June 26, 2010

Alan Grayson joined the Ed Schultz show to talk about the Financial Regulation bill that President Obama hopes to sign into law by July 4th. As Ed noted and as I agree with “a lot of people think it’s not tough enough”. Ed blamed the Republicans for watering down the bill, but there’s no way you can blame just the Republicans since there are quite a few too many Democrats beholden to Wall Street along with Obama’s advisors who we know aren’t going to want to harm them too badly as well. That said as Grayson noted here, there are some good things in the legislation. The biggest problem in his opinion is the failure to make sure these banks are no longer too big to fail. As an article at AlterNet noted, we can at least consider this a good first step.

Members of Congress finished ironing out their differences on Wall Street reform last night, and the resulting bill deserves unequivocal support from progressives and conservatives alike. But while the final package is a necessary first step to overhauling the nation’s out-of-control financial sector, it will do very little to change the destructive status quo on Wall Street. The bill is a good first step. The public deserves too see stronger reforms from Congress next year.

As a matter of history, sweeping financial change takes several years to secure. It took Franklin Delano Roosevelt seven years to enact all of his New Deal banking regulations, and President Barack Obama appropriately sees the 1930s crisis as the historical analog to today’s meltdown-and-reform process. Obama is correct to state that the legislation approved by Congress late last night is the most significant since the Depression—but it is a hollow truth. The U.S. government has been steadily deregulating the banking industry ever since Roosevelt, and the mere act of moving policy in the opposite direction is enough to claim the mantle of dramatic reform. Actually living up to the precedent set by Roosevelt will take several years of serious work, and major legislative action during the next electoral cycle. Read on…

Dave Dayden has more details on what made it through the conference committee.

FinReg Passes Conference: Details on Volcker Rule, Section 716 Provisions:

Lawmakers worked into the night and came up with an oddly unsatisfying compromise on the two most contentious issues left in financial reform, with the final package voted upon at 5:30 this morning (ET). But hey, that was on C-SPAN, so eight people did probably get to see it. Transparency!

This bill has officially been renamed Dodd-Frank. So let’s see what they’ve done:

• Volcker rule: the contours of the Dodd counteroffer survived, with both a crisper Volcker rule that regulators will have little discretion but to implement, and also a carve-out created basically for Scott Brown, which allows banks to continue to invest up to 3 percent of common capital in hedge funds or private equity funds. While speculative trading on the bank’s account will be prohibited, depositor money could flow through that loophole into those investments. McClatchy has more. • Section 716: This is a classic Washington compromise. Reformers wanted the mega-banks to have to spin off their entire swaps trading desks into separately capitalized subsidiaries. Banks argued that it would be too costly and would drive that trading into the shadows. So what have they done? Put half of the trades, the riskiest ones including credit default swaps, onto the separate subsidiaries, while allowing the bank to still trade interest rate and currency swaps as before. This makes almost no sense to me. It bifurcates the market in derivatives and allows plenty of risky trading to still accrue in the bank. Or does it?

Much more there so go read the rest of it.

As Dave noted the AP article has more on the bill as well.

Federal regs set to restrain Wall Street risk:

Congressional negotiators struck a deal Friday on the toughest financial regulations since the Great Depression, aiming to rein in Wall Street excess and tighten rules on everything from simple debit card swipes to the most complex securities.

House and Senate bargainers approved the deal after an all-night meeting, giving President Barack Obama a fresh campaign-season triumph after his health care overhaul - and an achievement to tout at the weekend global economic summit in Canada. Democrats hope lawmakers can pass the legislation and ship it to Obama for his signature by July 4, capping a burst of action prompted by the worst recession in seven decades.

...While some financial analysts said it would set tough new restraints on banks, others said they would simply find new ways to make money by getting around the rules and establishing new fees.

Bank stocks soared as investors appeared relieved that the rules were not as strict as they'd feared. Bank of America Corp. stock rose more than 2 percent, while Goldman Sachs Group Inc. and JPMorgan Chase & Co. each posted 3 percent gains.

As it reins in banks and sets new rules for high finance, the legislation also reaches down to some of the most commonplace consumer transactions.

The Federal Reserve will have to set new limits on the fees banks charge merchants who accept debit cards. Retailers, who would stand to save billions in payments, would be able to offer customers reduced prices for debit card use. Banks said the limits could simply shift costs to other banking products.

...Lobbyists toned down provisions in the bill that:

- Require bank holding companies to spin off their derivatives business into self-funded subsidiaries. Banks would be allowed to keep less risky derivatives operations.

- Set new standards for what banks must keep in reserve to protect against losses. Lobbyists carved out a grandfather exception for banks with assets of less than $15 billion.

- Adopted the Obama administration's so-called "Volcker Rule," named after its chief advocate, former Federal Reserve Chairman Paul Volcker. Commercial banks would not be permitted to trade in speculative investments. But negotiators agreed to let them invest in hedge funds and private equity funds, setting an investment limit of no more than 3 percent of their capital.

Large U.S. banks and foreign banks with operations in the United States are already evaluating what operations they can move abroad to avoid stricter U.S. regulation on their operations, analysts said Friday.

Nations in the 16-nation Eurozone are seen as unlikely to benefit because the European Union is expected to come up with its rules for a government crackdown on risk-taking bankers in hope of warding off additional expensive bailouts. Asia, with a looser regulatory environment and a business-friendly reputation, could benefit more. Read on...

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