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Financial Overhaul Passes. Now What?

Law Remakes U.S. Financial Landscape

In what is being called the largest overhaul of the financial system since the Great Depression, both houses of Congress have agreed on a massive bank bill that, despite lots of news out there on it, apparently doesn’t have a name (at least one that I can find).  So, you may be asking “what does it mean?”  Well, as much as I can tell: no one’s really sure.  Here’s what we do know: We know that the bill will give unprecedented power to a small group of people at the Fed and Treasury Department.  You know, the same groups that have been accused, by both parties, of “failing” in their supervision of the financial system before its collapse.  Call me cynical, but why should I expect a different result next time?

We also know that the bill will allow the Fed and Treasury to regulate, well, practically everything.  While the bill’s proponents argue it will only affect the biggest financial institutions, many believe it will make it more difficult for smaller banks to exist.  In fact, even those who support the bill admit it will increase the costs of doing business, which will ultimately be passed onto the customer.  The bill also gives federal regulators the right to break up financial institutions that are “too big to fail.”  I can’t wait to see what actually constitutes being “too big to fail.”  It also creates a federal Consumer Protection Agency, which presumably requires the hiring of lots of bureaucrats to do that which was being done before.  I say this because, from what I’ve read, the new CPA will primarily fight predatory-lending practices, which have always been illegal.

The bottom line is this: the 2300 page bill provides the bones, while the details must still be fleshed out; and as we all know, the devil is in the details.  It will take months, or even years, for various government commissions and departments to draft the regulations that will make the bill function.

When it is signed into law by B.O., the bill will cause a significant increase in the size of the federal government; it will cost billions we don’t have to get it up and running; and it will make doing business more difficult for financial institutions, which can’t be a good thing in our economy.  At the same time, it doesn’t do anything about the primary causes of the economic collapse: Fannie, Freddie, and all the subprime loans given out to bad credit risks at the behest of the government.  Also, because the actual effects of the bill won’t be known until the regulations are actually written, economic activity will further decrease, because uncertainty breeds bad economies.  And finally no one,  other than the politicians that wrote the bill, has argued that it would have kept the collapse from happening in the first place.

A bill this big, involving this many moving parts, and relying on this many bureaucrats to get things done has the law of unintended consequences written all over it.  Should Congress have done nothing after the collapse?  No, but this is overkill (as Rep. Boehner said).  It adds hundreds of new financial regulations, some of which are not even relevant  to the collapse (like requiring lending to minority and female-owned businesses).  Plus, at the end of the day, Wall Street and the federal government will continue to drink from the same trough.  In other words, you can expect the main impact to be felt by us, while being avoided by Wall Street.

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