American Protection Act passes

[dabrockster]

I do not see this as good for the economy because it continues to cloud the uncertainty we already have if not more...

http://blogs.abcnews.com/george/2010...repeal-it.html

[All-American]

Posner and Becker have some good comments on their blog.

http://uchicagolaw.typepad.com/beckerposner/

For example:

I agree with Becker’s criticisms of the new law (not quite a law yet—it has not been passed by the Senate, but I am guessing it will be, because an ignorant public demands action). It’s a monstrosity, and a gratuitous one, as there is no urgency about legislating financial regulatory reform. The financial regulatory agencies have ample, indeed essentially plenary, authority over the financial industry; and because they were asleep at the switch when disaster struck, they are now hyper-alert to prevent a repetition of it. Indeed, bank examiners have become so fearful of condoning risky banking practices that they are making it difficult for banks to lend to small businesses and consumers and thus are retarding the economic recovery. . . . But for government officials to say "we blew it—we had the powers we needed to prevent the crash but failed to use them because we were complacent and inattentive" would not be a politically satisfactory response to the economic debacle. Just as politics requires that the President be seen to “do something” about the oil leak in the Gulf of Mexico, though there is nothing he can do, so politics requires that Congress “do something” to prevent a repetition of the economic disaster, though there is nothing it needs to do.

[cowboy]

The more I learn, the more I worry. As an active trader in futures markets, this bill scares the hell out of me. WSJ had a good article Wednesday on the possible ramifications for farmers.

[Uncle Ted]

Government officials would never own up to saying they "blew it"...


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They will only deny what they said...

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Edit: Also when the Bush Administration pushed for more regulation of Fannie Mae and Freddie Mac...

''These two entities -- Fannie Mae and Freddie Mac -- are not facing any kind of financial crisis,'' said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ''The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.''

[statman]

Posner and Becker have some good comments on their blog.

http://uchicagolaw.typepad.com/beckerposner/

For example:

Favorited.

All their points are spot-on...

[RobinFinderson]

Posner and Becker have some good comments on their blog.

http://uchicagolaw.typepad.com/beckerposner/

For example:

I find a bit of comfort in Becker and Posner's criticisms of the legislation. Their complaints boil down to a few ideas:

1. The consumer protection bureau is unnecessary and fails to address the causes of the financial meltdown. Specifically, Becker writes:

Yet it is not apparent that many consumers were victimized during the financial boom years, or that consumer behavior had anything of importance to do with the crisis. For example, consumers who took out subprime mortgages that required almost no down payments and had low interest rates were not victimized since these conditions enabled them to cheaply own houses, at least for a while. The “victims” were the banks, and especially Fannie Mae and Freddie Mac, that were foolishly willing to hold such risky mortgages.

Living in South Central, Faith and I know many people with little/no financial background and little education who were convinced by subprime lenders that they could afford a house (even though they often didn't even have jobs) because the value of the house would continue to rise forever. May of these loan products would not allow early payment, and when the teaser rates eventually turned into very high rates, tons of people lost their homes. They didn't understand what they were getting into, and they were convinced by smart-sounding fast-talkers. If these people weren't victims, than the word 'victim' has no meaning at all. Becker is willing to call the banks 'victims.' Why? How are the banks victims, when they had more ability to access risk than anyone, but the poor buyers in South Central are not victims, yet they had no means of understanding the risk? Becker is really out of touch here.

The bill gives the Fed authority to limit interchange or “swipe” fees that merchants pay for each debit-card transaction, although these fees had not the slightest connection to the financial crisis. Such price controls are in general undesirable, and hardly seem to require the attention of the Federal Reserve.

People hate swipe fees. If the people get together and elect people who are willing to pass a law that curbs swipe fees, C'est la vie. If a company is going to do something that is incredibly unpopular, legislating the unpopular behavior out of existence is one way that the people influence the market. This isn't new. Whether inclusion of this regulation is a good idea or not is somewhat beside the point. If it serves no other purpose, it is punitive. Banks now know that if they are collectively reckless enough to bring about the economic troubles we have now witnessed, their recklessness will be taken as an opportunity to take back some ground in what will hopefully benefit consumers. Related or not to the crisis, I think it is good to include some punitive measures. Besides, if the financial viability of a bank depends on the ability to charge excessive 'swipe fees,' then maybe such a bank ought to fail.

The bill also gives the SEC authority to empower stockholders to run their own candidates for corporate boards of directors. Corporate boards often receive some blame for the crisis-mainly unjustified in my opinion- but stockholder election of some members will not improve corporate governance, and will probably make that worse.

Again, the argument here isn't that this will ruin the banks, but rather that it is unjustified. Whatever -- empowering stockholders is a move toward democratic governance of these institutions. It takes power away from the fat cats. If a bank can exist without nepotistic corporate structure, then let them fail. Even if this 'unjustified' action is merely punitive, it serves as a decent warning to financial institutions to be less reckless.

Becker goes on to argue that regulatory agencies already had the power to avert this crisis, but they didn't use it, and thus the new regulatory powers are unnecessary because they don't allow the regulators to do anything they couldn't have done under the old system. He even mentions 'captive' regulators. Well cool. If on the one hand, this is new regulation that will go unused, then the banks won't suffer from the extra regulation. On the other hand, maybe these regulatory tools will have teeth, and people will use them to avert future problems. If the former, then the punitive regulations are that much more important, since they encourage better self-regulation. If the latter, then cool, maybe we will actually have regulatory tools that work.

Becker also complains about the complexity of the increased asset/risk ratio requirements. Again, C'est la vie, life sucks. That complexity is the ugly result of the reality of our legislative process. It isn't ideal, but Becker isn't saying that these requirements are ruinous. They are just inconveniently complex. The banks will grow a pair and figure it out.

Then Becker/Posner complain that Freddie and Fannie weren't slapped harder by the legislation. All of a sudden they want MORE regulation for these select institutions. Sour grapes.

Mostly they just complain that the legislation is unnecessary. They do not argue that it will be ruinous.

[Hallelujah]

I do not see this as good for the economy because it continues to cloud the uncertainty we already have if not more...

http://blogs.abcnews.com/george/2010...repeal-it.html

And NOTHING that addresses Fannie Mae and Freddie Mac. Butt then again Barney Frank is involved. Does he have a man friend at one of the two organizations. I can't believe that Frank and Dodd wouldn't address Fannie and Freddie in this legislation.

[katoa]

1. Federal Reserve Act (1913) - 31 pages.
2. Glass-Steagall Act (1933) – 37 pages.
3. Interstate Banking Efficiency Act (1994) – 61 pages.
4. Gramm-Leach-Bliley Act (1999) – 145 pages.
5. Sarbanes-Oxley Act (2002) – 66 pages
6. Wall Street Reform and Consumer Protection Act (2010) 2,319 unread pages

"One of the most important differences between the political process and the market process is that they provide totally different feedback mechanisms. Had the politicians largely responsible for the housing crisis done their dirty deeds while working for private firms, they would have been fired, likely prosecuted, and memorialized in cautionary tales in business ethics casebooks from here until eternity. Instead, they’re busy crafting 2,319 page pieces of legislation aimed at increasing their power over the marketplace."



(Photo Credit: Nate Beeler at The Washington Examiner)

[katoa]

Racial, Gender Quotas in the Financial Bill

http://www.realclearmarkets.com/arti...tor_98562.html


Another very good criticism:

"The bill will hit private equity firms hard. They changed the accredited investor standard to exclude, rather than include, the value of personal residences in computation of net worth, and require the SEC to adjust the net worth minimum "as the Commission may deem appropriate". When somebody with a 2 million dollar free and clear house can't invest $50k in a business because they no longer qualify as accredited, a huge portion of potential investors will now be locked out. As somebody looking to raise money, this is a punch in the gut. This is obviously a sop to Wall Street. If these people can't invest in private equity anymore, where are they going to to? Wall Street."


However, most damning is that it gives more power to the very people/agencies (especially the Fed) that created the problems in the first place.