Rightfully yours

July 21, 2010:  The president signed the most sweeping overhaul of financial regulations since the Great Depression into law almost two years after the infamous near-financial meltdown in 2008 in the United States that rippled around the world. 

It is officially known as the Restoring American Financial Stability Act of 2010. 

Purpose and content

The purpose of the new law strives to protect both consumers and economic stability.  It awards the government new powers to dissolve failing companies or break up companies that threaten the economy, creates a new agency to shield consumers, and focuses more light on the financial markets that previously escaped the oversight of regulators.

The president attempted to put the complex law in consumer-oriented terms for the average person.   He said it would help root out fine print and hidden fees for people, and provide deeper analysis of the sophisticated financial transactions on Wall Street. 

He claimed that this crippling recession was primarily caused by a breakdown in the financial system that cannot happen again.

There are many good provisions in the bill. The best characteristic of the bill is the provision to permit free markets to work and allow mismanaged financial firms to fail rather than require taxpayer bailouts adding to the federal deficit. 

The law assembles a council of regulators to look out for risks across the finance system.

• On the consumer level, borrowers will be protected from hidden fees and abusive terms, but must provide evidence that they can repay their loans.  Retailers will have a choice of at least two networks on which to run debit cards, introducing competition where there was none.  Retailers may also decline debit card use for small purchases where fees exceed profit. 
• On the banking level, a council of regulators will monitor bank solvency levels, make them increase their reserves when necessary and move the reserves into investments easily converted to cash.  They will also identify failing financial institutions, dissolve them before they trigger a crisis, and spread the costs incurred across surviving peers. 
• On the government level, the Federal Reserve will be awarded new powers through a consumer protection bureau that will write new rules to protect consumers from unfair credit card and mortgage terms, but also live under expanded congressional oversight.  The bureau will also establish procedures for liquidating giant financial firms where necessary, so there are no more “too big to fail” financial institutions. 
• The law restricts banks owning hedge funds (3% maximum of capital) from trading for themselves in their own accounts (which allows betting against themselves if more profitable).  This has become known as the “Volker Rule” (proposed by former Federal Reserve Chairman Paul Volker. 
• Financial institutions must separate their commodity derivatives trades into a separately capitalized entity completely walled off from federally insured deposits.  This will moderate the amount speculators profit when trading crude and heating oil contracts. 
• Other provisions include the Commodity Futures Trading Commission (CFTC) authority to regulate swaps, OTC, energy-related and electronically traded transactions by closing the so-called “Enron swaps” and “London” or “foreign-exchange” loopholes. 

Many of the law’s features won’t be in effect until regulators write new rules and implement them.

Obama explained them all as common sense reforms that will help people in the financial aspects of their daily life, from being made aware of risks, to understanding fees and signing contracts.  He called the reforms “the strongest consumer protections in history,” and said, “Because of this law, the American people will never again be asked to foot the bill for Wall Street’s mistakes.” 

“I proposed a set of reforms to empower consumers and investors, to bring the shadowy deals that caused this crisis into the light of day, and to put a stop to taxpayer bailouts once and for all,” Obama said to supporters. “Today, thanks to a lot of people in this room, those reforms will become the law of the land.”

Republicans against

The House first passed a bill in December 2009. After months of disagreement, the Senate passed a bill in May 2010 pretty much along party lines with only four Republicans joining to gain the required votes.

It took the whole month of June for the House and Senate to work out the differences.  The conference committees voted strictly along party lines, 20-11 with House negotiators and 7-5 for Senate negotiators, . 

The House passed the final bill on June 30, by a vote of 237-192, with all but three Republicans in opposition. 

The Senate passed the bill on July 15, by a vote of 60-39 with all but three Republicans voting against the legislation.

One Democratic Senator, Russ Feingold (D-WI), opposed the measure, saying it did not go far enough.

In spite of some misgivings, Republican Senators Olympia Snowe (R-ME) and Scott Brown (R-MA) joined with Susan Collins (R-ME) as three crucial votes for passage.

“While not perfect, the legislation takes necessary steps to implement meaningful regulatory reforms, create strong consumer protections and restore confidence in the American financial system,” Senator Snowe said in a statement. 

Republicans are attempting to capitalize on the wave of voter disillusion with current Members of Congress with regard to the slowness of recovery and the growing debt and deficit of the government.  By voting against any issue that increases debt (and implied to raise taxes), Republicans are hoping to unseat their opponents. 

A few of those issues are state education, unemployment benefits and health care.