This month the House of Representatives approved a new slate of regulations, which if enacted, would be the biggest financial reform movement America has seen since the 1930s. With the health care debacle firmly in the forefront of media tickers lately, passage of the Wall Street Reform and Consumer Protection Act went largely unnoticed, but if the bill becomes law, it will affect much more than its name implies.
President Obama has made no secret of the fact that he is fed up with Wall Street bankers who took taxpayer bailout money and are now paying enormous bonuses to executives. Many of these same institutions are not lending to small businesses the way they were expected to. In a speech earlier this month, Obama told industry executives they have a duty to help with the nation’s recovery.
The president wants stricter oversight of the financial services industry and like everything else on his agenda; he wants it done now while Democrats have control of both houses of Congress. H.R. 4173 provides some level of oversight, and on the surface things like “increasing consumer protections, ending taxpayer bailouts, and reining in executive compensation” all sound like great things. The problem is that this bill, like any bill, creates more bureaucracy and more layers in the ever-burgeoning government.
It creates two brand new federal entities, the Consumer Financial Protection Agency and the Financial Stability Council, both groups that would regulate the industry under the guise of protecting the public from unscrupulous financiers. Some economists say the bill is “on the right track” but argue it fails in “many of the most important parts of the financial market place”, leaving them unregulated and resulting in a “less-competitive and less-efficient financial system.”
Arguably, the best thing this legislation provides is a method to shut down large, failing financial institutions, putting an end to the too-big-to-fail organizations like AIG or Lehman Brothers without taxpayer bailouts. According to an article in Forbes, H.R. 4173 calls for charging the firms premiums for systemic risk, imposing higher capital and liquidity requirements, restricting proprietary trading activities if considered necessary to curb risk, and forcing financial institutions to issue contingent capital, which they say would bring back market restraint and transfer some of the risk from taxpayers back to creditors.
While that all sounds good, the bottom line is that this bill and the Restoring American Financial Stability Act the Senate will soon debate both give the government more control than ever before over the nation’s finance industry, which should terrify us all. I challenge anyone to name one government agency the bureaucrats in Washington have run effectively.
Do we need to ensure that what happened last year never happens again? Sure. Do we want something done about the Wall Street fat cats wasting our money on executive bonuses? Of course. Will the government being in charge of the finance industry make a difference? Probably not. What it will do is make more layers of government, more layers of red tape, and more opportunity for corruption.
