing much different here.

3) Nothing will happen for quite a while as most of the bill enables other regulatory agencies to create regulations to enforce the law.  That takes time (lots of it).

Need to read actual bill to say more.

[Southern Senator North Carolina Yankee]

I like that auto-dealers are excluded but I wanted the derivitives to be regulated. Some of the things done to mortgages are good ideas but in general it didn't tackle some of the biggest problems, unregulated derivitives, fannie and freddie, and the tax code.

And I agree with what Cinyc. This will be a lot like Sarbanes-Oxley, do little to stop what its suppose to stop but succeed brilliantly at driving trillions of dollars offshore.

[Sam Spade]

And that, I suggest, is the point of owning Fannie and Freddie in the first place. You have the casual relation backward. The government owns Fannie and Freddie because it wants to prop up the economy because it needs to protect its own revenues. Not vice-versa!

That type of ponzi scheme will collapse - sooner rather than later - it creates internal rot.  Which is why I get concerned, because you don't know how much else will be taken down when it does.

[Torie]

Actually, Torie, the government has every incentive to prop up the economy as a whole, because that is where its revenue comes from. The government is like a landlord whose income depends on the income of his tenants. A portion of his tenants' income will always go to him, no matter what, but it does not follow that his tenants will always have jobs. It is up to him to use his power to ensure that his tenants remain employed, and fortunately he has many tools at his disposal to do so. If he does not, then he permanently loses income and it may even become so severe an income loss that his own creditors start to lose faith in his ability to pay his debts to them.

And that, I suggest, is the point of owning Fannie and Freddie in the first place. You have the casual relation backward. The government owns Fannie and Freddie because it wants to prop up the economy because it needs to protect its own revenues. Not vice-versa!

You think the government being a mortgage lender with 85% of the market or whatever is a good idea? Sure it benefits me I admit, but whatever.

[Beet]

Actually, Torie, the government has every incentive to prop up the economy as a whole, because that is where its revenue comes from. The government is like a landlord whose income depends on the income of his tenants. A portion of his tenants' income will always go to him, no matter what, but it does not follow that his tenants will always have jobs. It is up to him to use his power to ensure that his tenants remain employed, and fortunately he has many tools at his disposal to do so. If he does not, then he permanently loses income and it may even become so severe an income loss that his own creditors start to lose faith in his ability to pay his debts to them.

And that, I suggest, is the point of owning Fannie and Freddie in the first place. You have the casual relation backward. The government owns Fannie and Freddie because it wants to prop up the economy because it needs to protect its own revenues. Not vice-versa!

You think the government being a mortgage lender with 85% of the market or whatever is a good idea? Sure it benefits me I admit, but whatever.

In general? No. In the particular situation we are in today? Yes, I think it is better than the alternative. But it should be a temporary situation.

[Lunar]

Yay! More useless government bureaucrats on the public dole!  More senseless regulation to protect Americans from themselves!  Yay!  Just what we need!

Any more specifics?

Specifics?  Most of this bill has absolutely, positively nothing to do what it was supposed to address - the so-called banking crisis. 

What would you call the so-called crisis?