Financial institutions whipped by Obama!

[Peikko 1,575]

The biggest overhaul of US financial regulation since the Great Depression was outlined by the White House today in a politically delicate effort to stop reckless risk-taking, predatory lending and dangerous debt.In a wide-ranging package intended to prevent a future financial crisis, President Barack Obama set out a list of measures including tougher powers for the Federal Reserve to oversee "too big to fail" banks, registration of hitherto unchecked hedge funds and the creation of a consumer agency to protect the public from incomprehensible small print on loans or mortgages.

Obama cited weak and confused oversight as one of the factors behind the credit crunch: "A regulatory regime basically crafted in the wake of a 20th century economic crisis – the Great Depression – was overwhelmed by the speed, scope and sophistication of a 21st century global economy."

He said the changes were intended to promote innovation and unleash creativity while discouraging recklessness or abuse, adding: "We did not choose how this crisis began but we do have a choice in the legacy this crisis leaves behind."

New authority for the Federal Reserve forms the centrepiece of the plan. The Fed's chairman, Ben Bernanke, has been widely praised for his handling of the financial crisis and the central bank will get responsibility for watching over "systemically significant" institutions where failure would jeopardise the broader financial system.

Other reforms include the introduction of regulation for exotic derivatives such as credit default swaps, blamed for the near-collapse of America's biggest insurer, AIG. New rules will force mortgage companies to hang on to at least 5% of their loans rather than passing on all risk by bundling up products and securitising them on the secondary credit markets.

Yet the shake-up stopped short of a more radical clear-out of the cluttered regulatory universe once envisaged by the White House. There had been calls for the creation of a single financial body akin to Britain's Financial Services Authority to replace Washington's "alphabet soup" of regulators. But the only organisation to disappear in the plan will be the Office of Thrift Supervision, which oversaw troubled firms including AIG, Washington Mutual and Countrywide Financial.

Business leaders called for a simpler regime. David Hirschmann, president of the US Chamber of Commerce's centre for capital markets, said: "We're concerned that overall, the proposal simply adds to the layering of the system without addressing the underlying and fundamental problems."

Vigorous lobbying by financial institutions influenced the Obama administration's plans, as did a desire to avoid an all-out war with Republicans in Congress, who are instinctively suspicious of any extension of government power.

John Boehner, the Republican leader in the House of Representatives, expressed scepticism about the prospect of a new consumer regulator, saying he disapproved of the government "deciding what interest ought to be charged on credit cards". He continued: "I think it's just going to be too big of a foot on an industry that already is having financial problems."

The White House indicated that it favoured closer international co-operation on financial oversight, a topic which has been energetically promoted by Gordon Brown.

Obama said "gaps between nations" were equally unacceptable as the gaps between regulators within the US. Hedge funds, which have avoided US control by basing themselves in offshore regimes, will have to start reporting to the Securities and Exchange Commission.

Some questioned whether a reshuffling of responsibilities would prevent a repetition of the financial crisis. Peter Morici, business professor at the University of Maryland, said the credit crunch should not be blamed on a lack of regulators but instead on a lack of effective foresight within regulatory agencies.

"The morass being proposed is an example of blind faith in government regulation, much as those who want few strings have blind faith in market discipline," said Morici. "The trick is to get regulation right, not mound it like whipped cream on a banana split."

Others asked why so many regulatory chiefs were still in their jobs. Dean Baker, co-director of the Centre for Economic and Policy Research, said: "The regulators failed and I would say that if we want to prevent the next bubble, we have to hold people accountable for this one. Fire them."

Yay for the nanny state

Link

This is the best quote:

"The morass being proposed is an example of blind faith in government regulation, much as those who want few strings have blind faith in market discipline," said Morici. "The trick is to get regulation right, not mound it like whipped cream on a banana split."

Edited June 17, 2009 by Madame Cleo

[Peikko 1,575]

So many things you American's do not seem to care about

[Ban Hammer 12,926]

So many things you American's do not seem to care about

i'm glad he's going that route.

[spookyturtle 9,465]

So many things you American's do not seem to care about

i'm glad he's going that route.

Huh?

[scandal 951]

This is the best quote:

"The morass being proposed is an example of blind faith in government regulation, much as those who want few strings have blind faith in market discipline," said Morici. "The trick is to get regulation right, not mound it like whipped cream on a banana split."

Agreed . Positively scrumptious evocation

Other reforms include the introduction of regulation for exotic derivatives such as credit default swaps, blamed for the near-collapse of America's biggest insurer, AIG. New rules will force mortgage companies to hang on to at least 5% of their loans rather than passing on all risk by bundling up products and securitising them on the secondary credit markets.

This is the area that I've been paying most attention to. I think the OTC derivative markets in general, and in particular CDS (credit default swaps) and CDOs (Collateralized debt obligations, which includes the securitized mortgages) absolutely need both regulation as well as exchange-based clearing and settlement.

I think that this part of the regulation package will prove to be as significant for our era, as the SEC and Glass-Steagall Act were for stocks and banking respectively back in the 1930s. Decades from now people will still be talking about the significance and impact of moving the OTC derivatives from its wild frontiers and into the 'civilized' settlements of regulated exchanges.

The other major change I'm still waiting to see is change in the impact of the bond rating agencies Since the 1930s we've had 3 rating agencies- S&P, Moodys, Fitch providing letter scores to all debt instruments which are required BY LAW to be used by investment-grade funds (state pension funds, teachers funds, etc.) to select suitable investments. While that seemed like a good idea at the time, what no one really noticed is what happens when a AA or AAA bond is suddenly downgraded below investment grade, forcing those funds to have to sell. Suddenly the ratings have far more power on the downside and exposed risks no one was really thinking about. This area too needs a lot of attention, and I expect that to happen over the coming weeks and months.

[Ban Hammer 12,926]

So many things you American's do not seem to care about

i'm glad he's going that route.

Huh?

what, i can't be happy about something obama's doing?

[mRx 16]

Well, it seems the Obama Administration remains faithfully true to Keynesian doctrine, completely absolving themselves from the problems they created.

Blaming the thermometer for the weather. More of the same.

[spookyturtle 9,465]

So many things you American's do not seem to care about

i'm glad he's going that route.

Huh?

what, i can't be happy about something obama's doing?

No.

[Immigrant2009 0]

I think it's too early to say, lets wait and see.

[NickD 202]

We also had anti-trust laws in this country with restrictions on foreign ownership of our major corporations and in particular, on our communications industry where any foreign ownership was strictly forbidden. Our previous administrations sold us out, not the competition between corporations that we use to enjoy and with some corporations owning an entire segment.

We were set up, only with banking, but with other factors so we can get screwed to death. We lost our country our forefathers fought so hard to protect.

[Ban Hammer 12,926]

So many things you American's do not seem to care about

i'm glad he's going that route.

Huh?

what, i can't be happy about something obama's doing?

No.

well hmpfff.

[mawilson 2,133]

Well, it seems the Obama Administration remains faithfully true to Keynesian doctrine, completely absolving themselves from the problems they created.

The problems were created long before the Obama Administration took office.

[scandal 951]

Well, it seems the Obama Administration remains faithfully true to Keynesian doctrine, completely absolving themselves from the problems they created.

The problems were created long before the Obama Administration took office.

No. Everything was peachy keen with the universe until Jan 20 2009.

Then it all got fvcked up.

[mawilson 2,133]

Seriously though, shouldn't they try to enforce the laws and regulations we already have on the books

before introducing new ones?

It was the Fed's job to oversee banks and prevent excessive risk-taking all along.

[Kevin and 10]

Weren't portions of the Glass Steagall Act repealed with the Gramm-Leach-Bliley Act, thus allowing the Banks to get into Wall Street to speculate?