Next Up, Financial Reform

The next big piece of legislation that Congress will consider this summer deals with reforming our Financial Regulatory system. Similar to the health care bill passed three months ago, this final bill negotiated between the House and the Senate is 2,000 pages of bureaucracy in which the people who wrote it don't even know what's in it. In fact, Senator Chris Dodd (D-CT), the man most responsible for crafting this piece of legislation

had this gem to say about the bill:

“‘No one will know until this is actually in place how it works.’”

If you want to be serious about financial regulatory reform, you've got to be willing to address Fannie Mae and Freddie Mac, two entities who were the driving force behind our economic downturn these past couple of years. Sadly, Democrats went so far as to reject a series of amendments offered by Republicans to put an end to, or even limit, taxpayer-funded bailouts, including those for government sponsored enterprises Fannie Mae and Freddie Mac.

The Republican Study Committee has compiled a very informative summary highlighting the shortcomings of this legislative monstrosity:

* Winners and Losers – Instead of using and enhancing existing legal structures like the bankruptcy process, the bill gives the same regulators, who failed to see the current crisis forming, broad new powers to takeover and break up private companies. The Executive Branch would have every opportunity to abuse these powers to pick winners and losers for political reasons.

* Taxpayer Bailouts – Taxpayers will pay the costs of these takeovers upfront out of the Treasury. This taxpayer bailout is supposed to be paid back later by other financial firms, but the costs could quite conceivably rise to trillions of dollars – making repayment out of the question.

* Consumer Restrictions – The bill creates a new agency with jurisdiction over all sorts of financial products offered by banks and non-banks (i.e. Sears or your local mechanic): credit cards, installment plans, mortgages, other loans, check cashing services, etc. In an effort to “protect” consumers from their own decisions, Democrats will make credit more inaccessible for families and entrepreneurs across the country.

* Higher Consumer Costs – To offset the cost of the bill, Democrats are levying a $19 billion so-called “bank tax.” Of course, banks won’t actually pay these costs in the long-run – their customers will pay in the form of higher rates and fees. So say goodbye to your free checking account.

* Hoarding Capital – While banks need to keep their reserves at responsible levels, the stringent new leverage restrictions – chosen by politicians – will leave even credit-worthy consumers struggling to get a loan.

* Fannie Mae and Freddie Mac – Who? Despite their intimate involvement in the financial meltdown and their perpetual taxpayer bailout ($145 billion and counting), the bill neglects to make much-needed reforms to these failed and insolvent entities.