Dodd-Frank Bill closer to passage as Republicans Sign On
by Linda Beale
crossposted with Ataxingmatter
Dodd-Frank Bill closer to passage as Republicans Sign On
Senators Brown (R-MA), Snowe (R-ME) and Collins (R-ME) have indicated that they will support the financial reform package. Along with Maria Cantwell, who had hesitated because of the bill’s relative weakness at correcting the key problems that caused the financial crisis, it appears the bill is headed to passage by the Senate this week. See Financial Times, Wall Street Reform Proposal Wins Key Support, July 12, 2010.
Perhaps the weakest part of the bill is its failure to definitively wean big banks from the risky (but lucrative, as long as the US picks up their losses) derivatives business and investments in hedge funds and similar entities. Naked credit default swaps, the critical derivatives that permitted banks to become interconnected casinos gambling on ups and downs in companies without owning a cent of their equity or bonds (an insurance product without insurance regulation to prevent moral hazard), are essentially unregulated in the conference report agreement. The Fed will have the power to regulate them, but the Fed has long been in bed with the banks and has insufficient independence to recognize the depth of the problem. Moving most derivatives into subsidiaries is not the same as spinning them off entirely into separate entities. The banks won on this one, and this was the most important stake in the bundle.
While the consumer protection agency is much needed, it is weaker than it should be. It is under the Fed, which can veto rules if the Fed thinks they pose a risk for banks. Since banks always say that any rule that limits their profits poses a risk, this will be a constant worry for consumer protection rules. Further, auto dealers–one of the primary issuers of credits to ordinary consumers–lobbied for and won exemption from the agency’s rules. Of course, every Congressman has auto dealers in his or her district, but you’d think that the thousands of car buyers in each district who will fall prey to any shucksterism from auto dealers would garner more of the reps/ attention.
Finally, Brown’s vote was a costly one. He was one who fought to permit banks to own hedge funds–essentially a decision to allow them to continue to gamble with other people’s money. And he nixed the proposal to have the banks pay for the cost of increased regulation due to their risky behavior. Why in the world shouldn’t the banks pay? I suppose they must have contributed a good deal to Brown’s campaign chest. There’s no other reason for failing to assess the banks their fair share of the added monitoring costs.
What convinces me that this bill is much too weak is that the banks are satisfied that they won sufficiently to keep doing business as usual.
Amazing the kinds of legislation that can be passed when the onerous parts are compromised.
Slightly OT, but I just heard that US bonds were downgraded to AA. And, so it starts!!!!!
Here’s just one reference: http://www.ibtimes.com/articles/35001/20100713/us-sovereign-debt-downgraded-by-china.htm
The real question is whether or not local and regional banks will be hammered into the ground to pay for the sins of the big guys. If so, small business takes a big hit.
And I’m please the auto dealers were exempted, the system of writing paper for selected banks and credit unions works very well (my last car loan through my credit union via the dealer took about 7 minutes from start to finish).
Why did they need Brown’s vote? With three Rep already on board that should cover a filibuster issue. So why Brown?
On the auto dealer issue, if one is concerned one can arrange the loan and then go shopping leaving the final details until the negoation is complete, banks have always been happy to do it. Now if you have a low credit score the issue may be different. Joes finance company may have lower standards.
bROWN WAS THE FIRST, WHEN THE GOT HIM THEY DID NOT HAVE THE OTHER REPUBLICANS.
I thought the Republican Party was the Party of “No?”
“…but you’d think that the thousands of car buyers in each district who will fall prey to any shucksterism from auto dealers would garner more of the reps/ attention.”
Like the guy from the big discount clothing chain says, “An educated consumer….” That’s what it’s all about, the consumer learning that nothing is too good to be true. The lowest advertised price on a car often comes with the highest rate of interest. I’m speaking here of dealer ads, not car company promotions. And, by the way, the promotional rates are often the safest of loans, if you can qualify. The car company finance arm usually limits the mark-up of the rate during such promotions. Otherwise, as Lyle suggests, go to your local bank. Compare the rates against what the dealers are offering. The dealer will often be happy to match the local bank rates because it will allow the dealer to earn a small mark up. Their loan source is often the same commercial bank, but they get a better high volume base rate.
Try your credit union, if you have access. That’s generally the lowest available rate in town. At present, Tier I borrowers are getting as low as 3.5%-4.0%. If your credit stinks buy a cheaper car. No one at the dealership is going to have any pity on the guy who hasn’t paid what he owes and wants to borrow still more.
Jack your point is much more generally true in all financial matters if its seems to good to be true it probably is. If it seems designed to get rich quick its likely a scheme to get the promoter rich quick not you. But the question is given the innumeracy of people how do you educate them? For example tell people that expecting a 20% per annum return on the stock market in perpetuity is probably smoking something. The advice is out there, but people are to busy to take it. It is true that a sucker is born every day, that indeed is what makes these schemes viable. Perhaps we educate people that a paranoid attitude to anyone you do business with is the proper attitude, since many are out to get you.
Thanks Spencer, the article made it sound like he was the 4th…