Wintery Knight

…integrating Christian faith and knowledge in the public square

Who benefits from the Democrats financial regulation bill?

From the Washington Times.

Excerpt:

The financial reform bill expected to clear Congress this week is chock-full of provisions that have little to do with the financial crisis but cater to the long-standing agendas of labor unions and other Democratic interest groups.

Principal among them is a measure to make it easier for unions, environmental groups and other activist organizations that hold shares to put their representatives on the boards of directors of every corporation in the United States.

[...]Business groups are also rankled that the legislation would impose costly new burdens on airlines, utilities and other non-financial businesses that were victims rather than villains in the crisis, simply because they use financial derivatives to hedge their businesses against risks such as fluctuations in oil prices, interest rates and currencies.

Such hedging practices played no role in the crisis, though they helped many businesses weather the financial turbulence and recession that followed in the aftermath of the Wall Street storm.

Other provisions of the financial legislation, which goes before the full Senate on Thursday for a vote and likely passage, favor Democratic constituencies directly by requiring banks and federal agencies to hire and do more business with them.

The bill would create more than 20 “offices of minority and women inclusion” at the Treasury, Federal Reserve and other government agencies, to ensure they employ more women and minorities and grant more federal contracts to more women- and minority-owned businesses.

CNBC explains more.

Excerpt:

Fannie Mae and Freddie Mac are the real ‘black holes’ in the inancial regulation bill before Congress and they both need to be addressed, Robert Pozen, Chairman of MFS Investment Management, told CNBC Monday.”They were too political volatile to handle and are not in the bill,” said Pozen who is a former vice chairman of Fidelity Investments.

The non-partisan libertarian Cato Institute think tank.

Excerpt:

The House and Senate will soon vote on a finalized financial-regulation bill, one that was mostly hammered out in a closed-door conference between the two chambers. Legislators will have a stark, simple choice: support a bill that gives us more of the same flawed banking regulations, or reject it in the hopes that new congressional leadership next year will address the actual causes of the financial crisis.

Perhaps it should come as no surprise that Sen. Christopher Dodd and Rep. Barney Frank, the bill’s primary authors, would fail to end the numerous government distortions of our financial and mortgage markets that led to the crisis. Both have been either architects or supporters of those distortions. One might as well ask the fox to build the henhouse.

Nowhere in the final bill will you see even a pretense of rolling back the endless federal incentives and mandates to extend credit, particularly mortgages, to those who cannot afford to pay their loans back. After all, the popular narrative insists that Wall Street fat cats must be to blame for the credit crisis. Despite the recognition that mortgages were offered to unqualified individuals and families, banks will still be required under the Dodd-Frank bill to meet government-imposed lending quotas

[...]While one can debate the motivations behind Fannie and Freddie’s support for the subprime market, one thing should be clear: Had Fannie and Freddie not been there to buy these loans, most of them would never have been made. And had the taxpayer not been standing behind Fannie and Freddie, they would have been unable to fund such large purchases of subprime mortgages. Yet rather than fix the endless bailout that Fannie and Freddie have become, Congress believes it is more important to expand federal regulation and litigation to lenders that had nothing to do with the crisis.

[...]Washington subsidizes debt, taxes equity, and then acts surprised when everyone becomes extremely leveraged.

Until Washington takes a long, deep look at its own role in causing the financial crisis, we will have little hope for avoiding another one. And the Dodd-Frank legislation, sure to be heralded as strong medicine for perfidious financiers, is actually not even a modest step in the right direction.

Fannie Mae and Freddie Mac were not regulated AT ALL by this bill. And that’s because the Democrats love the idea of giving loans to people for homes they can’t afford. The trick is to overload the system and then redistribute wealth in the form of bailouts from the responsible people to the irresponsible people. It’s not a reform bill. It’s a job-killing bill that attacks businesses.

Remember that Democrats forced banks to make these loans in order to avoid discriminating against people who could not afford homes. They rebuffed efforts by the Republicans (including Bush and McCain) to regulate Fannie Mae and Freddie Mac, because they like the idea of giving people with no resident status, no job, and bad credit homes anyway. That, and the low interest rates, is what cause the mess in the first place. And this “reform” bill did nothing to fix that problem.

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