How to Fail at Financial Reform

I don't know about the rest of you, but I've been waiting with bated breath for a broad, meaningful financial-reform package. And we didn't get it yesterday, when what we got from Sen. Chris Dodd, chairman of the Senate Banking Committee, fell far short.

Right from the get-go, the senator's 11-page summary of the massive 1,336-page bill gives us a pretty good idea why the reform package will badly miss the mark. In an explanation of why new consumer financial protections are needed, the bill summary asserts: "The economic crisis was driven by an across-the-board failure to protect consumers."

While that may be a heart-warming sound bite, it shows either an acute misunderstanding of the true causes of the financial crisis, or an unabashed willingness to pander to populist views.

(Supposedly) cracking down
In his press conference, Dodd made the reform package sound as though it was going to go on the attack from all fronts. He highlighted four specific components of the bill: ending too-big-to-fail bailouts, creating a consumer-protection watchdog, introducing an early warning system for systemic risk, and requiring more transparency for hedge funds and derivatives.

On the surface, that would mean U.S. taxpayers won't be left with the bill for another AIG (NYSE: AIG  ) or Citigroup (NYSE: C  ) -- or, hopefully, Fannie Mae (NYSE: FNM  ) or Freddie Mac. It would also protect consumers from the wiles of major credit card issuers such as Capital One Financial (NYSE: COF  ) or unscrupulous mortgage lenders. And it would supposedly shine a bright light on the dark corners of the financial world, where companies such as Goldman Sachs (NYSE: GS  ) and Morgan Stanley (NYSE: MS  ) seem to mint money.

But don't be too quick to judge this book by its cover, because this is hardly the meaningful reform that we've all been waiting for.

How to fail at reform in three easy steps
Why isn't Dodd's package going to be a financial panacea? Let me count the ways.

  1. Bet on bureaucracy. As I read through the summary and browsed the text of the bill itself, it became painfully obvious that Dodd's bill is long on new bureaucracy and short on actual new rules.

    Get ready for the Bureau of Consumer Financial Protection, the Financial Stability Oversight Council, the Office of Financial Research, the Orderly Liquidation Authority Panel, the Office of National Insurance, und so weiter. The bill creates heaps of new bureaucratic organizations all queuing up to slather red tape on the system while they inevitably trip all over themselves and don't really solve the underlying problems.

    Banks and financial institutions were being watched before the crisis unfolded. It was a lack of effective rules and regulations that allowed the system to go haywire, not a dearth of acronymed government organizations in the already thick regulatory soup.

  2. Stifle with studies. The government's definition of "study" generally seems to be something along the lines of "bury a difficult issue until someone else eventually deals with it." And that's why it's so concerning to me that the financial-reform bill is riddled with studies -- from short-selling and the obligations of brokers, dealers, and investment advisors, to the actual implementation of any new regulations, including the so-called "Volcker Rule."

    By burying key issues of financial reform in governmental studies, I envision that our end result will be heaps of toothless reports that will be beaten down with extreme prejudice by well-funded banking lobbyists. Maybe we can take small comfort in knowing that we'll have existing studies to tell us why everything went wrong again when it does, eventually, all go wrong again.

  3. Miss the point entirely. When it comes to financial products, are enhanced consumer protections a bad idea? No. But let's get real here: The crisis wasn't simply about big, bad banks that preyed on the entire country. It was about the same thing that panics, meltdowns, and crashes are always made up of: greed run wild.

    This wasn't a greed that started or ended with the financial institutions. It ran the gamut from the average Joe on the street all the way up to Dick Fuld at Lehman Brothers. And amid the greed-induced euphoria, the folks who were supposed to be regulating bought into it, including rating agencies such as Moody's (NYSE: MCO  ) , financial risk managers, and even former Federal Reserve Chairman Alan Greenspan.

    Unfortunately, there's nothing we can do to eliminate greed entirely. However, in the sober light of day following this most recent meltdown, we had the opportunity to set down new, explicit rules to prevent some of the abuses that nearly bankrupted the system. If Dodd's plan is really the best that we can do, it looks like we may be completely missing our opportunity for real change.

What do you think about the proposed financial overhaul? Will it do anything significant to help prevent another crisis? Or is it just more empty Washington legislation? Head down to the comments section and share your thoughts.

Is this the only place the government is blundering? Check out why my fellow Fool Morgan Housel thinks Social Security is messed up.

Moody's is a recommendation choice. Motley Fool Options has recommended a write puts position on Moody's, which is also a recommendation of Motley Fool Inside Value and Motley Fool Stock Advisor. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Matt Koppenheffer owns no shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool. The Fool's disclosure policy assures you no Wookiees were harmed in the making of this article.


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Comments from our Foolish Readers

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  • Report this Comment On March 16, 2010, at 1:35 PM, jaketen2001 wrote:

    Maybe TMF could start a betting pool for where Dodd was going to end up after he is forced in to retirement from the Senate. GS, BofA, some lobbying outfit, or a lawfirm. Any takers? I give 5:1 that he is working somewhere for someone explaining all the loopholes in his bill back to some senate staffer in about 6 months.

  • Report this Comment On March 16, 2010, at 3:17 PM, TMFKopp wrote:

    Well played jaketen2001!

    I wouldn't be surprised in the least to see that. Not that I'm cynical or anything...

    Matt

  • Report this Comment On March 16, 2010, at 5:28 PM, u2nelson wrote:

    Greed is the engine of free markets, but greed must be balanced with fear. What our Government has done over the years is take away the fear, by insuring deposited funds with the FDIC and proclaiming banks TBTF. This has got to stop, Return the fear, let them fail, and they will clean up their act. Unfortunately to let them fail at this point will hurt thousands of small investors and savers. The Banks who are running this world are out of control, They are debt pushers! and have created a money system that is non sustainable. Math does not allow the debt and thus our money supply to grow exponentially for ever. Its not a question of if it will fail, only when, the math proves it. What we really need is a new money system that does not create money with debt + interest. Go to www.swarmusa.com to learn more about debt money and what we can do to change it

    Coach

  • Report this Comment On March 16, 2010, at 5:40 PM, Rover4ever wrote:

    Matt,

    Good grief, the financial crises was caused by "greed run wild". No sir. The financial crises was and continues to be caused by the policies of the Federal Reserve. Their belief that they can continue to "pump" cheap money into the economy in order to save it is utterly wrong. Where is saving suppose to come from, where is capital suppose to accrue if the FED pushes interest rates down to zero. Their policy is madness and will lead to our ruination.

    CS

  • Report this Comment On March 16, 2010, at 5:56 PM, Brill0 wrote:

    Interest rates are prices for money. Our Fed sets rates artificially low (i.e., institutes price controls). Price controls don't work.

    Artificially low prices spawn malinvestment which eventually must be liquidated and reallocated to truly productive ends.

    So how is this anyone's fault other than the Fed's?

  • Report this Comment On March 16, 2010, at 6:04 PM, BruinAlum77 wrote:

    Here's an article about the one regulator who warned about derivatives from the get go, but was ignored by Congress and Alan Greenspan, then chairman of the Federal Reserve: http://www.stanfordalumni.org/news/magazine/2009/marapr/feat...

    While many individuals may have taken advantage of the housing bubble by living off their equity, the depth and breadth of the financial collapse rest squarely on the back of Wall Street and the banks.

    After the Great Depression, financial regulations were put in place that kept the markets stable for 50 years. It was only after Reagan began the push toward deregulation that we have had four major financial crises: the S&L scandals of the 80's; the bailout of the hedge funds in 1998; the massive corporate frauds of Enron, World Com and a host of others; and now the great banking collapse of 2008.

    When are we going to see strict enforcement of existing laws to control derivative trading and credit default swaps, larger budgets for the regulatory agencies to pursue fraudulent behavior, and criminal investigations against the worst corporate offenders?

  • Report this Comment On March 16, 2010, at 6:12 PM, NotJesseL wrote:

    There was a conscious decision to overturn Glass Steagall. There was a conscious decision (by high level government leaders I mean) to keep interest rates low and to encourage increased home ownership even if the new homeowners didn't quite measure up to the definition of a good risk. So, even though the bubble was everybody getting greedy, I think there are just a few people to blame for opening the barn door. Ayn Rand at the top of the list, but that is just my opinion. Everything follows from the idea that markets can be self regulating. To me, that is like saying that cities should not have or need police. So, the Dodd bill, is just more legislative stuff that doesn't really face up to the fact that self regulation doesn't work. I wish the Senate would get used to the fact that some things are going to be unpopular, but that doesn't make them the wrong thing to do.

  • Report this Comment On March 16, 2010, at 6:33 PM, BruinAlum77 wrote:

    u2nelson wrote: "Return the fear, let them fail, and they will clean up their act." When markets crash, companies fail and get bought up by more powerful companies at pennies on the dollar. Smaller investors crash and burn. And the rest of the country suffers from repercussions of all the collateral damage. How does this process regulate a market in any way, or prevent the next unscrupulous company from gaming the system?

    To those who believe that free market forces will correct inequities in the long run, Keynes responded, "In the long run, we're all dead."

  • Report this Comment On March 16, 2010, at 6:51 PM, TMFKopp wrote:

    Blaming the Fed is very convenient (and certainly they don't escape blame), but to do so paints the banks and consumers as mindless participants who are so nearsighted that they can't see their own noses.

    Yes, the Fed did pave the way for reckless expansion of lending, but it was the banks and the consumers that took the bait and ran with it. It shouldn't matter how crazy low interest rates are, letting financial companies lever themselves up to 30-to-1 and allowing home buyers to finance at 105% is just insane.

    As I pointed out above, what we need ISN'T more government bodies and bureaucracy, but rather hard and fast rules that keep markets in check even when emotions are running hot with exuberance and greed.

    We could turn this into a debate about the structure of the U.S. monetary system, but the fact is that as the system stands, banks are quasi-government entities, not market-governed private companies. To try and allow them to function as if they are the latter is to ask for more problems. Banks need to look more like chug-along, stable utilities, not freewheeling profit machines that are the centerpiece of the public markets.

    Matt

  • Report this Comment On March 16, 2010, at 6:58 PM, TMFHousel wrote:

    "Where is saving suppose to come from, where is capital suppose to accrue if the FED pushes interest rates down to zero."

    To be fair, we're saving hundreds of billions of dollars more today at 0% than we were with interest rates at 5.25%.

  • Report this Comment On March 16, 2010, at 7:16 PM, JDLove wrote:

    Dodd and company are about creating breauracies that are "to big to fail." We need more government like we need another stimulus plan. I just want a Federal Government that tells the truth and follows our Constitution. I am smart enough to figure out what investments produce with the least risk, thanks to TMF and a brain.

    Dave

  • Report this Comment On March 16, 2010, at 7:32 PM, poppawheeler wrote:

    Until somebody with a backbone decides to run for office, which is doubtful since the media would murder them in one way or the other, we will continue to see big business controlling big govt. which controlls the proliteriot. We have abandoned our constitution and have digressed back to the old European way of Lords and Ladies. We need to let bad companies fail in order to clean the system out, but govt. which is tied directly to our financial system can't let this happen anymore. We can only hope that somehow we'll make it thru.

  • Report this Comment On March 16, 2010, at 7:50 PM, fhjensen wrote:

    Let the markets work is a fine slogan, but the markets cannot work when the financial institutions (FIs) are allowed to hide the bulk of their assets and liabilities. This is possible because over the counter (OTC) derivatives are completely deregulated and because FIs have been allowed to finance junk mortgages and other loans through special investment vehicles (SIVs) while keeping them off their books. Because they are off-balance sheet, investors and regulators have no way of knowing the the institutions' true risk exposures, and FIs are allowed to hold too little capital to cover these risks. When the junk mortgages started to default, the FIs suddenly started showing losses on assets that were never reported and the derivatives spread and multiplied these risks throughout the financial system in ways that were impossible to measure. The potential for contagion of unknown magnitude made AIG and all other FIs with large derivative positions "too big to fail".

    The proposed legislation does nothing to require that SIV asset and liabilities be consolidated on balance sheets and the proposed new regulations on OTC derivatives include so many loopholes that they simply codify the status quo. Because greed is a natural human condition, the FIs will continue business as usual in the confidence that they remain too big to fail, making another financial crisis almost inevitable. The next time, however, the government's outstanding debt may be too large to allow another bailout. 1930's anyone?

  • Report this Comment On March 16, 2010, at 8:02 PM, TMFKopp wrote:

    @poppawheeler

    "Until somebody with a backbone decides to run for office"

    Unfortunately, in this Fool's view that's been made impossible by lobbying and the nature of campaign finance. How can we really expect our elected officials to crack down on major business groups like finance and banking when they control huge purse strings?

    Matt

  • Report this Comment On March 16, 2010, at 8:23 PM, Tinka82 wrote:

    Too bad we can't all hash this out and solve the world's problems over beers. :) I'm with JDLove. Dodd's proposal is about big government. Bureacracies, councils, agencies, and more nonsense.

    Matt wrote "We could turn this into a debate about the structure of the U.S. monetary system, but the fact is that as the system stands, banks are quasi-government entities, not market-governed private companies. To try and allow them to function as if they are the latter is to ask for more problems. Banks need to look more like chug-along, stable utilities, not freewheeling profit machines that are the centerpiece of the public markets."

    Hmm. Utilities are generally price controlled oligopolies that answer to a state regulator every time they want a fee increase. Are we really wanting that in our lending institutions? Wouldn't this result in few products available among other problems? I'm with the free market and dynamic business model as long as there is a healthy balance of fear, as U2Nelson pointed out. It is certainly a healthy element when risk is to be hedged off to other entities as we do with our lending system.

    Part of the problem with the checks and balances, and 'fear' element that has been lacking is that he who originates the loan is no longer concerned with the credit risk as long as it got past an underwriter. While the underwriter and appraiser were supposed to be part of the checks and balances, he who controlled both of these aspects was a direct recipient of the commission IF the loan closed. Bad idea!!!

    In the old days, banks kept their loans and serviced them. The banker wanted the truth from the underwriter and appraiser as their investment of capital demanded the truth. Today, the underwriter and appraiser were more hurdles to get past and those who told the truth were unceremoniously dumped on their backsides and replaced. Gotta keep them loans funding. Wall Street's waiting for them!!

    How about changing this part of the system a bit? Requiring originating lenders to maintain accountability for the loans for a minimum of 3 years. They may sell the paper at the closing table, or they may portfolio the loan for a while, but regardless they cannot engage in a game of hot potato with stinky credit files any longer.

    Regulation of the credit ratings firms. Ok, you want your FICO formula to be proprietary and as secret as the formula for Coke? Fine. But the big three do need to have greater accountability for their 'opinion' and ratings.

    Independence of the checks and balance levels of the system: underwriters and appraisers. Get rid of this nonsense HVCC which fosters the 'cheapest and quickest' appraiser to bolster the profit of the Appraisal Management Companies, Andrew Cuomo and Fannie/Freddie crafted this half witted company policy which alleged to create appraiser independence. He gets the Dodd award. It's a nightmare.

    30::1 leveraging, credit default swaps, derivatives, etc. NO MORE. These invite corruption. Take a look at how Countrywide hedged bets against the very products they originated with these instruments. Hell, its beginning to look like Goldman Sachs did it with the entire country of Greece at this point.

  • Report this Comment On March 16, 2010, at 8:35 PM, xetn wrote:

    The real failure of financial reform is expecting new regulations to fix old broken regulations. They will just add to complexity, and you can bet they will not be in the best interests of private investors or taxpayers. What we can be sure of is that they will benefit the "friends" of government, just like the bailouts did.

    The best reform would be to scrap the thousands of pages of existing regulations and allow the free market to do its job of regulating by consumers voting with their dollars. Of course that will never happen; the "friends" would never allow it to happen.

  • Report this Comment On March 16, 2010, at 8:38 PM, aeropater wrote:

    I'm sorry, but disasters are necessary. Its part of what we call evolution. We have been making stupid mistakes since we learned to walk on two feet. The current problem is that our government leaders think they are really smart and their actions will protect us.........!!Ya Team!!! These silly a**ed regulations will only make the future shock worse. Innovative people will learn how to use these new RULES to get rich or go broke.

    Evolution works, the weak will die and the strong will survive and prosper. Yes, this isn't pretty but this is how it has worked through our existence on this planet.

  • Report this Comment On March 16, 2010, at 9:10 PM, TMFKopp wrote:

    @Tinka82 and xetn

    I'm a fan of natural market mechanisms, but trying to do that with the banking system is like trying to jam the proverbial square peg into the round hole. Our banking system simply isn't free market at its very core.

    "Utilities are generally price controlled oligopolies that answer to a state regulator every time they want a fee increase. Are we really wanting that in our lending institutions? Wouldn't this result in few products available among other problems?"

    Yes, yes, and yes. Give me technological innovation, energy innovation, heck, bath soap innovation, but I'm skeptical of financial innovation, particularly when it comes from quasi-government entities like banks.

    When you have monopolies (utilities) or government backstops (banking) you don't get to be the economic rock stars. And don't be fooled for one second by Dodd's proposed legislation, banks, particularly the big ones, will still treated as if they have the full backing of the government and taxpayers.

    Matt

  • Report this Comment On March 16, 2010, at 9:42 PM, Tiingall wrote:

    The discussion seems like a dog chasing it's tail. More (demoralising, wasteful, unproductive) regulations are required because (demoralising, wasteful, unproductive) people who can't or won't be productive have succeeded in putting into place a whole raft of (demoralising, wasteful, unproductive) financial products so they can make a lot of money doing absolutely nothing but suck the life out of the economy and every decreasing group of people who actually do something wothwhile. In the process they demoralise honest and hard working people, by destroying their acccumulated weath and rendering them unproductive.

    These parasitic people with predatory products market themselves as respectable and trustworthy, when in fact they are neither; just heartless individuals with a cancer called unbridled greed. They sit behind fancy desks in many institutions.

    Let's stop chasing the dog's tail with more bureaucracy. Serious cancer growing in the financial system need major surgery. It's time to hack out the unproductive, parasytic, cancerous parts that are causing the trouble:

    1. Get rid of all the fancy financial products that are so smart the people who lived off them could not manage them, and almost killed their host. That should stop the unproductive parasites having a mechanism to gamble with our future again.

    2. Get rid of the habitual gamblers, criminals, fraudsters and other parasites dressed in suits who flocked into the apparently respectable banks and other financial institutions like flies to dung, to peddle the fake financial products for their personal greed. Honest professionals in the banking and finance community will know who they are; kick them out, along with their snake oil.

    3. Apply some Adrian Raine ( Penn - Criminality) derived brain scan technology to identify those in the finance industry with brain deformaties which do not allow them to feel concern for fellow humans, which prevent them feeling remourse, guilt etc for their irresponsible and greed driven behaviour. Remove these cancerous nodes and the financial body is certain to improve, because honest people with genuine compassion and concern can fill the gaps.

    Really, what do all these financial institutions exist for? To create bewildering arays of convoluted products that do nothing but live off and destroy the acumulated wealth of productive people; surely not. They should be there to facilitate and encourage productive enterprise, hard work and honest business operations which contributes to the well-being of individuals and the advancement of society.

    Time to hack out the cancerous damaged parts and damaged players gambling with our future. Think of the savings - fewer politicians, less bureaucracy, far fewer lawyers. Real business could really thrive. And real investors in real businesses would benefit too. Not the parasites who deliberately create debt, false securities and predatory lending to suck the financial life and resilience from honest people and productive enterprises.

  • Report this Comment On March 16, 2010, at 11:27 PM, TMFKopp wrote:

    @Tiingall

    "Apply some Adrian Raine ( Penn - Criminality) derived brain scan technology to identify those in the finance industry with brain deformaties which do not allow them to feel concern for fellow humans"

    That reminds me of the title of a Forbes article about Warren Buffett... "Warren Buffett: Functional Psychopath?"

    http://www.forbes.com/2005/08/18/buffett-prudent-investing-g...

    Matt

  • Report this Comment On March 16, 2010, at 11:31 PM, MotleyReader wrote:

    I think that for starters, we should restore the Glass Steagall Act, restore the regulatory oversight and power of the CFTC, and enforce the regulations and laws we already have on the books. Following that, expand the oversight and enforcement capabilities of CFTC to include the various derivatives markets. And legislate funding increases commensurate with the new task of that already established agency.

  • Report this Comment On March 16, 2010, at 11:37 PM, MFMerlin wrote:

    Well said Rover4ever/CS - and to others out there with similar comments/fears/objections, I would suggest supporting the Presidential candidacy of Congressman Ron Paul for adherence to the Constitution and small, effective Fed. govt. with a monetary/fiscal/financial policy which would genuinely benefit all.

  • Report this Comment On March 17, 2010, at 1:28 AM, Tiingall wrote:

    Matt, it's very clear there are many Psycopaths in the finacne and banking industry. Examples include the parasites who created credit card systems for low-income earners who when interviewed about the cunning tricks in the system to repeatedly impose more charges and fees so the person falls behind in payments and must pay more and more prohibitive interest charges can say yes they did it, without any remourse or guilt about the suffering their trcks impose.

    And the are the Psycopath bank and financial institution CEOs, CFOs etc who know they contributed to wrecking the world economy, but still demand we give them monster salaries, bigger bonuses and fancy packages. We don't see them selling their assets to put OUR money back into the institutions they fleeced. No, they are hard at work finding new ways to get around new legislation and where they can impose more fees so they can get us to pay to repair the damage caused by their greed and incompetence. No guilt, no concern about the terrible consequences they are creating for others with whom they share this planet. No personal action to pay for the suffering and hardships they caused.

    These are the Psychopaths who need to be identified and hacked out of the system, along with their sleezy deals, their predatory financial products, their deliberate deceipt and their criminal actions.

    The technology and brian science related to criminal activity - as practiced by serial killers and their white collar fraudsters cousins - now exists. It could help prevent the next plunge into the financial abyss which these serial fraudsters will not doubt engineer. It's part of being a Psycopath; the inability to constrain themselves from doing evil to other people again, and again and again. Just like a serial killer.

    The leadership of banks and financial institutions must be full of them; as demonstrated by their repeat actions.

  • Report this Comment On March 17, 2010, at 4:36 AM, barniebrains wrote:

    Senator Kaufman lays out an excellent argument for bringing back Glass-Steagall. A highly recommended read:

    http://kaufman.senate.gov/press/floor_statements/statement/?...

  • Report this Comment On March 17, 2010, at 9:28 AM, Gorm wrote:

    We could point to ignorance of the risks, or fact that special interests control. GS spends $400M EACH YEAR on lobbyists!

    Everyone knows the key issues / risks are eliminating TBTF, reinstalling Glass Steagall, regulating derivatives, setting limits on leverage, eliminating rating agencies being paid by bond brokers.

    SO, we either believe Congress is unaware OR more realistically accept the fact Congress is working hard to con us into thinking there is substance while comforting special interests the impacts will be minimal - given the blatant abuses of trust.

  • Report this Comment On March 17, 2010, at 9:58 AM, Appear wrote:

    Cut off the money flowing into congress from lobbyist and restricting the revolving door policy will help provide a less corrupt government.

  • Report this Comment On March 17, 2010, at 10:00 AM, jfenlon wrote:

    Dodd is a phony. Entrenched interests will subvert whatever system is in place. The workable solution is to educate the investor. I learned more about how this economy actually works from being a Fool guy for two years than I did in my entire undergrad business admin program.

  • Report this Comment On March 17, 2010, at 10:29 AM, ed1007 wrote:

    >>>Yes, yes, and yes. Give me technological innovation, energy innovation, heck, bath soap innovation, but I'm skeptical of financial innovation, particularly when it comes from quasi-government entities like banks. <<<<

    I agree with those that propose simplifying regulation vs. new regulations, and then letting the free markets work. The above comments suggest why I think the regulations should and can be very simple. At the core a bank serves very few functions. Really only two, a business that holds cash assets for it customers and a business that lends funds. That's it, everything else that was going on was related to shifting (hiding) risk around. As a result simple regulations that clearly define how risk can be traded and how the assets/liabilities that result from this traded risk are reported on the balance sheets of all involved parties is really all that needs to be done.

    The myriad of working groups, studies, regulating agencies, etc are just a smoke screen for the fact that nothing is really being changed.

  • Report this Comment On March 17, 2010, at 10:50 AM, endru wrote:

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  • Report this Comment On March 17, 2010, at 11:25 AM, DJDynamicNC wrote:

    Tiingall nailed it. The real economy needs banks to provide financial lubrication by way of loans, and secure storage by way of accounts. What the real economy does not need is a shadow economy composed of nothing parasites sucking the life blood out of every transaction, and "innovating" ever more complicated methods of financial rape.

    Where's Robin Hood when you need him?

  • Report this Comment On March 17, 2010, at 12:41 PM, u2nelson wrote:

    Debt backed money is the real issue here...It only creates more debt, an unsustainable situation. Dodd's new regulations is like showing up to fix a crack in Hoover dam with a band aid. Not gonna do much.

    Please read the impossible math of debt backed money on this site. Meaningful change is possible.

    http://www.swarmusa.com/

  • Report this Comment On March 17, 2010, at 5:29 PM, bc0203 wrote:

    Two (of many) problems with this regulation:

    Limits & Disclosure for Federal Reserve Lending: Updates the Federal Reserve's 13(3) lender of last resort authority to allow system-wide support for healthy institutions or systemically important market utilities with sufficient collateral to protect taxpayers from loss during a major destabilizing event, but not to prop up individual institutions. The Board must begin reporting within 7 days of extending loans, periodically thereafter, and disclose borrowers, collateral, amounts borrowed unless doing so would defeat the purpose of the support. Disclosure may be delayed 12 months if it would compromise the program or financial stability.

    Funding: The self-funded SEC will no longer be subject to the annual appropriations process.

    In short, this bill doesn't address many of the underlying problems, and in some cases codifies into law many of the systemic issues that got us here in the first place. For more details, see the following link:

    http://www.zerohedge.com/article/full-highlights-dodds-finan...

  • Report this Comment On March 18, 2010, at 11:12 AM, ziq wrote:

    It's fun to blame your favorite boogy man, be it free market ideology, lack of really free markets, fat cats, government micromanagement or irresponsible consumers. The crux of the problem stems from the ability and incentive for banks to make risky loans and package them into sausage to resell with little transparancy. So make it illegal to do that. End of story. Markets do many things right but they do some things wrong and when they do it needs to be fixed.

    There have always been, and always will be, high risk prospective borrowers knocking at the doors of banks. In the old days they were denied--else the bank would fail. Now they have become too big to fail. If you think the problem here is the greedy banks or the irresponsible consumers, I think your political agenda is showing. Bankers have always been in business to make money. The bankers did exactly what the rules allowed them to do in order to turn a profit (at least for a while). It's the rules that are broken.

    Of course the way they got broken is too many people were convinced that markets cannot possibly fail if left to their own devices, so I guess that's my political agenda. "Four legs good, two legs bad" or "free markets good, socialism bad" or "average Joes good, corporations bad" don't cut it any more. A complex society, and a complex economy, require complex regulation. Get over it. What we really needd is the flexibility to find the sweet spot between under and over-regulation, quickly.

    Good point about creating more bureacracy. The SEC, for example, could have called out Bernie Madoff, but they didn't. The mere existence of more government agencies doesn't guarantee anything, except maybe a higher cost of government. What the agencies actually do is far more important and, all other things being equal, the fewer the better.

  • Report this Comment On March 21, 2010, at 12:57 AM, kellogg9 wrote:

    Unless we get serious and do true Campaign Finance Reform (CFR) then things like this will never be solved. CFR is the core of the problem and the reason why things like financial regulation are never, and can never, be fixed. We must remove the ease of corruption from Washington before problems like this can finally be attended to. This also goes with true Health Care Reform.

    Kelly

    http://www.stockcoupons.com/

  • Report this Comment On March 21, 2010, at 12:57 AM, kellogg9 wrote:

    Unless we get serious and do true Campaign Finance Reform (CFR) then things like this will never be solved. CFR is the core of the problem and the reason why things like financial regulation are never, and can never, be fixed. We must remove the ease of corruption from Washington before problems like this can finally be attended to. This also goes with true Health Care Reform.

    Kelly

    http://www.stockcoupons.com/

  • Report this Comment On March 21, 2010, at 7:35 PM, sed2997 wrote:

    I don't think we can legislate or rule these problems into non existence. What we need to do is hold the folks responsible accountable for their actions and see that they spend a long time in jail for almost destroying our economy. These folks knew exactly what they were doing and the risks they were taking. If they didn't I would question their ability to run a pawn shop. If you remember that destroying our economy is what Osama Bin Ladan tried to do when he ordered planes into the world trade center. I doubt that we would be so easy on him if we could catch him.

  • Report this Comment On March 21, 2010, at 7:39 PM, sed2997 wrote:

    I don't think we can legislate or rule these problems into non existence. What we need to do is hold the folks responsible accountable for their actions and see that they spend a long time in jail for almost destroying our economy. These folks knew exactly what they were doing and the risks they were taking. If they didn't I would question their ability to run a pawn shop. If you remember that destroying our economy is what Osama Bin Ladan tried to do when he ordered planes into the world trade center. I doubt that we would be so easy on him if we could catch him.

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