It now appears that FinReg is the generally accepted shorthand name for the financial regulatory reform bill that the president signed into law last week.
As many readers of this missive know, I opposed this bill because it will not solve the problems that led to the 2008 financial crisis and it will make consumer and small business credit more difficult to get and more expensive. It will be another addition to the list of bills (healthcare, cap and trade, stimulus, etc.) which will increase taxes, lower growth and destroy even more private sector jobs in this country.
When all of the economic and societal effects become apparent during the next 12 months, remember that this is the piece of legislation driving them.
The bill has 3 basic elements: derivatives regulation, too big to fail and consumer protections.
• Derivatives regulation: I support much of this effort. Unfortunately the bill fails to create sufficient exceptions for end users of derivatives (such as farmers), who do not use derivatives as an investment, but rather as a “hedge” to insure against market volatility for daily materials. The unnecessary parts of this section would make it more expensive for end users to do business. That means less growth and fewer jobs.
• Too Big to Fail: There still will be too big to fail companies, as this bill more or less perpetuates the current system and its risks. According to the bill, the financial industry will self-fund their bail-outs, instead of taxpayers. But there still will be incentive for banks to take big risks knowing that there is an “insurance” fund to save them. Enormous business is only somewhat better for society than enormous government. If you are that big, you ought to have restrictions and reserve requirements that make your collapse nearly impossible. In my opinion, this bill does not adequately address the underlying problem of systemic risk.
• So-Called Consumer Protections: The elements in this bill that euphemistically are labeled as “consumer protections” actually are the worst parts of it. Consumer and small business loans will be harder to get and more expensive. Also, get ready for your bank to tell you that your ‘small balance’ checking account is no longer free. The regulatory burden and substantial taxes on banks will make many checking accounts—and even savings accounts and loans—unprofitable for banks. So, they will either stop them or charge you more.
When all of this happens during the next year, remember who caused it—the people who voted for and supported this bill.
Of course, the bill does not deal with the single biggest contributor to the financial meltdown: the structure and excesses of Fannie Mae and Freddie Mac.
These entities continue as subsidiaries of the federal government and are unaffected by the bill.
Campbell represents California’s 48th district, which spans Aliso Viejo, Dana Point, Irvine, Laguna Beach, Laguna Hills, Laguna Niguel, Laguna Woods, Lake Forest, Tustin and parts of Newport Beach and San Juan Capistrano.
