In November, I wrote about how the payday loan industry is being regulated out of business as government know-it-alls determined they were bad for consumers. Regulating the industry took an option away from consumers in need, but as it turns out, the Dodd-Frank credit card reform legislation – effecting more traditional financial institutions – makes it even worse for those who need a few dollars.
The recently enacted Financial Reform bill, brought to us chiefly through the efforts of Senator Dodd (D. Ct.) and Congressman Frank (D. Ma.), was, like much of the handiwork of this Congress, passed in haste. Remember, something had to be done immediately so that we never have another financial meltdown like we just had? This bill, too, was ponderous, consuming 2300 plus pages, and, like Obamacare, probably wasn’t read by anyone who voted for it. Well, as Speaker of the House Pelosi (D. Ca.) would have said, now that the bill has passed, we can see what is in it.
Within days, what we saw was problematical, and, I’m guessing this is the tip of the iceberg. Here are just two of the issues.
The first involved the $1.4 trillion asset-backed securities market. This is the market where corporations and municipalities sell bonds to raise funds for certain specific projects. As an example, your town might issue bonds to cover the cost of a new police and fire station.
What happened here was that under SEC regulations, any bond issue sold must have a rating from a “credit rating” firm, such as Moody’s or Standard & Poor’s. The Dodd/Frank bill, however increased the legal liability of these credit rating agencies (a lawyer’s relief act), so the companies refused to provide ratings in bond deals. The bond market screeched to a halt. After a few days, the SEC had to “suspend” its long standing regulation of requiring credit ratings, and allow the bond deals to proceed without a credit rating.
The second involves the process by which the FDIC gauges the soundness of banks.
Banking regulators were “weeks away” from finalizing a long-running effort to set risk-based capital standards for smaller, less-complex banks, say people familiar with the matter.
But now, thanks to the Dodd/Frank Bill, it is anyone’s guess when that will happen. Bank regulators had planned to use credit ratings as part of that process, but the bill bans the use of credit ratings in setting those standards.
As Comptroller of the Currency John Dugan, an FDIC board member said,
I do worry about there is a little bit of throwing out the baby with the bath water. It might be worth Congress taking a second look at. [emphasis supplied]
Anyone think Senator Dodd and Congressman Frank will do so?
You’ve got to be kidding me. The US Department of Agriculture has a rural development program – what ever that is – with available funding from the most recent stimulus package totaling $168 million. The Mohegan tribe in Connecticut got almost one-third of the funds.
The Connecticut Dumbocrats reportedly are not taking any chances and are already lining up a replacement for CT AG Richard Blumenthal. And why not? It’s what they do best. Let’s see. Their first choice couldn’t remember the truth … and their second choice stretched the truth. Now, reportedly, their third choice is the very man who told all of us we could keep our insurance and our doctor if we passed the Health Care Bill … ummm … also untrue.
Here’s the scorecard on the Dumbocrats … or maybe we should call them. Pinnochiocrats. Read more
One would think that Congress would be doing anything to create jobs. Instead, they seem to want to kill jobs. Let’s look at the Dodd financial overhaul bill as one example of this trend.
One section of the bill deals with private investment in small “start up” companies. These companies are today’s version of yesterday’s Microsoft, Apple, Google, Amazon, Yahoo, etc. They begin with one or two people who have a vision for the future. They start in someone’s garage or basement, with no money but a brilliant idea. And, their business grows.
According to a 2009 Kaufman Foundation study, such firms are less than 1% of all companies yet generate about 10% of new jobs.
But, to grow, they need capital. In other words, they need investors who are willing to take a chance with their own money, and provide funds to make these those companies grow. Dodd’s bill will make that far more difficult.
Under current law, only “accredited” investors can invest in these companies, and, one is automatically “accredited if they can demonstrate a net worth of $1million, or, annual income of $250,000. And, if an investor is “accredited” they can invest immediately.
I don’t recall any small “start up” contributing to the financial meltdown, but, Senator Dodd (D. Ct) has apparently decided that investment in small “start ups” needs to be more heavily regulated by the federal government. Under his proposed bill, the “start ups” seeking investors are required to file with the Securities and Exchange Commission, and “endure a 120 day review” before anyone can invest. And, under the bill, to be an “accredited” investor, one must demonstrate an net worth of $2.3 million and an annual income of $450,000.
The Angel Capital Association, a trade group, estimates that these provisions would disqualify about 77% of current accredited investors.
This administration has apparently decided it is far more important to regulate your health care, and the future of tomorrow’s Google’s and Yahoo’s, than to regulate the flow of illegal immigrants into this country.
Am I missing something?
UPDATE (Jim): Well at least the Republicans (and one Democrat Senator Ben Nelson) know its an incomplete bill. The Senate failed to vote cloture on the Dodd finance bill. It’s not unexpected. The Republicans were not going to allow this bill to move forward until “the bailout/too big to fail” provision was reformed.
It’s not the only point in the bill, as the SOS points out above, but it was enough to send this bill back to the drawing board.
UPDATE 2 (Jim): I should have added the bill is killed for the moment. In fact Fox Allstars just reported the Democrats are planning yet another cloture vote tomorrow to draw attention to Republican opposition. Something will pass but Dodd is going to have to work a little harder with Republicans on this one. The fundamental question here is does the bill end too big to fail or institutionalize it? Republicans say the latter and that argument is slowly winning the day.
Anything that creates a new government bureaucracy is a bad idea in my mind. The feds have trouble getting the ones they have to work properly. No where has that been seen better than in the financial meltdown.
David John is one of five experts who “exert more influence” on the Social Security debate than anyone else in Washington – and he is The Heritage Foundation’s lead analyst on issues relating to pensions, financial markets and institutions, banking regulation, asset building, and Social Security reform.
Join us as we get to the bottom of the “Dodd Bill” that would regulate financial institutions and hand more power to the White House to determine just who is too big to fail. Here’s what John has written.
There are many valid reasons to be angry with bankers, and supporters of Senator Chris Dodd’s (D-CT) latest rewrite of his financial regulatory bill, the Restoring American Financial Stability Act, have mentioned them all. Americans have heard all about greedy bankers, huge bonuses, shady accounting practices, and outright greed. But the reason for this rhetoric is nothing less than an attempt to seize control of the financial services industry and to micromanage it.
Republicans are pushing back but Democrats are pushing hard for the “Restoring American Financial Stability Act”.
Obama, speaking briefly to reporters before the closed meeting began, said he was “absolutely confident that the bill that emerges is going to be a bill that prevents bailouts. That’s the goal.”
Treasury Secretary Timothy Geithner later said that the cost of taking down large failing financial institutions will be borne by big banks, not taxpayers. The House and Senate bills call for funds, financed by large financial institutions, to cover the costs of liquidating firms deemed too large to go through bankruptcy proceedings.
Get the real story tomorrow morning at 11am.
Democratic Senatorial candidate Merrick Alpert is a smart man, Started a business from scratch, sold it, presumably made a bundle, cleaned up and helped sell off another. So he knows his numbers.
With that in mind, during last night’s Democratic Senate Debate, how could he possibly make a statement like this.
On the other hand, his business’ number client was the government, so maybe he’s on to something. But hey, if you’re gunna make up a number that is backed by nothing … why not just say you think we should spend a gazillion dollars of taxpayer money on another stimulus, because the first one worked so well. From The Day (via Capitolreport)
But that stimulus package didn’t even approach $1 trillion, and it was passed at the brink of a recession that lawmakers in both parties were trying to prevent from becoming much, much worse. It’s too kind to say that a proposal from the new junior senator from Connecticut to give stimulus another whirl and round it up to an even trillion while you’re at it would be a non-starter. That go-kart doesn’t even have an engine in it.
Just as reminder to Mr Alpert, here’s what his kids will owe over the next ten years under Obama … and that’s without the $1 trillion dollar porkapalooza he’s proposing. Exit question, since there’ no money left, where’s he planning on getting the trillion from?
As someone who has been following the health care bills, I read Steve’s recent post with interest. All along in this process President Obama has pledged to the American people that if they wanted to keep their current health insurance they could, as nothing in any of the proposed bills would prohibit that, or make it difficult.
Last Friday, however, the President said,
…stray cats and dogs…got in there… And I think that some of the provisions that got snuck in might have violated that pledge.
Let’s examine that statement. The first incarnation of Obamacare was what we refer to as the Kennedy/Dodd bill. At page 103 we are told that whether you like your plan or not, unless you have a ‘qualified plan” you will pay a tax.
Next we had the Waxman bill. At pages 15-16 and page 167 we are told the same thing.
Then came the Pelosi bill… your insurance is “grandfathered in (i.e. no tax) as long as your insurer makes absolutely no changes in coverage and doesn’t accept one more insured. If that happens, you will pay a tax. (see page 91).
And finally we got the Reid bill. At pages 97 and 100, we were told that there was no need to leave your present coverage, but, unless it was a “qualified” plan, you would have to pay a tax.
Bottom line in all bills, the government made it virtually impossible to keep the insurance you had, whether you liked it or not, unless you were willing to pay a tax, or increased premiums to obtain a “qualified” plan.
Believing the president, the provisions that violated his pledge to the American public were “snuck” in by Sen. Kennedy (D-Mass.), Sen. Dodd (D-Conn.), Rep. Waxman (D-Calif.), House Speaker Pelosi (D-Calif.), and Sen. Reid (D-Nev.).
What part of all of these proposed bills did the president either fail to read, or fail to comprehend?
UPDATE (Jim): Here’s the video one more time courtesy of Steve’s post.
Just waking up listening to WFSB in Hartford – the local CBS affiliate – and they are referencing an Associated Press story in the Washington Times. Sen. Dodd will not seek re-election this November. Looks like you can peal off those Dump Dodd bumper stickers.