Financial Reform-A primer

[beachFool]

Financial reform: The good, the bad, the ugly
www.waltonsun.com

By the time this column hits the street (and the Internet) perhaps the Senate will have agreed to the financial reform bill hammered out in conference committee with the House of Representatives. The legislation leaves much to be desired and while parts of it are abhorrent, it is a welcome improvement over the status quo.


Politics makes strange bedfellows. Russ Feingold, the progressive Democratic senator from Wisconsin, will join hands with Republicans in opposition. Feingold argues that the bill does not go far enough because ?Wall Street?s fingerprints are all over it.? His quixotic rationale is admirable but the good senator is throwing the baby out with the bathwater.


The worst feature of the bill was Democratic Sen. Tom Harkin?s unbelievable parliamentary procedure that allowed equity-indexed annuities to escape registration as securities. The senator cynically parachuted this provision without any hearings and no debate. For a quick refresher, equity-indexed annuities are linked to broad stock market indexes like the Standard and Poor?s 500, but with surrender charges as high as 15 percent. Since I have been in business, nothing, nada is more abused than equity-indexed annuities. In 2008, the Securities Exchange Commission evaluated these products and deemed registration was appropriate. An insurance company VP assured me that registration would cause these loathsome creatures to vanish. Sen. Harkin inexplicably has short-changed unsuspecting American investors.


Potentially this legislation could spawn a new age in financial advice. Against an outpouring of lobbying (money) by insurance companies and broker-dealers, if passed, the SEC will conduct a six-month review to determine if stockbrokers and insurance agents will have the same fiduciary standards as registered investment advisors ? like me. A fiduciary duty would merely require brokers who offer clients investment advice to disclose all conflicts of interest and sell investment products that are in their clients? best interests. And ? that?s a problem?


The Consumer Financial Protection Agency will be an independent advocate to prevent chicanery surrounding payday loans, mortgages and credit cards. Car dealers dodged the bullet. Speaking for the CFPA and the military, Holly Petreaus, wife of the general , lost the battle against car dealers and their shenanigans. ?Sadly, many of them (soldiers) end up paying far more for them (automobiles) than they should.?


One of the reasons the 2008 credit crisis was so devastating was the unprecedented impact of the credit-default swap market. Going forward, if passed, these products will be traded publicly, will face regulations and that is good. Minority leader John (Bronzer) Boehner scoffed that the proposed legislation was like ?killing an ant with a nuclear weapon.? Obviously, Boehner never had an encounter with a swarm of South Georgia fire ants, an apt metaphor for what happened in 2008. Bronzer wants to do nothing? except provide less regulation. That worked out wonderfully with the Deepwater Horizon.


A valid argument is that ?too big to fail? has not been addressed . It is worth noting that mechanisms are potentially in place that allow the government to take receivership of insolvent banks and non-bank companies. The problem is the piece-meal liquidation as occurred with Lehman Brothers.


This bill has many weaknesses and, sadly, it could have been a triumph for consumers. However, money talks and you-know-what walks. The Center for Responsive Politics reports that the financial services arena spent $600 million opposing President Obama?s proposals.


Which side are you on?


Buz Livingston is a certified financial planner. He operates Livingston Financial Planning Inc. focusing on hourly financial planning and investment management. Contact him directly at 850-267-1068 or at buz@Living? stonFinancial.net? .

BUZ LIVINGSTON
Just Plain Talk

 

[beachFool]

More on Financial Reform?

I feel silly replying to my own thread but I had edit the column down.

Here is another aspects of the proposed legislation.

Comments are certainly welcome.

From www.ajc.com

New mortgage rules: The proposed law tightens regulation of mortgage lenders, requiring lenders to document borrowers? ability to repay loans. It also prohibits pre-payment penalties that trapped some borrowers in subprime loans and bans mortgage lenders from paying bonuses such as ?yield spread premiums? that rewarded mortgage brokers for steering customers to higher-cost loans.

Municipal advisers: Advisers who have sometimes been implicated for steering city governments into costly and risky bond or interest-rate swap deals will now be subject to regulation and enforcement by the federal Securities and Exchange Commission. Swap dealers must have a ?reasonable basis? to believe their municipal government counterparties have independent advisers.
Such advisers often have a conflict of interest, said municipal bond attorney Earle R. Taylor III, with McKenna Long & Aldridge in Atlanta. Such regulation probably also will restrict advisers? political contributions to municipal officials, he said.

Investor rights: It requires securities brokers and municipal advisers to have a ?fiduciary duty? to clients similar to that of investment advisers and managers of trusts and pensions. Such a rule will ?fundamentally change the relationship between the client and the broker,? Taylor said.
Deposit insurance: The FDIC?s deposit insurance is permanently boosted to $250,000 per qualified account.
Debit and credit card purchases: Retailers can offer a discount for cash purchases and set a minimum purchase of up to $10 for debit or credit card purchases. Credit card companies can only charge merchants ?reasonable? fees for processing credit and debit card purchases.
Credit score: Consumers can demand a free look at their credit score if it caused them to be hurt in a financial transaction, such as denied a loan or lease, charged higher fees or interest, or denied a job.

 

[scooterbug44]

I must say, I really like the new "consumer friendly" templates for credit card bills etc.

Counteracts a lot of that nasty fine print!

 

[sarawind]

This is a train wreck of a bill. It takes from us and gives to them. Another government run entity that should remain in the private sector. Another lie from the democrats saying they will take the imperfect and make it perfect. There will be all kinds of fees we've never had before and people are going to lose their bank accounts. Here's an article about the bill from the other side.

Financial Reform Is a Disaster For Banks, Consumers: Bove

CNBC.com Staff Writer

New financial services regulations will be so disastrous that Congress will need to repeal them to undo the damage they will cause, banking analyst Dick Bove said Monday.



Calling the proposal "The Anti-American Finance Act," Bove paints a grim picture of its consequences: Millions of consumers losing their bank accounts; costly and needless bureaucracy; an onerous restriction of money growth; and reduced US competitiveness in the global financial system.

"The Congress has created legislation to solve problems that may not exist and has not created legislation to deal with real problems," Bove, of Rochdale Securities, said in a note to clients. "The consequences will be quite negative. The bill is so bad that it is certain to be reversed in subsequent Congressional sessions."

While the proposals have yet to take final form, the legislation calls for more stringent regulation on risk-taking and capital requirements and establishes consumer protection in ways that Bove calls actually counterproductive.

Congress reacted to public outcry following the collapse of the financial system that started in 2007. A rash of defaults in low-quality loans to homeowners combined with a drop in real estate prices to send the system into freefall and necessitated a public bailout of the sector.

But Bove said lawmakers and policy chiefs have overreacted to the crisis and come up with a set of laws that will ultimately harm the system, the economy and consumers.

"There is no doubt in my mind that in two years, the Congress and regulators will be scrambling to figure out how to undo what they have done with this legislation," he wrote. "Banks need to lend, so money supply can grow. Forcing bank balance sheets to shrink does nothing to aid the United States economy."



Higher capital requirements will shrink the money supply, which in turn will trigger deflation, lower incomes, unemployment and a contracting economy, he said.

"No one who is mandating higher capital in banks is considering this," he said. "In fact, the policymakers are united in their view that the global banking industry needs more capital. It is more likely that the taxpayer is buying a new structure that will be as unworkable as the old one," he wrote.

As for consumers, price controls and increased regulation will force banks to charge fees for routine services, which will be cut as well.

"Millions of people will lose their bank accounts," Bove said. "The cost of banking will go up for everyone as the banks apply monthly maintenance fees to all of their customers. Credit availability will be reduced and credit, which is available, will cost more to everyone."

The only winners in a newly-reformed financial system may be the banks themselves, Bove told CNBC late Monday.

"They?ll get their money," he said. "It may be a lag of six to 12 months, but they?ll get the money back that they lose as a result of this bill."

For investors, this means limiting exposure to banks that are largely consumer-oriented. Better bets, Bove said, are the institutions serving the "commercial customer," like Comerica

 

[BeachSiO2]

Passed in Senate 60-39. Now to President for signature.

 

[beachFool]

Senate sends sweeping bank reform to Obama - MarketWatch

It has warts.

I would have loved to have seen the fiduciary requirement for stockbrokers and insurance agents implemented. There is still hope but I ain't holding my breath.

Also, banks should have been required to keep more capital on hand if they engage in derivatives trading.

Of course, allowing equity indexed annnuities to escape SEC registration and disclosure was horrible.

But in the end, it was an improvement.

Consumer protections are increased.
At last some control over derivatives.

I give it a B maybe a B minus.

Even the fiduciary standard would not make it an A.

Now that I think about it allowing indexed annuities to avoid disclosure/regulation may bump it down to a C+. That is such a terrible action, somebody must have some dirt on Tom Harkin.

Money talks...