Friday, July 16, 2010
Dodd-Frank Financial Reform Bill Finally Passed
A long-awaited bill to curb irregularities in financial system has been finally passed by House and Senate and is on the line of getting final approval from the president. The bill primarily aims at correcting the loopholes in the financial system that led to the recent financial crisis. Here are main points the bill has attempted to address. What's your opinion of the bill?
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Renell Anderson,
ReplyDeleteI totally agree with Mark Thoma's concluding statement that:
"The bill is a step forward, but it does not go far enough. It will be important that legislators view this is the first step in the process of fixing the problems in the financial sector, not the final word"
One of the major problems that I see with achieving effective regulatory oversight of the financial system is that while it may be somewhat easy to create regulatory agency titles, the definitions, and responsibilities of their desired actions the ongoing challenge to their success is totally dependent upon the individuals that are running them, executing ethical actions. Actions that will be in continuous opposition to historically acceptable practices within the system will be very difficult to execute and will meet tremendous resistance.
There is so much money and profit to make at stake that those that have it and those that want it will continue to do everything within their power to maintain the fundamental behavior of the system.
The required high ethical standards and behavior of the appointed leaders of the new agencies will totally determine the success or failure of the legislation. As they will immediately find as others have that moral ethics often have very little leverage against wealth and power.
The wealthy are generally so far removed from basic (related) understanding and compassionate behavior for and toward more common everyday non-wealthy people that the decisions they make that ultimately effect the larger population are often absent of concern for the long term negative impact that will result from those actions.
I feel that this bill is a step forward. Some of the actions in the bill will help with many things that caused the crisis of 2008. It looks to at least be a nice step forward. It may not be enough but at least they are looking to reduce asymetric infromation. It seems to help both sides, the comsumers and the busnesses. Overall I like the bill as a start to protecting us from another crisis.
ReplyDeleteNathan Howe
I think the bill is a “double-edged sword” in that it can both benefit and help both parties. Both parties being, banks -financial institutions and the public. It will help the public to have that added regulatory system to cushion the fall of a financial crisis and also to increase their trust and subsequently their future investment in the banking system. They will be able to have a greater trust of the information that is received from these institutions due to increased government regulation. Increased government regulation also tightens the belt on efficient market theory, making increased wealth even more difficult for the average consumer without a wealth of knowledge regarding financial markets as the information is not only going to become more reliable but more available as well.
ReplyDeleteFor Financial institutions and banks the government is going to make the accounting aspects of financial reporting stricter and also make their statements and information more available to the public as well as more reliable. The governments new regulations will help guard the solvency of these institutions and their livelihood in the event of a financial crisis, which will be a benefit but it will also prevent them from such high risk financial ventures that put both the institution and the capital of the public in jeopardy.
In light of the recent financial crisis, the new regulations are long overdue. Although some may argue that the financial system can regulate itself, the last recession clearly shows that a degree of government intervention is necessary, and the new rules for transparency should provide for adequate oversight. I do agree with Mark Thoma that the new rules do not go far enough, especially since not all loopholes have been closed. It is certain that some entities within the financial system will attempt to exploit those weaknesses. The most worrying, however, is the Congress’s strengthened hold over the Fed. The Fed has traditionally enjoyed a semi-autonomous, bi-partisan operating status. More political oversight of the Fed is bound to reduce its efficiency and response time, while at the same time introducing unnecessary political circus into primarily an economic arena.
ReplyDeleteAlthough I agree that this piece of legislation is a step in the right direction, I believe it has been watered down to the point where it may not accomplish everything that needs to be addressed.
ReplyDeleteThe biggest issue in my opinion is banks capital requirements. This bill addresses the problem, but like the author of this article, I would like to see stricter caps. Banks should not be in the business of taking excessive risks; a departure from Glass Stegal is the root of the problem and bringing similar legislation back should be considered.
The lack of transparency with OTC derivatives is also a major problem, these instruments are in large part responsible for the financial crisis and while this bill addresses them, it provides exceptions that will surely be exploited.
Another area that appears incomplete is in regards to credit rating agencies. There needs to be a defined framework to prevent the conflicts of interest that can occur; this bill should have taken stronger action in this area.
I completely disagree with any legislation confining executive pay and believe that congress has no right to impose any restrictions in this area. Executive pay is determined by a company’s Board of Directors, these individuals are elected by shareholders. If companies pay outlandish salaries to executives, they need to confront the board.
Excessive bureaucracy often creates more problems than it solves, this must be in our consciousness when considering this type of legislation. Overall I think the bill is a step in the right direction, but I would like to see a more refined product beneath Congresses pen.
-Matthew Moore
Avadella White
ReplyDeleteI have mixed views about the financial reform legislation. I do not think it is strong enough to combat all the issues that economists as well as consumers are concerned about and I am not surprised. Politics in Washington is a strong force and it impacts every bill that is passed into law. Because of this, I am grateful something got through. The real question for me is how will the federal regulators implement the bill once it becomes law? Additionally, as was noted, there are loopholes in the bill such as the exceptions to forcing derivatives to be traded on exchanges. This weakness and others mentioned will allow investors, feeling pressured to make large profits, continue on some level, moral hazard behavior. I hope however, some of the positive provisions of the bill such as the Monitoring Systemic Risk provision will lower the risk of a repeat financial crisis. Additionally, I believe consumers and stockholders should take some personal accountability. Greed of stockholders wanting bigger profits and consumers bigger houses played a big role in the financial crisis. Unless we all do our part, we are bound to repeat our mistakes. Personally, I am not hopeful that the needed changes in our integrity will occur and the laws do not go far enough to protect us from ourselves. That being the case, we should all get prepared for the next financial crisis. I personally believe it will be worst than this one as I believe the global impact will be greater.
While the financial reform bill was created for good reason, it still doesn’t identify the risk associated with the current financial crisis. While, transparency in the financial markets and the notion of too big to fail are necessary, engaging in risky activities are much more important. Without a clear statement that the government won’t step in to bailout large financial institutions, watch for it to return someday. While the reform bill focuses on the financial sector, what many reform lobbyists are missing is that the financial sector is not the only reason that created the current recession. What about the industrial sector and their need for several hundred billion dollars in bankruptcy protection? Apparently that was not a problem. I think monitoring systematic risk and increased oversight is a good thing, restricting profits and free market capitalism is not. There are well-intention remedies in this law, as the Volcker rule and transparency seem appropriate. More government intervention is not. I think the government needs to look in mirror and realize that much of the problem was created from extending Fannie and Freddie an unlimited line of credit. Which, by the way, are government run institutions. Under the current administration, free markets might become a thing of the past.
ReplyDeleteBrian Frisch
The financial reform bill is a necessary step forward (yet a political move) for our financial system. I mostly agree with Thomas Toma that the bill although a positive step has plenty of shortcomings.
ReplyDeleteThe measures to tighten regulatory standards for large financial institutions that played a major role in the creation of the housing bubble& burst and financial meltdown and trying to limit their leverage and use of short-term debt is a positive step.
The major flaws of the bill are:
• The bill talks about setting up an agency (Bureau of consumer financial protection) which would be autonomous yet a part of Fed Reserve and would have discretionary powers to regulate the financial products and services being offered to the consumers. The huge autonomy given to this agency & its rules would impede the efforts of current regulators & conflict with their goal of ensuring the safety and soundness of financial firms.
• Although access to liquidity relative to assets was a major reason why the firms collapsed in the recent crisis, the bill does not address this problem.
• The bill also does not mention about Freddie Mac and Fannie Mae the 2 major institutions backed by the government who absorbed most of the subprime mortgages and were responsible for the financial crisis.
---ANTARA MAJUMDER----
First off, the bill calls for the creation of a Bureau of Consumer Protection within the Federal Reserve. This Bureau will aim to curb abusive lending practices with powers to oversee a wide range of consumer financial products. Conditions for borrowers will be tightened. For example, buyers will be required to provide more detailed information on their income to ensure they can pay their mortgage. Conditions for lenders will be tightened. Brokers won’t be able to make a profit by getting borrowers to take on loans considered to be riskier. Instead, commissions will be based on more traditional parameters, such as the size of the loan. Mortgage lenders will be limited in charging prepayment penalties that result in extra fees if borrowers pay off their loans early. Derivatives will no longer be unregulated to prevent the potential abuse of speculative investment practices that contributed to the housing crisis. Legislation gives the federal government powers to take control of failing companies, such as banks. Regulators could essentially break apart the companies and sell off their assets, with the idea of sparing taxpayers the burden of footing the bill. This bill is the first step in a long line of necessary constrictions placed on the financial sector to limit the amount of risk and instability within market systems. It calls for accountability within the financial sector, and finally takes aim at the causes of the recent economic downturn.
ReplyDelete-Javier Janbieh
I agree with this bill, I think that it will help us get out of our fiscal jam. Maybe not all the way, but it sure is a start. Just like what Mark Thomson said "The bill is a step forward, but it does not go far enough. It will be important that legislators view this is the first step in the process of fixing the problems in the financial sector, not the final word."
ReplyDeleteIt also helps that the bill is a win-win situation. In another words, the bill helps out both sides, businesses and consumers, not just one party.The bill talks about helping with resolution authority, it talks about having a council to monitor systemic risk, and tries to put limits on leverage and the legislation that comes up short in imposing these on limits. But there are still some short comings on the bill too. I fells as if this bill kind of acts like a band-aid. It helps, but it does not completely solve the problem.
Bindiya Patel
i agree with this bill i think it will help us but legislators must look at it and go through it. it may not be enough to get us out of the finanical crisis that we are in but it can help us. anything is better than nothing
ReplyDeleteErika Brown
i feel that this bill will be a step closer to help us with our financial crisis but not enough to get us completely out of our crisis. i feel that the president should give it a try.
ReplyDeleteNataiya Taliaferro
After reading the stipulations of the Bill, I believe it will serve as a bridge between where our economy is currently positioned and where it should ultimately be. Assisting with key issues such as Consumer Protection, Resolution Authority, and Volcker Rule Too Weak will save our economy from another economic decline and better position the economy for higher economic growth.
ReplyDeleteThe biggest issue in my opinion is banks capital requirements. This bill addresses the problem, but like the author of this article, I would like to see stricter caps. Banks should not be in the business of taking excessive risks; a departure from Glass Stegal is the root of the problem and bringing similar legislation back should be considered.
ReplyDeleteI agree with the bill and I feel that this is a start but more needs to be done. That is where the legislators need to come in and look at it.
ReplyDelete-Ryan Katz
I don't think this bill does anything that hasn't already been taken care of. The bill promises to educate consumers, but how is a bill going to educate people if people aren't looking to get educated. Plus, putting stricter rules for credit lending also freezes up credit, which in turn stalls the economy. Regulations are good, but too much regulation/red tape is a bad thing.
ReplyDelete- Latif Masud
Passing this bill may help us with our economic crisis, however it will not get us out completely. Any help is better then none. The president must do his part in order to get us out of the crisis.
ReplyDeleteNour Hijazi