Now that a Financial Reform Bill has been passed by Congress and signed into law, it's worth taking the time to step back a bit and see how well the bill achieves what some (such as myself) saw as the essential tasks of financial reform to prevent a similar meltdown from blindsiding us in the future.
Here's some background:
On November 11, 2009, after getting upset at the organized, well-funded campaign of "disinformation" and obstruction taking place in the Nation's capital to put the kibosh on any truly effective consumer protection in the banking and financial services industry, (where I began my career), I sent a letter to Christopher Dodd, Chairman of the Senate Banking Committee, whose consumer protection efforts I've been involved with in the past.
In the letter, I outlined 7 principles that I believed had to be included for financial reform to achieve its objectives. How well does the Dodd-Frank Wall Street Reform and Consumer Protection Act make the grade? In part 2, I will assign a letter grade for each of the principles, with pertinent comments:
1. First, there needs to be a clearly-stated mandate and set of principles for the Bill that assures that those in government who are to serve as watchdogs in enforcing the provisions of the laws, understand their duty on a basis that resists the influence of politics. The job of the watchdog in government is to give pushback, to level the playing field, to publicize wrongdoing, and to deter others in the industry from following down the same wrong path.
2. Second, there needs to be a system of checks and balances put in place to assure that accurate information is being produced and reported, and that the law is being carried out.
3. Transparency must be created via a process of auditing and public reporting.
4. Capital adequacy must be enforced relative to the types risks being incurred and the type of stakeholders being exposed to these risks.
5. There needs to be a clear distinction between "risk capital" and "safety capital," but neither the taxpayers nor the safety return stakeholders should be put at risk for what should be appropriately private equity risk-taking.
6. The banks should be chartered to serve the public, while making a decent return, not to rip off the public with exorbitant and unavoidable fees so they can make risky investments suited to investment banks, private equity and hedge funds and risk capital.
7. A consumer financial services agency must have teeth. It must be primarily a watchdog, enforcing and, when necessary, prescribing initiative, and clarifying rules when there is a clear pattern of abuses taking place against the public's interest.
Richard Roll is the founding president of the American Homeowner's Association (AHA) and currently heads the Baby Boomers Retirement Network (BBRN), which provides exclusive services and advice for Boomers in the next stage of their life.
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