It’s been two years since the US financial system began to crash and burn. And it’s been two long years since we’ve known things needed to change. This week, after long debates and lots of head scratching, the slow moving law making machine in Washington finally came up with something. And needless to say, not everyone is happy.
President Obama signed the financial reform act (known as the Dodd-Frank Wall Street Reform and Consumer Protection Act) this week and the sweeping law is touted as the toughest financial reform since the Great Depression.
The act (which is more than 800 pages long) beefs up financial regulation, puts in place tougher consumer protections, and promises to end taxpayer-funded bailouts for businesses.
One of the provision that will most directly affect ordinary people is the creation of a new agency charged with enforcing new consumer protections. An example of what the agency will seek to eliminate is the “confusing fine print” of credit card applications and student loan agreements. It also will give consumers access to free credit reports and crack down on abusive lending practices. The new agency, dubbed the Bureau of Consumer Financial Protection, doesn’t have a leader yet, but it eventually will be able to wield its power over banks, student loan and mortgage lenders, and payday-loan companies. Needless to say banks, lenders, and payday-loan companies are a little nervous.
But President Obama and others are adamant that businesses that play by the rules have nothing to fear. Banks, and others are sweating the higher costs associated with more regulation. Many fear that those higher costs will just be passed on to consumers. Meanwhile, the US Chamber of Commerce, which represents some 3 million businesses, says that the law will only create confusion for businesses and lead to slower creation of jobs.
“This is nothing more than a financial regulatory boondoggle,” said Thomas Donohue, the CEO and president of the US Chamber of Commerce. “It won’t strengthen our capital markets, it won’t jump start the economy, and it won’t create any new jobs except in government.”
However, President Obama insists that the reform will provide a foundation for a stronger and safer economy. Another biggie that the financial reform act promises is to end taxpayer-funded bailouts for businesses. Instead, failed large financial institutions will be slowly wound down.
“Because of this law, the American people will never again be asked to foot the bill for Wall Street’s mistakes,” Mr. Obama said at the bill signing. “There will be no more taxpayer-funded bailouts. Period.”
To watch a nicely animated (and slightly one-sided) video about “What Wall Street Reform Means for You” visit WhiteHouse.gov.
“Many fear that those higher costs will just be passed on to consumers..” Indeed.
In an article I read recently, as one bank executive put it, “If you can’t charge for a soda anymore, you have to charge more for the rest of the meal.”