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| Home Front: Politix |
| Wall Street reform: What's in the bill |
| 2010-06-27 |
| Seems to me we had better read the fine print on this one. After more than a year of work and two weeks of negotiations, lawmakers early Friday finished melding different versions of Wall Street reform. The final bill won't be ready for a few days, but here's CNNMoney.com's breakdown of key provisions that aim to protect consumers, prevent firms from getting too big to fail and crack down on risky bets that leave taxpayers on the hook. Creating a consumer agency: Establishes an independent Consumer Financial Protection Bureau housed inside the Federal Reserve. Fees paid by banks fund the agency, which would set rules to curb unfair practices in consumer loans and credit cards. It would not have power over auto dealers. Credit scores: All consumers have been able to get one free credit report a year from the credit rating agencies. But the bill would also allow a consumer to get an actual credit score along with a report. Interchange fees: Lawmakers want the Fed to crack down on debit card swipe fees, which retailers pay to banks to cover the operational cost of transferring money. The Fed could cap the fees and make them more reasonable and proportional. Banning 'liar loans': Lenders would have to document a borrower's income before originating a mortgage and verify a borrower's ability to repay the loan. Mortgage help for unemployed: Unemployed homeowners with good credit would be eligible for low-interest loans to help them avoid foreclosures. The bill would spend $1 billion on such relief, using funds that had been directed for Troubled Asset Relief Fund bailing out the financial system. Fixed-equity annuities: Prohibits tougher federal rules on life insurance products, in which customers pay a lump sum upfront in exchange for monthly income over time, pegged to an index. The Securities and Exchange Commission had been gearing up to step in and start requiring more disclosure for these products, often sold to seniors, that are currently regulated by state insurance commissioners. Lawmakers decided to stop the SEC from tougher federal regulation. New oversight power: Creates a new 10-member oversight council consisting of financial regulators to look out for major problems at financial firms and throughout the financial system. The Treasury Secretary gains a key role in enforcing tougher regulations on larger firms and watching for systemic risk. The council also has veto power over new rules proposed by new consumer regulator. Unwinding powers: Gives the FDIC new powers to take down giant financial firms in the same way it takes down banks. Banks would be taxed to reimburse the federal government for the cost of resolving these firms after a failure occurs. Breaking up banks: Gives regulators strengthened powers to break up financial companies that have grown too big, but only if the firms threaten to destabilize the financial system. Checking on the Fed: Allows Congress to order the Government Accountability Office to review Fed activities, excluding monetary policy. Audits would be allowed two years after the Fed makes emergency loans and gives financial help to ailing financial firms. Forcing 'skin in the game': Firms that sell mortgage-backed securities must keep at least 5% of the credit risk, unless the underlying loans meet new standards that reduce risk. Financial system fee: Banks and financial firms would be taxed to pay for the $19 billion cost of implementing the Wall Street reform bill. Regulating derivatives: Attempts to shine a light on complex financial products called derivatives that many blame for bringing down American International Group (AIG, Fortune 500) and Lehman Brothers. Would force most derivatives to be bought and sold on clearinghouses and exchanges. Some derivatives, including those traded by agriculture companies and airlines to mitigate risk, would still be unregulated. Spinning off swaps desks: Big banks that want to engage in nontraditional bets, such as on mortgage products or certain commodities, would have to spin off their swaps divisions. Reining in risky bets: Limits giant Wall Street banks from making trades on their own accounts, although with a long lead time and opportunities for delays up to seven years. While the original proposal would have banned banks from owning hedge funds, the bill would allow banks to sink up to 3% of capital into hedge funds or private equity funds. Improving credit ratings: Agencies that rate securities must disclose their methodologies. The Securities and Exchange Commission would have to study a way to find an independent way to match credit rating agencies with financial firms seeking ratings. After two years, they'd have to implement such a process, or appoint a panel to independently match ratings agencies with firms that need securities rated. Curbing executive pay: The bill would also impose new rules for how all publicly-traded companies, not just banks and other financial firms, pay top executives. Shareholders will be given a nonbinding advisory vote on how top executives are paid while in office. Shareholders also get a nonbinding advisory vote on executives' outsized severance payments, or so-called "golden parachutes." The new rules would also beef up oversight of pay practices within the financial industry, which some critics have suggested helped fuel the crisis by encouraging workers to place risky bets. The bill, for example, would require industry regulators to draft their own set of rules aimed at eliminating risky pay practice among banks and other financial firms. |
| Posted by:gorb |
| #12 That pic is disturbing Much like the legislation. |
| Posted by: gorb 2010-06-27 23:33 |
| #11 The bill is deficient in several areas: 1. The bill will not bode well for individuals who want to sue for damages as the result of fraudelent behavior. "Congress has largely declined to increase the role of private litigants in deterring misconduct and encouraging accountability. In the wake of the stock market crash of 1929, Congress empowered individual investors to sue for misrepresentations and other misconduct in connection with the issuance and sale of securities. Securities fraud litigation exploded from there." 2. Reform of Fannie Mae and Freddie Mac which had a large part in creating the housing bubble and the current crisis is ignored. 3. The bill ignores a "competitive market" probably because the people who designed the bill really don't know (or care) much about competitive markets. |
| Posted by: JohnQC 2010-06-27 14:39 |
| #10 Seems to me the idea is to create new regulatory agencies, stuff them with the nose people, and as the small and medium business attempt to comply and drown in red tape and contradicting requirements at some point, when the new agency is operational enough, the olde regulator office can be closed and touted as cutting government expenses but nobody will really be fired. The in people will be transferred to the new business bureau and the leftovers will go to other fed agencies. It is a fix alright. |
| Posted by: swksvolFF 2010-06-27 14:18 |
| #9 Take note, ladies and gentlemen, especially those who've not posted for fear of being caught doing it wrong: even such an experienced moderator as Dr. Steve sometimes does it wrong and has to be fixed.* ;-) *We aren't going to talk about the many things I've done, or how many times I had to beg the moderators to fix it, 'k? 'Cause that would be too mortifying for words. |
| Posted by: trailing wife 2010-06-27 10:13 |
#8
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| Posted by: Steve White 2010-06-27 09:37 |
| #7 2,000+ pages. And I'll bet most congresspersons won't even read the summary. And I'll bet there's a siphon for cash for the DNC and/or Unions in there somewhere. I don't think Dodd or Frankie could resist. |
| Posted by: CrazyFool 2010-06-27 09:05 |
| #6 That pic is disturbing |
| Posted by: Beavis 2010-06-27 08:50 |
| #5 Is there any problem to which the solution is less federal regulation? |
| Posted by: Matt 2010-06-27 08:49 |
| #4 A lot (not all) of this seems reasonable. But since it comes from Frank & Dodd, with no transparency and in a big rush, I have to figure it is somehow a big Trojan Horse. |
| Posted by: Glenmore 2010-06-27 08:02 |
| #3 I'd say the systemic problem is the implicit bailout guarantee given by governments. Lenders must take the whole of the risk from their lending and that means shareholders have to take the risk. |
| Posted by: phil_b 2010-06-27 07:38 |
| #2 Fixed-equity annuities: Prohibits tougher federal rules on life insurance products, in which customers pay a lump sum upfront Change indeed. |
| Posted by: Shipman 2010-06-27 06:48 |
| #1 Sounds awful. Misses the systematic problem (Regulatory induced debt creation), gives more power to bureaucrats to decide who should get loans. |
| Posted by: Bright Pebbles 2010-06-27 06:16 |