With all the attention focused on the oil spill in the Gulf of Mexico a major piece of legislation is limping toward the finish line that will have a major impact on the financial regulatory system of this country. The Financial Regulatory overhaul was supposed to have broad bi-partisan support, but unfortunately partisan politics again is playing an ugly hand in its final draft. Each party is looking toward the mid-term elections in November and how this will play out with voters.
Senate Democrats on Tuesday said they had cobbled together the bare minimum of 60 votes needed to close off debate and advance to a final vote later this week. Supporters included three Republican centrists from the Northeast, Senator Scott Brown of Massachusetts, Susan Collins of Maine and Olympia Snowe, also of Maine.
The aim of the Financial Reform Bill was to avoid the repeat of the financial meltdown in 2008 which led to the worst economic crisis the nation has faced since the Great Depression. The only question that I would like to add to the debate is if this is to seek to prevent the next financial meltdown, then why was Fannie Mae and Freddie Mac left out of the reform measure? Both mortgage giants have currently received close to $145 billion dollars of taxpayer money and the financial crisis began in the housing sector; so why are they not part of financial reform.
The second sticking point is that the legislation would create a system risk council, comprising the most senior government regulators, to try to identify potential dangers in the financial system. It would create a powerful consumer financial protection bureau to be housed in the Federal Reserve, and would impose a new regulatory framework on the trading of derivatives, the complex instruments that were at the center of the 2008 downturn.
The question is who overseas this new bureau? Remember sometimes the cure is worse than the disease!
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