Four troubling things you didn’t know about financial reform

By Reuters Staff
July 15, 2010

traderworriedThe following is by John Wasik, a columnist for Reuters.com and author of “The Audacity of Help: Obama’s Economic Plan and the Remaking of America.” The opinions expressed are his own.

On its surface, the financial reform package looks tough on banks and Wall Street. Yet for individuals, the protections are much less pronounced and highly diluted.

Granted, the massive, 2,300-page-plus Dodd-Frank bill may slow down some bank failures. It may even impede avaricious trading desks from tanking the global financial system. For average investors, though, it’s a pyrrhic victory at best. Here are four major problems:

Brokers May Not Be Reined In. The bill ordered the Securities and Exchange Commission to study requiring brokers to act in your best interest under “fiduciary” rules. The catch is, the SEC can complete its study in six months, but may not be required to impose the tougher, pro-investor standards. Industry lobbying will be fierce to get the agency to sit on, water down or squelch any decision, which is what the agency often does after any big study.
Watch for More Credit Regulation. Mortgage brokers, student lenders and other consumer-credit firms will be subject to more oversight. There’s a new cop on the beat for consumers, although it will take months for the new Consumer Financial Protection Bureau — housed within the bank-friendly Federal Reserve — to get up and running. Look for financial services firms to pass on new fees to cover their regulatory burdens.
It may be harder to get a mortgage. As if it wasn’t tough getting one today, Congress tightened the requirements for the “liar” loans of the bubble years, although no bank has been issuing those for some time. “No-doc” loans will not likely be making a comeback, replaced by stiffer requirements for income verification, appraisals and brokers.
Insurers, auto dealers get a pass. Insurance agents were not even covered. Auto dealers got a “carve-out” or exemption from regulation. That means you’ll still have to be vigilant when signing up for vehicle financing — watch out for the fine print on “extras” and extended warranties.

Still, more regulation isn’t necessarily a bad thing. Credit abuses were rampant and the industry sorely needed more oversight.

How would you gauge success in the new regulatory environment? I’d love to see most credit and mortgage contracts translated into language most folks can understand. It would be a major victory if more borrowers simply understood what they are buying and could avoid trouble.

Yet some of the most pernicious issues in investor protection and megabank finance were not addressed by financial reform. The shadowy $615 trillion derivatives market wasn’t completely regulated. The banks that were too big to fail in 2008 have actually gotten bigger and the mechanism to monitor or dismember them is clunky.

For individual investors, there is no tough supervision of brokers and insurance agents selling income investments like equity-indexed insurance products, which are often oversold to older, more vulnerable investors. Insurers will still be largely policed by weak state insurance regulators.

Aggrieved securities investors are still forced to deal with the industry’s self-regulatory agency FINRA. Those who sign a brokerage agreement give up their right to sue and are mostly funneled through the industry’s captive arbitration system — yet another subject for an SEC “study.” The SEC wasn’t even allowed to finance itself and is still hostage to the Congressional appropriations process. That means it’s still on a short leash.

Another bete noire continues to be on the loose: The twin-headed monster Fannie Mae and Freddie Mac, the quasi-public mortgage entities that were seized by the government during the height of the 2008 meltdown. Estimates on fixing the two entities run up to $1 trillion. Congress did nothing in this legislation to tame this beast, which resides in a financial abyss.

Since most banks are reluctant to issue mortgages while the housing/labor market and economy are still slumping, the majority of the home-loan market was effectively nationalized two years ago. Eventually the White House must decide what to do with Fannie and Freddie since they account for about two-thirds of all new mortgages. Don’t bet on anything happening before Election Day, if it happens at all this year.

In the interim, read all of your major credit, insurance and brokerage contracts with an electron microscope to divine new hidden fees and traps. Better yet, hire a fee-only certified financial planner to read them. The only sure thing is that you’ll be seeing a lot more letters coming from your bank, broker or insurer citing higher expenses that are often veiled in “better ways of protecting yourself.” It won’t all be junk mail, so open the envelopes and protect yourself now.

Click here to see what Assistant Treasury secretary Mike Barr told Felix Salmon about the passing of the financial reform bill.

http://www.amazon.com/Audacity-Help-Economic-Remaking-Bloomberg/dp/1576603563
9 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

“The real truth of the matter is, as you and I know, that a financial element in the large centers has owned the government of the U.S. since the days of Andrew Jackson.”

- U.S. President Franklin D. Roosevelt in a letter written Nov. 21, 1933 to Colonel E. Mandell House

Posted by GRJensen | Report as abusive

Again,
The Fed doesn’t have yours or mine interests at heart, but rather their banking buddies’! You cannot expect for a cartel whose governors (except Bernanke) are selected from the industry without any oversight from Congress or any other elected official to care!
The FinReg is just another win for the lobbying groups with some window dressing to keep the masses thinking they go something out of this deal

Posted by pesheff | Report as abusive

This so-called financial reform Bill will give to the huge monopoly banks, through their own created banking club, i.e., the Federal Reserve, control over their remaining banking competition, such as, credit unions, finance companies, Fidelity, Vanguard, Charles Schwab, American Century, etc… which act like banks with checking accounts, savings, mutual funds, lending and brokerage services.

In three years, using their Federal Reserve, the monopoly banks of the “old” financial order have bankrupt, bought, or gained control of much of their banking competition, which they label by their media as “the shadow banking system”.

Their past banking competition included the likes of Lehman Brothers, Country Wide Financial, Bear Stearns, AIG, Merrill Lynch, Washington Mutual, CIT, etc…

These monopoly banks will be the only king in the United States who has a money creating machine and who decides interest rates. Their competition will be controlled, bought or bankrupt.

It should be no surprise that the largest monopoly banks left in power are Citibank, J.P. Morgan Chase, Wells Fargo, Bank of America, Morgan Stanley and Goldman Sachs.

All, except Bank of America, are part of the “old” financial order that mushroomed into power about 150 years ago during and after Lincoln’s Tax War. Remember, Lincoln declared in his First Inaugural Speech (paragraphs 4, 21 and 32) that he started his war solely to collect import taxes under the Morrill Tariff Act of 1861.

With the passage of his National Bank Act of 1863, Abraham Lincoln, a puppet of Northern banks and industries, re-established Alexander Hamilton’s centralist banking system in the United States, which set the foundation for the present day Federal Reserve System.

Under his First Legal Tender Act of 1862, Lincoln printed worthless paper money displaying images of Alexander Hamilton and Lincoln’s Treasury Secretary Salmon P. Chase (as in Chase Bank), which ultimately destroyed State banking.

Right now these monopoly banks are borrowing from the Federal Reserve at 1% and lending to consumers, via credit cards, at up to 30%. Price gouging is always the result of establishing monopolies.

Reminds one of J.P. Morgan’s government contract with Abraham Lincoln, where Morgan bought Federal rifles from the U.S. government for $3.50 and then sold them back to the U.S. Army for $22. J.P. Morgan’s rifles were notorious for blowing off the thumbs of the soldiers.

Posted by jebahoula | Report as abusive

What happened with congressman Ron Paul’s request to audit the FED? Why is that not getting any publicity?

Posted by pesheff | Report as abusive

The above is an educated post. Thanks.

To add to this: These six banks hold 9.4 trillion assets. Quote Business Week: “The overhaul (bill) allows banks to remain in the profitable derivatives business and won’t shrink those deemed “too big to fail,” leaving largely intact a U.S. financial industry dominated by (them.)”

“Bank holding companies such as JPMorgan Chase and Citigroup will be required to move less than 10 percent of the derivatives in their deposit-taking banks to a broker-dealer division over the next two years.”

Just as in ObamaCare that was ‘suppose’ to fix cost but didn’t, this financial reform does nothing to halt derivatives from sinking America and the World again.

I am disappointed greatly as are others like Paul Krugman, a Nobel winner in economics, who predicts deflation and a double-dip. He is absolutely correct about where everyone is headed.

Today, consumer prices were reported lower. It is coming…the depression. Gold won’t even save you.

Shame on our Congress. Shame on our Administration.
They had a chance to be decent, but once again, they thought only of themselves. And especially the delegation from MA, more specifically, Senator Scott Brown. You ought to be hung in the town square for what you did to YOUR country. You thought only of yourself. You are NO STATESMAN!

Posted by limapie | Report as abusive

Try using Credit Unions exclusively. And it would benefit the American people to make Credit Union “conversions” (i.e. corporate buyouts) ILLEGAL.

We need safe, reliable, insulated banking where WOLVES in SHEEP’S CLOTHING are not legal! We did not get that. We got almost nothing.

Posted by txgadfly | Report as abusive

Focus on what matters now, fix things in the right order…

Everyone must call on Obama to act on his words: stop the wars and act on his foreign policy promises.

Bring our troops back before November election. We can’t sell democracy by means of wars. We need only to pinpoint our offensive to 9/11 culprits.

It is immoral to waste our taxes and troops to do foreign governments’ tasks. Stop it immediately; we’ll get new allies as fast as we stop the wars (with deep pockets with huge demand for “American made” goods, industry and services). High paying jobs will return immediately and real estate issues will vanish.

Obama knows what he must do, he needs to be reminded that we are still waiting for him to act, and November is the deadline. Obama’s cabinet and advisors must calm down and act rationally (we are still a super power and can always get into wars, we must use our brain now).

Posted by my_opinion | Report as abusive

With respect to consumer protections offered under the financial “reform” bill of 2010, let’s keep something very clearly in mind: neither the banks nor the government uses condoms.

Got it? Good. Now, bend over.

Posted by JackMack | Report as abusive

[...] Four troubling things you didn’t know about financial reform On its surface, the financial reform package looks tough on banks and Wall Street. Yet for individuals, the protections are much less pronounced and highly diluted. Granted, the massive, 2,300-page-plus Dodd-Frank bill may slow down some bank failures. It may even impede avaricious trading desks from tanking the global financial system. For average investors, though, it’s a pyrrhic victory at best. Here are four major problems. [...]

God help us! Geither can’t even use Turbo Tax and he is supposed to oversee this 2300 page POS?

Posted by kschuh | Report as abusive

[...] for the imposition for a Financial Crisis Responsibility Tax.  It turns out that the bankers are passing any taxes imposed on them to consumers in the form of fees.  So now we get to contribute the money to pay ourselves back for the money [...]

[...] for the imposition for a Financial Crisis Responsibility Tax.  It turns out that the bankers are passing any taxes imposed on them to consumers in the form of fees.  So now we get to contribute the money to pay ourselves back for the money [...]

[...] for the imposition for a Financial Crisis Responsibility Tax.  It turns out that the bankers are passing any taxes imposed on them to consumers in the form of fees.  So now we get to contribute the money to pay ourselves back for the money [...]

[...] for the imposition for a Financial Crisis Responsibility Tax.  It turns out that the bankers are passing any taxes imposed on them to consumers in the form of fees.  So now we get to contribute the money to pay ourselves back for the money [...]

[...] for the imposition for a Financial Crisis Responsibility Tax.  It turns out that the bankers are passing any taxes imposed on them to consumers in the form of fees.  So now we get to contribute the money to pay ourselves back for the money [...]

[...] for the imposition for a Financial Crisis Responsibility Tax.  It turns out that the bankers are passing any taxes imposed on them to consumers in the form of fees.  So now we get to contribute the money to pay ourselves back for the money [...]

[...] On its surface, the financial reform package looks tough on banks and Wall Street. Yet for individu… [...]

[...] for the imposition for a Financial Crisis Responsibility Tax.  It turns out that the bankers are passing any taxes imposed on them to consumers in the form of fees.  So now we get to contribute the money to pay ourselves back for the money [...]