FIN REG: AKA Financial Regulation
Fin Reg-It is not new rules to protect shark’s fins from those who love shark fin soup, although my friends in Costa Rica say they do need such regulation. Nor is it rules to keep the Miami Dolphins out of the playoffs!
No, Fin Reg, is the new buzzword used by the business channel talking heads and Washington DC insiders to discuss the impending new Financial Regulations, being sponsored by Senator Dodd-D Conn.. It is being called the greatest rewrite of financial regulations since the Great Depression!
The reasons for the new financial regulations (for those of you hiding under a rock) are the last two years of financial turmoil. Not just a few people think that our Congresspeople in Washington had a lot to do to cause the meltdown. Encouraging Freddie Mac and Fannnie Mae to loan money to the poor amongst us-sounds great on the evening news interview…
But poor people have a hard time paying back loans-especially during a recession.
There is no shortage of people to be blamed for the financial morass of the last few years-I was even guilty of trying to corner the market on Gulf-Coast property-anyone want to buy a lot-financing available????
But excuse me if I am cynical about the ability of the Congress to write new rules/regulations that will save the children and the elderly from the piranha on Wall Street!
What really makes people change behavior? Dealing with the consequences of their choices. Having a bailout for everyone sounds great, but what happens next time. “I got by without too much damage in 2008, let me invest in this new apartment complex with borrowed m0ney-the payments aren’t too bad!!” “If I can’t make the payments, somebody will show up to help me out.”
What are a few of the important parts of the new “Fin Regs?”
- A new consumer protection agency-we already have dozens of different consumer protection agency-and the only thing they protect is their own turf.
- Derivative regulations: Derivatives are a complicated financial instrument used legitimately by a few, such as farmers, to hedge against sudden changes in commodity (ie corn, or soybeans) prices. The big investment firms have used super-computers to come up with “derivative investments” that are nothing short of a spin of the roulette wheel. Great reward, but when they don’t work-they can take down multi-billion dollar institutions-see Lehman Brothers and Bear Stearn’s obituary. The problem with regulating derivatives, is the folks inventing them are smarter and more ruthless than the regulators. Warren Buffet is known to say-he doesn’t even understand many of the “derivatives” on the market.
- Too Big to Fail-the regulations designates a class of too big to fail bank and investment firms. And it outlines those who would be eligible for bail outs in the future-I thought the whole idea was to eliminate too big to fail-not to codify a category, and give them special protection. How does that eliminate risk????
The Heritage Foundation, a conservative think tank, has this article describing all the things wrong with the bill.
The Huffington Post, a generally left leaning (progressive, I believe is the new term) has this take on the bill-and as expected is generally supportive.
I can’t help the thought that the supposed “fixes” in the bill, will cause all kinds of unintended consequences for us, the “little people”. But what’s new with that???
On the other hand, all those unintended consequences will give us financial bloggers a lot to write about over the next couple of years.
Do you have any thoughts on the current bill? Do you have confidence our representatives in Washington are going to make the financial system a safer place for our hard earned investment money, our retirement accounts, and savings?
Let me know. I am trying to decide if I will like “Fin Reg Soup”…..And do I want it cold or hot?
Tags: does the financial regulation bill help, Fin Reg, fin reg bill, financial regulations
Hey,
I wish more people, the congress people in particular, would realize that it’s their regulations and medlings that have caused a large portion of the mess.
However, I also like the bit you said about consequences. If we are responsible for our actions as individuals, and have the opportunity to succeed… or fail because of them, then so should big business. I think the failure of a greedy business with poor money management skills and aggressive debt to income ratios of any kind deserves their consequences.
Cheers,
Guy
Hear Hear!!