HR 4173

I know that there is some new turmoil with Harry Reid’s purposed racist comments coming to light (called Obama a “light-skinned” black man with no Negro dialect unless he wanted to have one.”),  but he apologized to Obama over the weekend so there will be no witch hunt as there was with Trent Lott.  So the double standard lives as RNC Chairman Steele pointed out.  But instead of character issues this morning, I would like to discuss some legislation issues.  Mainly H.R. 4173 that was passed by the House in December with little to no fan fare.

The Wall Street Reform and Consumer Protection Act of 2009 is legislation proposed by our friend Barney Frank.  The GOP site calls it the Permanent Bailouts of Wall Street Firms and a Government Takeover of Financial Services.  It has such a nice ring to it.  But I think this name is a little bit closer to the truth.  This bill follows a path of government intervention and the push to alleviate any personal or corporate responsibility.  It guarantees these financial institutions another bailout and further takeovers if something like this happens again.  So what does that mean?  It means that they (financial institutions) can basically make the same bad decisions because now the guarantee of a bailout is in writing.  It also guarantees that it will protect those who have not learned from their mortgage miscues of the past.  So here are some of the issues.

Title I

• First, the bailouts.  It authorizes the FDIC (based upon recommendations by the FED, Treasury Secretary, or other financial agencies) to bail out financial organizations.  It allows them to give loans, purchase, sell, or transfer assets and break up the companies as it deems necessary.  Basically free reign.  What this means is that there is no risk for these institutions.  If they make stupid decisions that make themselves a lot of money, then we will get the opportunity to be patriotic again.  They are once again rewarding stupid decisions instead of letting them fail because of them.
• It establishes a Financial Services Oversight Council (with ironically the same people that were supposed to be performing the same duties before the crisis).  They are required to report to Congress on actions they deem necessary to improve financial stability.  We have proof that when politics get involved this doesn’t exactly work.  My examples from the sponsor.

“These two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis…The more people, in my judgment, exaggerate a threat of safety and soundness, the more people conjure up the possibility of serious financial losses to the Treasure, which I do not see…I believe there has been more alarm raised about potential unsafety and unsoundness than, in fact, exists” All in September 2003 by Barney Frank

“Fannie and Freddie are fundamentally sound, they are not in danger of going under …I do think their prospects going forward are very solid” July 2008 by Barney Frank

I am just saying…You know…Why would we expect it to be any different this time?

• The bill authorizes the FED to enact “stricter prudential standards” on any firm the council deems necessary.  These stricter prudential standards include conducting stress tests, imposing higher capital standards, dismissing executive officers and board members and restricting compensation.  The bill also authorizes the council to restrict the operations and activities of any firm it deems necessary.
• This section also has the following section (section 1801 in Title I): “Not later than 180 days following the enactment of this title, each agency shall establish an Office of Minority and Women Inclusion (hereinafter in this section referred to as the ‘Office’) that shall advise the agency administrator of the impact of policies and regulations of the agency on minority-owned and women-owned businesses, and shall be responsible for all matters of the agency relating to diversity in management, employment, and business activities, including the coordination of technical assistance, in accordance with such standards and requirements as the Director of the Office shall establish.”  That is every agency.  This is how government gets out of control.  Also, why is this office needed?  Shouldn’t everything we do be for every American.

Title II

• It requires public companies to hold an annual, non-binding shareholder vote to approve executive compensation.  This does absolutely nothing, but it allows politicians to say hey…we are trying to limit CEO compensation.  I wonder why they don’t do the same for union bosses?

• It prohibits any compensation structure or incentive-based payment arrangement that encourages inappropriate risks by financial institutions. Once again the government alone now determines what is inappropriate risk.  If they weren’t promising bailouts this would not be necessary.  These institutions would have to look at inappropriate risks to stay alive.  I also might add that this provision is coming from politicians who have for decades advocated policies doing this very thing (that would be housing policies).

Title III

• This section deals with the Over-the Counter Derivatives Market, which includes security swaps.  These are some things that I do not fully understand so I won’t even try to explain them.  What I do see is an extreme amount of regulation and micromanagement by the government.  It is very detailed and very intrusive into the financial industry. Things that would not be necessary if they were not guaranteeing bailouts and made these companies responsible for their decisions.  Also, considering we are counting on the same agencies to regulate this, I do not see this really happening.   Their track record is not good.

Title IV

• Creates yet another bureaucracy – the Consumer Financial Protection Agency.  It directs this agency to create the following offices:   Consumer Financial Protection Oversight Board, Office of Financial Literacy, Office of Fair Lending and Equal Opportunity, Consumer Advisory Board…and  don’t worry it says congress can appropriate whatever funds they need to operate so its paid for…by us.
• The CFPA would have jurisdiction over any financial activity, product or service to be used by a consumer.  The definition of “financial activity” would be determined by the agency, which gives it the authority to expand its jurisdiction at will and without congressional approval.  This is another problem that we saw with the same authority given to HUD for the housing crisis.
• It also gives the CFPA unprecedented powers over any financial activity that is sold to consumers including setting prices for certain products.  Anything marketed that the CFPA does not approve would be unlawful.

There are actually 3 more sections …Title V, Title VI, Title VII…but I think you get the idea.  Each of these sections creates additional bureaucracies.  These are the kind of big government policies that can be disastrous for the future finances of this country.  Obama says that he does not want control of the financial industry, but this legislation does exactly that.  It will be very telling if it does make it through the Senate and he signs it into law.  They will promote it as protecting consumers, but as I have pointed out there is much more here.

Here is a question for liberal or conservative.  Do you really want bureaucrats and politicians who cannot even balance a budget in control of the financial industry?  Just a thought.

Here are my cliffsnotes because I of course did not read the entire document.

Here is the actual legislation if you would like to skim through.