http://www.msnbc.msn.com/id/35772179/ns/business-answer_desk Financial reform tips toward bankers So far in congressional debate, it’s lenders 1, consumers 0 WASHINGTON - As Congress this week inches toward a new set of rules to avert another global financial collapse, it is focused on two conflicting goals: reforming the banking system to protect consumers while still giving lenders the freedom to take risks. So far the score looks like: Bankers 1, Consumers 0. More than a year after a wave of risky mortgage bets brought Wall Street to its knees, banks and other financial institutions are still playing by the same rules that got them into the mess. Reforming the sprawling financial regulatory system — a patchwork of federal agencies and state commissions — is a tall task under the best of circumstances. It’s even tougher with Congress already polarized over the health care debate, an economy on a wobbly path to recovery, banks facing a wave of foreclosures and households licking their wounds from $7 trillion in lost home equity and near double-digit unemployment. Proponents of comprehensive regulatory reform hope for sweeping measures to protect consumers from predatory lending, rein in high-stakes Wall Street trading in arcane derivatives, boost capital requirements for banks that want to bet big with depositors' money and spread some regulatory sunshine on the dark pools of the “shadow banking system” that caught regulators flat-footed when the market spiraled into the abyss in the fall of 2008. “We cannot afford to let the status quo continue,” Sheila Bair, head of the Federal Deposit Insurance Corp., told a meeting of business economists in Washington. The final law is still in doubt. Sen. Christopher Dodd, D-Conn., has pressed for reform during a year of intensely partisan bickering. On Friday, Dodd — a lame duck who announced his retirement after disclosures that he accepted favorable terms from subprime lender Countrywide Financial — claimed that the Senate Banking Committee he chairs was “days away” from wrapping up a bill. Any resolution faces a major political hurdle that has drawn the most public attention: a proposal to create a new agency to protect consumers from predatory lending and other abusive financial practices. While the "systemic risks" to the financial system may represent a bigger threat in dollar terms, voters might be more focused on the consumer impact. Dodd said that’s not hard to understand. “The subject matter of derivatives and swaps and the issue of systemic risk and too-big-to- fail seem somewhat removed from the general public,” he told CNBC after the Senate compromise was reached. “Watching my credit card go to 32 percent rates and huge fees, watching prepayment penalties on mortgages, these are things that millions of people understand.” The details of the new consumer protection agency have become a major sticking point. After insisting for months that any new consumer protection body had to be an independent, “standalone” agency, Dodd recently championed a compromise that would embed the agency within the Federal Reserve. (That proposal has yet to win committee approval.) Critics of the idea of turning over consumer protection to the Fed argue that the central bank badly stumbled in applying its existing consumer protection laws to clamp down on bad mortgage lending during the housing bubble. Simultaneously protecting bankers and consumers, they argue, is an inherent conflict of interest. But the idea of a new, standalone agency has met fierce resistance from lenders, who have so far succeeded in gluing the new regulator to the agency created 100 years ago to maintain the soundness of the banking system — the Fed. Still, some consumer advocacy groups argue that where the agency is housed matters less than the powers it brings to the task. They argue that the critical elements required to protect consumers from heavy-handed, profit-minded lenders include an administrator appointed by the White House; a separate operating budget, funded by bank fees and not subject to congressional approval or rejection; broad authority to write rules governing a variety of financial products from insurance to credit cards; and tough, independent enforcement powers. The banking industry initially lobbied hard to make sure that any new consumer protections were housed within existing bank regulators, such as the Office of the Controller of the Currency or the FDIC. Analysts who have followed the turf war say the latest proposal gives bankers most of what they wanted. “This is a bill the industry will love,” said Greg Valliere, chief policy strategist for Soleil Securities. There is still strong support among consumer advocates for a tough, independent financial regulator tasked with the sole mission of protecting consumers. The latest compromise proposal drew a chilly response from supporters of a standalone agency. "It's got to be a joke," said Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, when assessing the Senate proposal to add consumer protection to the Fed’s mandate. The White House, which has also pushed for a standalone consumer protection agency, said last week it is more concerned with ensuring that the new body has the tools it needs to act independently. The administration's backpedaling may have to do with a new calculation on how best to exert influence over the new consumer protection regime. That’s because the Obama administration could secure more influence over a Fed-based consumer protection agency now that the White House has a third vacancy to fill on the seven-member Federal Reserve Board. Last week Fed Vice Chairman Donald Kohn announced he was stepping down, adding to two existing open seats. Other open appointments offer the White House additional opportunities to shift the course of financial regulatory policy. In August, John Dugan will end his term as comptroller of the currency, the chief regulator for most of the nation's largest banks. When complaints of predatory mortgage lending began rising among state regulators in the mid-2000s, the OCC steadfastly opposed their efforts to police national banks. The OCC's policy, known as “pre-emption,” asserted that federal supervision of national banks trumped state laws. State regulators have pressed that issue as far as the Supreme Court, arguing that they should be free to act without federal restraints because they often see consumer lending problems sooner than federal authorities do. But bankers have successfully kept state regulators at bay, arguing that having to comply with dozens of different sets of rules would increase costs to consumers. Without stronger efforts by legislators and regulators who have consumers' interests at heart, the match could go to the banks.
More regulations would only lead to increased costs for consumers if the banks keep the same profit margins. They shouldn't. Banks SHOULD be less profitable. Banks shouldn't remain the casinos that they've turned into. And at any rate, perhaps increased costs for consumers would lead to more prudential risk taking by Banks when deciding who to give loans to.
I'm curious are you suggesting that the regulation should be on how much profit that banks should make rather than on regulating bank practices?
I posted a Bill Moyers interview about it. They introduce very subtle exceptions that semantically changes the scope to fit the companies the reform laws tries to contain in spirit. At this point, it's a matter of public will and whether we're going to continue to shrug responsibility onto politicians whom we neither trust nor respect. That interview summarizes a series of Mother Jones articles about financial reform.
any good regulations are necessarily going to make them less profitable over the daily course of business. Right now they can experience super high highers and super low lows. When they experience super low lows we bail them out, so a moral hazard problem exists. So by eliminating how high they can go (the amount of risk they are allowed to take, and thus achieve higher profits) we can eliminate their ability to go lower (when that risk fails and they take our money with them) We want to regulate their ability to do things.
The banks are in essence saying, that in order to remain are profitable as they were before (too profitable for everyone's good, caused by excessive risk taking) they'd need to make up that amount from somewhere (the consumer). well no crap. I'm suggesting the banking industry as a rule of thumb shouldn't be as lucrative as it is now. Banking is different from other forms of business and thus needs tighter regulations. try as it might, GE can't bankrupt the country (absent a bailout) when its risks don't pay off because the product its selling is not "money"
I thought it was interesting (in a terrifying sense) to read that it could've been any AAA rated company (GE...Berkshire) that could've assumed AIG's role in the financial meltdown.
Rather than regurgitating the propaganda you've heard over the years, WHEN has deregulation saved you money? This is a serious question. Airlines: Prices are at an all time high. Electricity: Prices are at an all time high. Cable: all time high Telephone: all time high (only reason phone bills haven't gone up more is because the cell phone industry took off ...which is also expensive for consumers cause it's the came companies.) Financial Sector: Ran market into ground which cost tax payers millions and we get nickle/dimed for ATM fees, late fees, etc etc. Oil/Gas trading never regulated: Resulted in Enron. (Thanks Chaney!) I'm having a hard time looking at history and understanding how deregulation helps consumers. Somebody help me to understand the logic. What I see is that deregulated industries either reep unbeleivable profits at the expense of consumers and/or they completely fall apart into choas and barely keeping their head above water.
There are a lot of other factors going on in those examples besides just deregulation. adding to the costs of business (more regulations) is obviously going to increase the cost of doing business. but you're right in that deregulation which results in a monopoly or near monopoly is obviously in no one's best interests.
I'm just looking at the scoreboard. There are 1001 excuses that each industry/company can use. I could care less. I'm just looking that $$$ coming out of my pocket. In EVERY case that I can think of, deregulated industries have resulted in higher costs for consumers ...not less costs. More regulations does NOT = higher cost. Less regulation (in reality) = companies employ risky behavior to maximize profit which creates an artificial bubble that eventually collapses and consumers are left picking up the peices. Please, somebody give me an example where deregulation clearly benefited anybody other than extremely rich people?
You knew what would happen, exactly? There's not a single thing of substance in this article of what the banks "won" on. The only thing discussed is that the Admin, Senate, and House haven't settled on where to house the consumer protection people, with people unsure if it even matters where exactly it's located. Is that the big win for the banks here? We don't remotely have a final (or even initial) bill on financial reform at this point. Picking winners and losers is silly. People on the left, no matter what's in the bill, are going to complain that it's not enough. People on the right will complain that it's too much. The reality is that the final result always was going to - and should - be something in between. The goal is not to destroy the banks - it's to align the bank's incentives with the rest of the country. That is, the banks should primarily profit as a result of financing economic growth, rather than by betting on (and encouraging) failures and stuff like that.
I knew that planning on bailing out the banks before hammering home the regulation was bound to end up with the taxpayer getting screwed. This article is just reaffirming that prognostication as justified; a little reminder of where the true loyalties of our so-called representatives lie.
I know there hasn't been much regulation legislation, but this whole notion of banks taking the same risks I think is silly. as a matter of fact if banks were taking the same risks, then consumer would be benifiting with getting cheap mortgages they don't deserve. when the legislation comes down, consumers won't benefit by getting loans they can't afford, which was the problem in the first place.
I just skimmed the article, but IIRC about a week ago, the number one thing that the banks were opposed to was the proposed Consumer Financial Protection Agency , and getting it eliminated (or neutered by folding it into the Fed) under the compromise was widely viewed as a big win for them in the business press.
My personal belief is that without regulation they will be offering those mortgages again within the next 10 or so years. We are still in the same downturn that sparked the problem. The bankers are capricious and they chase profits like a heroin junkie chasing their next fix. They aren't morons. To continue the addict metaphor (which I'm not sure is really a metaphor - there seem to be alot of similarities with the thrills that gamblers or sex addicts get from "winning") they've just bottomed out and I'm sure they probably even believe that they've learned their lesson. But like they say, the first step is admitting you have a problem, and these guys seem to think that next time they'll be able to control themselves and have just one or two "social drinks" at the next party.
The article and congress, and the president, and everyone else has been pitting consumers against banks, but consumers benefited. You can argue that the implementing new legislation has taken to long, but to pit consumers against banks is just stirring people up.
