Understanding Financial Regulation Reform Using Five Guideposts

May 25, 2010 - PRLog -- The US now starts the process of legislatively finalizing the finance “reform” bill.

As this painfully slow and agonizing march proceeds, here are five “guideposts” to make the whole thing easier to understand – even if you don’t “believe” some of the things that are happening.

The first is that it’s so limited that everyone on Wall Street is breathing a sigh of relief.

Many executives apparently spent the weekend trying to assess the impact of the legislation, which has yet to take the all-important final form.

With some crucial differences between the House and Senate versions of the bill remaining,

lawmakers will confer over the next few weeks and try to reach a final version before Congress’s Fourth of July recess.

This is to give you some sense of the time-line involved in this crucial legislation, so you won’t wonder why it seems to be taking so long – everybody knows this from the beginning.

And even if you aren’t American, who can forget the endless saga of the health “care” “reform” legislation ???

Don’t expect this to take much less time … ;-) …

All this said, Wall Street’s initial verdict seems to be that it could have been much more worse.

And given the time-line involved, there will be plenty of opportunity for industry officials to take actions that, in their view, will soften several of the most “punitive” provisions before it will FINALLY be signed into law.

Which, of course, brings up the SECOND key point:

This is going to be a lobbying bonanza probably unparalleled in American history –

and, given the eternity of the health “care” drama, that’s saying something.

And not to be too cynical about how effective this lobbying effort by the banks and the rest of the financial sector is going to be, here’s some historical perspective:

When Congress split off commercial banking from investment banking in the early 1930s, after the Crash of 1929,

there were predictions that Wall Street was hamstrung and businesses would not be able to raise capital as a result, said Charles Geisst, a professor of finance at Manhattan College.

“Almost all of the same arguments that you’re hearing today were made then,” Professor Geisst said.

“It’s hard to keep them down, they ultimately find a way. I’m sure they’re finding a way to work around these new rules even before they’ve passed.”

Consider that for a moment:

“I’m sure they’re finding a way to work around these new rules even before they’ve passed” –

and that’s BEFORE the lobbyists have had their chance to get to the Congresspeople involved,

which, as THIS article from the New York Times makes clear, you can be sure, they most assuredly will:

Last Wednesday, Representative David Scott, Democrat of Georgia, mingled with insurance and financial executives and other supporters at a lunchtime fund-raiser in his honor at a chic Washington wine bar before rushing out to cast a House vote.

Nearby, supporters of Representative Michael E. Capuano, Democrat of Massachusetts, gathered that evening at a Capitol Hill town house for a $1,000-a-head fund-raiser.

Just as that was wrapping up, Representative Peter T. King, Republican of New York, was feted by campaign donors at nearby Nationals Park at a game against the Mets.

It was just another day in the nonstop fund-raising cycle for members of the House Financial Services Committee,

which has become a magnet for money from Wall Street and other deep-pocketed contributors,

especially as Congress moves to finalize the most sweeping new financial regulations in seven decades.

Executives and political action committees from Wall Street banks, hedge funds, insurance companies and related financial sectors

have showered Congressional candidates with more than $1.7 billion in the last decade,

with much of it going to the financial committees that oversee the industry’s operations.

In return, the financial sector has enjoyed virtually front-door access,

and what critics say is often favorable treatment from many lawmakers.



The THIRD major guidepost is understanding the “thinking” behind the Obama administration’s “strategy” when it came to financial “reform”, as yet another article from the New York Times makes clear:

Broadly speaking, there were two ways for the federal government to respond to the financial crisis: supersize regulation or downsize the financial industry.

The Obama administration chose more regulation.

The financial legislation passed by the Senate last week, largely built to specifications that the administration provided last summer,

vastly increases the scope and sophistication of federal regulation.

It grants more resources and more authority to those charged with overseeing the industry.

It is hoped that this will produce better results.

The bill does not, as some liberal Democrats and populist Republicans had advocated, require the breakup of conglomerated behemoths.

It does not prohibit some of the most speculative genres of Wall Street trading.

It does not reduce the vast menagerie of financial companies that compete with banks.

Which, undoubtedly, is why Wall Street is, in general, so happy with what the administration and its Democratic allies in Congress – the grateful recipients of all that lobbying money – are putting forward.

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