Reform Bill Passes: Wall Street Loses
ON JULY 15, THE SENATE PASSED the Dodd-Frank Wall Street Reform and Consumer Protection Act (H.R. 4173) by a vote of 60 to 39, sending it to the White House for the president’s signature. Later that afternoon, President Obama signed the bill into law, creating a host of new
regulations to supposedly rein in the out-of-control speculating and gambling on Wall Street that brought the U.S. economy to its knees in the summer of 2007.
As AFP has reported in past issues, this measure is certainly not perfect.At just under 1,000 pages, its sheer size means there will be regretful provisions buried deep inside. For six months now, the bill has been repeatedly reworked, rewritten and amended. However, despite all of that, it should largely be considered a significant victory for populist Americans and Main Street America.
Even though the “money trust” fielded an army of 1,000 lobbyists, it was still not able to kill reform. That was directly attributable to the anger on Main Street directed at the thieves and liars on Wall Street.
The vote was almost completely along party lines. Only three Republicans crossed over, voting in favor of the measure. They were Scott Brown (Mass.), and Susan Collins and Olympia Snowe (both of Maine). For months, the GOP had been cynically working to kill the bill in the hopes that it would turn the fight into a major fundraising initiative, pitting Wall Street against the Democrats. Top Republicans had traveled to New York to meet with some of the world’s top moneymen in the hopes that they could get payback for working to kill substantive reforms.
So now that the bill has been signed into law, what does this all mean for Main Street? One of the most important provisions in the law allows for the Government Accountability Office to conduct a one-time audit of the Federal Reserve’s emergency lending powers. Following the collapse of the U.S. economy, these arms of the privately owned and controlled U.S. central bank made sweetheart deals not only to domestic banks, but to foreign central banks, also. Critics of the Fed, such as Rep. Ron Paul (R-Texas), sought a full audit of the top bank, which would include its all-important monetary policy. That never made it into the final bill.
Nonetheless, this unprecedented look at the Fed’s books is a positive step toward transparency—something all Americans should recognize as a victory.
Another success is the creation of an independent Bureau of Consumer Financial Protection that has the sole mandate of investigating claims from consumers about abuses in the debt industry. These will include charges of predatory lending on the part of credit card companies, which are notorious for handing out credit cards to the poor and college students and then slapping them with costly fees buried in the fine print.
The measure also sets up new regulations for mortgage brokers, intended to prevent the type of lending that allowed people with little or no income to purchase expensive homes with adjustable-rate mortgages.
On a grander scale, the bill hands federal regulators new powers to break up or “wind down” troubled financial firms that are deemed “too big to fail,” something taxpayers could have benefited from in 2007.
What will really hurt Wall Street, though, are new rules that force investment firms and hedge funds to trade so-called exotic derivatives, such as interest rate swaps and collateralized debt obligations, in broad daylight in established clearinghouses under the scrutiny of regulators. No more under-the-table stuff, it seems.
Had this particular rule been in effect, it’s likely the housing bubble could have been avoided. The measure would have limited the insane price increases of property in the past decade brought about by the shadow money-lending industry, which was creating money for the loans by selling subprime-mortgage-backed derivatives—called collateralized debt obligations—to investors without informing them of the risks.
Worse still for Wall Street, the top banks will now have to “spin off ” or get rid of their divisions that gamble on exotic derivatives. According to an analysis by the third largest financial firm, Citigroup, this is expected to cost some of the top financial firms as much as a quarter of their annual profits—a big hit for greedy investment companies.
Following news of the bill’s passage, reports began leaking out that the “money trust” would be seeking to impose new fees on consumers in an effort to make up for the revenue they expect to lose from new rules. The new law will hit Wall Street in the pocketbook, which is clear enough evidence of its value.
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(Issue # 31, August 2, 2010)