Reviewing The Financial Reform Bill

Next week, President Obama will be signing into law the Financial Reform package that was passed after weeks of negotiations in order to get past the filibuster-proof 60 votes in the Senate. This is what the Panorama tackles this week.


To begin, as a moderate Republican, I understand the need for reform of the financial system to ensure that a near meltdown doesn’t happen again. However, I also believe that another financial crises would be very different in our economy in 20 years. It’s very difficult to say what tomorrow’s issues might be.

With that said, I will shortly discuss the good and the bad in my opinion.

The Good:

A 10-member council or regulators to monitor threats to the financial system. They will ensure that companies aren’t so big that their failure could upend the entire financial system.

Creating a new office of consumer protections that would oversee mortgages, credit cards, and short-term loans.

The Bad:

Pawn shops and payday loan places are exempt from the consumer protections regulations. This is wrong, and should have been included. If any consumers need to be protected, it needs to be those that are using payday loan agencies. Honestly, this kind of irritates me that there will be no regulations on these companies.

The executive pay clause. I’m all for responsible pay for executives of corporations, especially when they may not be in a financially stable situation. However, I think this is too much government intrusion into the day to day activities of corporations. The portion requires shareholders to vote on executive packages, but the votes aren’t binding.

I have stocks, and have voted as a shareholder many times. Honestly, this really won’t change much. Their packages will pass in nearly every scenario. However, I don’t like where this provision is headed.

I admit I am not fluent in speaking this “financial reform” talk. I do know that it is important to note that major banks, JP Morgan Chase, Bank of America, etc. were down up to 7% the day after the reform passed. Bank of America asserts that the new reform will cost them about $5 billion in revenue over the next year. To put that into perspective, their first quarter earnings were just over $3 billion. This reform is costing them over a quarter year in profits potentially, and that worries me.

The banks will pass on their costs and burdens to consumers, you and I. The reform will cost consumers more, in the end, I predict, more than the banks. That, in of itself, is a bad in the financial reform bill.


Most interesting provisions for better or worse:

“A new independent office would oversee financial products and services such as mortgages, credit cards and short-term loans. The office would be housed in the Fed.”

This is all well and good, particularly the fact that it is an independent office, but unfortunately pawn shops and presumably payday loan entities would be exempt. This was a missed opportunity to rein in a harmful sector of the economy and provide protection to working and middle class folks.

“Shareholders would vote on executive pay packages. But the votes wouldn’t be binding. Companies could ignore them.”

This is another missed opportunity, though it’s a step in the right direction. I feel we need tighter controls on executive pay. It may be worth considering regulations that allow the highest paid employee to make no more than 30 times more than the lowest paid employee. This would prevent CEO’s from essentially raiding corporate finances before fleeing for retirement. Any CEO that takes millions per year in compensation is not doing what is in the best interest of the company and in doing so they are demonstrating why they are not CEO material. Such a regulation would force executives to think twice before giving themselves substantial pay increases as it would require them to increase the pay of those at the bottom of the totem pole. They would be forced to make decisions that are more in line with the financial good of the company than their own selfishness and greed. Such a regulation would also likely lead to more corporations paying their workers livable wages.

“Lenders would have to make sure mortgage borrowers could afford to repay. Lenders would have to disclose the highest payment borrowers could face on their adjustable-rate mortgages. Mortgage brokers could no longer receive bonuses for pushing people into high-cost loans.”

This is perhaps my favorite provision as it protects would-be homeowners from vulcher-like conduct of lenders. Granted, there’s something to be said for would-be homeowners taking some initiative and self-responsibility for finding out what they’re getting into, but not everyone is or has a lawyer and this regulation is reasonable.

It is also noteworthy that the legislation appears to be paid for through a combination of increased FDIC rates for institutions and ending the 2008 Bush Bank Bailout.

All in all, it should be considered a success for Democrats. Success is not measured by perfect results. If we lived in a perfect world with perfect wins, few pieces of legislation in our history could be considered a success and baseball would have few victories. Wins come in a variety of ways. They’re sometimes near perfect and sometimes quite scrappy. In the end, compromise prevailed here and that isn’t always the worst thing. After all, every side to an issue is right, but for different people. The key is to take the best ideas from all sides without compromising one’s underlying values. Generally, I think the Democrats did just that with the financial reform legislation and should be a feather in their cap going into November.


The new financial regulation reform is a positive step in the right direction.  You can tell this because the Republicans are already talking about repealing it.

The new regulation creates a board that will oversee consumer protections in personal banking.  This is obviously needed, as the explosion of the housing bubble was what set off the financial crisis.  It will be more difficult for banks and rogue lenders to make bad loans to people and get away with it.  It always seemed like the people living under the specter of eviction were always the ones that lost out in the end; now there will be some balance in the system.  I also like the oversight that will be done on executive pay.  There is no reason why bonuses should be handed out for failure, and the Fed will be able to intervene on the more egregious forms of compensation.

Was the passing of this one piece of legislation a victory for President Obama?  Yes, but it becomes a bigger victory when you step back for a minute.  The regulation passes, then British Petroleum finally makes good on its promise to plug the well, even if it is only temporarily.  If the Obama administration starts to get a stretch of good news, perhaps a positive jobs report next, this could go a long way towards digging his administration out of the collective hole that they have been in.


I think that the recently passed financial reform is generally a good idea, although I would hardly call it a success for President Obama and Democrats. There are portions of the bill which I support, such as moving certain derivatives trading into the sphere of regulation and making sure mortgage borrowers are able to repay. It is my personal opinion that things like derivative trading and especially commodity speculating ought to be done away with completely, but if they’re going to allow it at least they might keep an eye on it now. The mortgage lending part is great, too. I don’t care who has to determine whether a person can repay that loan, somebody needs to. The mortgage requirements were ridiculously low, and I’m sorry to say it, but there are some people who just had no business buying a house but they got approved. That can’t happen; people have to live within their means.

Other parts of the bill I think are rather worthless. Take the part about executive compensation: shareholders now get to vote on pay packages, but it is nonbinding and companies can just ignore the vote. I don’t really think the government should be involved in this issue, except to maybe put a stop to some of the more outrageous so-called golden parachute deals. This aspect of the bill just seems very weak to me…why even include it?

Finally, I would not call this bill a success for Obama or Democrats. Sure, they’re all going to tout their financial reform on the campaign trail this fall, but what kind of measurable impact is this bill going to have in the short-term? Hardly any. Most of the bill consists of calling for studies on the various issues so that the regulators can come up with rules sometime in the next few years. This bill is years away from meaningful impact, and I hesitate to call that a success. Furthermore, the finance and banking industry is going to have a huge say in the rules regulators eventually come up with. I’d be willing to bet a lot of money that there are a bunch of favorable rules and outcomes from these studies. Seems like they are just setting up a new iron triangle where the new oversight board gets captured by the financial industry.


The financial reform was touted as a means of preventing future taxpayer bailouts and ultimately preventing a repeat of the financial collapse two years ago. The staggering devastation caused by the collapse lead to the need for a deep and intensive financial reform. Given the enormity of the task I am not surprised the legislation took over a year to reach its latest stage. It appears the Wall Street reform owes part of its success to the momentum gained from the Health Care Reform. The passing of the bill has been hailed a success for Obama and the Democrats, passing with a vote of 60-39. I am an idealist, and maybe a little naïve, but I refuse to look at the financial reform bill through a bipartisan lens. Ultimately, my hope for the reform bill rests with its ability to protect American taxpayers, if the legislation is properly implemented.

Nevertheless, I will admit my knowledge of the 2000+ page financial reform is limited yet I have highlighted a few key components.

The Good & Bad:

The consolidation of consumer protection agencies into a single entity, the Bureau of Consumer Financial Protection housed in the Federal Reserve, appears a smarter move than the current multi agency system. The new office is to be an independent body and will oversee mortgage lending, student loans, and credit cards. I am curious as to how this will play out in reality given the one year timeline for its establishment but on the surface it appears a solid move. Consumer protection appears to have been significantly strengthened and I can definitely get behind that.

A second aspect of particular interest involves correcting the practices of mortgage lenders. The provision of mortgage loans will require a borrower to provide proof of his/her ability to repay the loan. While this would seem like a no brainer, the US was rampant with companies conferring loans on individuals ill equipped to repay the terms of the loan. No longer will mortgage lenders be able to reap astonishing financial benefits at the expense of ill-advised borrowers.

The creation of a student loan ombudsman provides students with a channel to express complaints and address concerns with a private loan agency. The debacle with My Rich Uncle Loans, lets not get me started on that, provides proof of the need for increased oversight of private loan companies.

The new bill lays an alternative to a taxpayer bailout through a “resolution authority” on the lookout for businesses on the verge of collapse. The government will then have authority to liquefy assets to prevent a devastating result. The only problem is that this piece of the legislation resides on the ability of the U.S. government to identify companies on the verge of collapse. This presents a great task for the U.S. government given the lack of transparency exhibited by financial institutions.

The Missing:

As a college student with a few loans, I would have liked the bill to include stricter terms for private loan companies. One suggestion would mandate the disclosure of interest rates prior to signing a loan. Additionally, private loan companies should be required to obtain proof of enrollment and financial eligibility from a school to ensure students are not borrowing more than is necessary. I’m sure this would not go over well with many students who live off of student loans but the damage to their financial security requires a change.

The reform effort will no doubt lead to more questions than answers, and have far reaching consequences for multiple actors. An article in Time sums up my view on the issue, “It’s an unpredictable world, especially when it comes to the financial sector, and if you still believe the wizards on Wall Street or in Washington can see trouble coming, I have some subprime mortgages you may be interested in.”


2 Responses to Reviewing The Financial Reform Bill

  1. […] Obama passed legislation regulating Wall Street – the most substantial effort for corporate accountability arguably since President Roosevelt. A […]

  2. The financial reform law is oriented to protecting consumers, which is good, and cleaning up future spills, which is also good, but what about the very existence of the institutions deemed too big to fail? That is, what about their market/political power? The law leaves them to widen the loopholes.


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