By: Scott Redler
The “Restoring Financial Stability Act of 2010” financial reform bill looks to be passed by congress in the coming days. Although the intention of fixing the financial system is clear, the bill does not address a number of major issues facing our economy. It is laden with social programs and initiatives that do little to nothing to discourage the reckless lending that led to crumble of the housing market and the near destruction our entire financial system. The Democrats in congress have the opportunity to rectify the glaring issues facing our financial sector and economy as a whole; it appears that they have failed to do so.
It must be clear that not one person, bill, or political party is responsible for the recent financial crisis. Reckless use of derivatives is as much to blame as the lending practices and lax credit policies of banks. Several ideas were suggested for regulating the derivatives market. Combining the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) could eliminate bureaucratic confusion between the two. A second option could be to privatize the SEC, operating off the fees it collects from corporations, allowing it to attract more talented and capable employees.
Neither of these widely supported provisions was included in the bill. However, the provision that “protects potential adverse affects on low-income, minority, or underserved communities affected by the failure of the covered financial company” was included. In plain terms, instead of letting the effects of risky loans and poor business practices take their toll, the bill places the burden on the federal government, making taxpayers foot the bill.
Other sections of the bill entirely ignore the issue that was the impetus for creating this bill. For example, the bill states that “each agency will take affirmative steps to seek diversity in the workplace of the agency, at all levels of the agency. The agencies must start recruiting from historically black colleges and Hispanic-serving institutions, partnering with organizations that are focused on developing opportunities for minorities.” While a noble cause, what does this have to do with financial reform? Did we suddenly forget that the entire global financial system nearly crashed two years ago?
The bill does not address any of the pertinent issues or bring significant, relevant changes that will achieve the initial purpose of the bill – protecting our consumers from future calamities in the financial system. It is the same political jargon, social programs, and language typical of Democrats and ACORN that does not promote anything but themselves and more spending. What we need is a real answer, the real change we were promised when President Obama and his administration entered the office.
An effective financial reform bill is only the start. Our reliance on government spending and Keynesian economic principles must come to an end. The $700 billion in TARP money is slowly trickling back to the Treasury. While the effects of the stimulus package remain ambiguous with unemployment remaining above 10% and a nearly trillion dollar healthcare bill being passed, Obama is still trying to push his economic stimulus and jobs bill on house Democrats.
Many attribute the financial crisis to the irresponsibility on Wall Street, and while it certainly played a part, the real cause was the American lifestyle of essentially spending money they did not have. Ironically, it seems that our government is behaving in an eerily similar fashion. European governments have realized the need to make budget cuts, and American families are now realizing the hardships of making tough budget decisions of their own, but it seems that our leaders in the House of Representatives have completely abdicated any sense of fiscal responsibility. This is completely unacceptable with our debt soaring high and future unclear.
The governor of New Jersey, Chris Christie, can be looked to as an example of instilling a sense of a fiscal responsibility. He has cut spending dramatically and his newly proposed budget will make progress in closing the states $10.7 billion budget gap. Perhaps those on Capitol Hill should follow the example of New Jersey governor Chris Christie.
It is becoming apparent that this recession may not face a “V-shaped” recovery, It’s far from it. Irresponsible spending, impotent reform bills, and tax hikes are creating a hostile environment for investment. Public Sector and Governmental Entitlements are crushing the private sector innovation. As Americans we must urge our leaders to stop this nonsense on Capitol Hill.
I’m Just a Technical Analyst but think these real structural problems need fixing otherwise these tough times will add much longer than anyone will like.
