Is this crap going to pass?
http://www.washingtonpost.com/wp-dyn/content/arti…
6 key points of the financial regulation legislation
1 A Consumer Financial Protection Bureau, housed inside the Federal Reserve, would write and enforce rules protecting borrowers from abuse by lenders.
WHAT IT MEANS: The location of the agency is a nod to Republicans and conservative Democrats who oppose the creation of a free-standing consumer agency, but everything else about this proposal is designed to please liberals, giving the consumer agency sweeping powers and imposing few checks on that
authority.
2 A Financial Stability Oversight Council, chaired by the Treasury secretary, would coordinate federal efforts to identify and manage risks to the financial system and the broader economy.
What it means: Dodd wanted to give the council broad responsibility for policing systemic risks. After massive administration pressure, he agreed instead to give much of that power to the Fed. The oversight council will instead function essentially as the Fed's board of directors on regulatory issues, signing
off on its decisions.
3 A new process would allow for the liquidation of large, failing financial firms.
WHAT IT ME ANS: Companies could be liquidated by joint agreement of the Treasury Department, the Fed and the Federal Deposit Insurance Corp., which already administers bank failures and would play a similar role in the new process. Costs would be paid from a $50 billion pool of money gathered from large financial companies.
4 Credit-rating agencies would be regulated and liable for errors.
WHAT IT MEANS: Breaking with the administration and the House version of financial reform, Dodd's bill would hold Moody's, Standard & Poor's and other rating agencies potentially liable for their judgments about the safety of bonds and other investments. The industry also would be regulated by the Securities and Exchange Commission.
5 Banks would face new limits on trading and investment activities.
WHAT IT MEANS: The bill would restrict banks from running their own investment portfolios or hedge funds, an administration proposal known as the "Volcker Rule" that Dodd initially had rejected. The bill also would regulate the massive trade in derivatives, increasing the proportion of such trades that are publicly reported.
6 Some renovations would be made to the structure of federal banking regulation.
WHAT IT MEANS: Dodd abandoned his earlier proposal to create a single banking regulator after critics argued that the upside was not worth the effort. The bill still would eliminate the Office of Thrift Supervision. The Fed's authority over smaller banks would be split between the FDIC and the Office of the Comptroller of the Currency.
1 30% chance
2 20% chance
3 100% chance
4 50% chance
5 50% chance
6 70% chance
IMO
Got to have some financial regulation after this mess.
I agree with the above probabilities. I would like to see credit rating agencies liable for their ratings and the liquidating of failing financial firms seems like a good idea. The Volcker Rule, Consume Financial protection agency, and the Financial Stability Control Panel scare the shit out of me.
I have a feeling this is gonna be a long post...ok
Yet again our government tries to cater to the populists while completely ignoring the economics of the free market and society at large.
Why do we need this? Another government institution to "protect" us from financial institutions? What would they do that is not already covered under the present system? Will all credit card contracts from around the domestic US be sent to the highly efficient mechanism that is the federal government? No. They will simply try to make laws/create sanctions against the credit card companies/mortgage giants that force up the firms cost- eventually passed onto the consumer. God forbid people actually read the terms of the contracts that they are signing!!! Instead lets make stuff more expensive for everyone, spend a lot of time and taxpayer money and create a useless facade organization that functions to abate populist rage.
I like the idea of simply going against everything that the Fed was meant to be...oh wait. Since the Fed is meant to be extra-governmental (it can't really be forced to do something by the government) why would we have the government sign off on everything they do! The entire basis of fiat currency rests on the notion that the federal government can't simply print money (even though they seem to anyway)- so lets destroy that. This will end well!!!
Rather than resolving to never save firms- however large, we must tax the sh*t out of them until they can create a fund (probably to be raided on the regular by the federal government like Social Security). If we pass legislation or something of a similar vein, that makes it so the government can't "bailout" financial firms (or any for that matter), the companies will self regulate and make it so they make more money, their services are cheaper, the economy goes up, etc. But all the firms know that the government will save them if necessary- ala bailouts of the '80's, '90's, and today!
Sounds like a decent idea actually- surprised he proposed this. But it would probably be hard to implement.
Dumb.
Fragment authority and introduce more red tape. It worked with the DHS, why not now?
Interesting that the Democrats try to do majority rule only when it will increase taxes or hurt the economy.
Why give more power to the Fed - clearly the Fed is horrendous at identifying risk in the system as this most recent crisis has proved. Also, by even having the Fed as the sole systemic regulator you are creating another systemic risk - investors will flock to whatever market the Fed deems "acceptably risky". In my opinion this basically lays the groundwork for the next bubble.
Any opinions on how this is going to further shake up the power pyramid of BB v boutiques?
None of this will cause a culture shift - nothing to worry about but a lot to pay for .... we just have to stay one step ahead of the regulators.
A point on #4 No way this is effective. Sure it can get passed, but this will do one of 2 things.
1) S&P will just rate everyone else as riskier to cover themselves, therefore shifting everyone down a grade or 2.
2)The rating agencies do absolutely nothing different. I don't believe that S&P specifically ever stated what is AAA exactly other than the following :
‘AAA’—Extremely strong capacity to meet financial commitments. Highest Rating. ‘AA’—Very strong capacity to meet financial commitments. ‘A’—Strong capacity to meet financial commitments, but somewhat susceptible to adverse economic conditions and changes in circumstances. ‘BBB’—Adequate capacity to meet financial commitments, but more subject to adverse economic conditions. ‘BBB-‘—Considered lowest investment grade by market participants. ‘BB+’—Considered highest speculative grade by market participants. ‘BB’—Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions. ‘B’—More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments. ‘CCC’—Currently vulnerable and dependent on favorable business, financial and economic conditions to meet financial commitments. ‘CC’—Currently highly vulnerable. ‘C’—Currently highly vulnerable obligations and other defined circumstances. ‘D’—Payment default on financial commitments.
Others have put percent default rates to these ratings....say 1% chance of default within the next year if rated AA. However, to prove that there was an ERROR is something VERY difficult to do. So you see someone go belly up, they still could have been absolutely correct to rate that company a AA, just so happens that that "1%" number is not 0%, and AA do default.
Talking about making them liable, and actually doing it are waaay different things, and I don't think it can actually be done. Thoughts?
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