The financial reform bill that is currently before the House would give regulators virtually unlimited power over “too big to fail” financial institutions. Those are large, complex and usually international entities whose failure could cause such a shock to the interconnected financial system that others would be endangered. Under the House bill, if one of them does get into trouble, the FDIC would step in to reorganize and run the financial institution until it could be closed or sold. The FDIC has done an acceptable job closing small and medium …
Creating a new “Consumer Financial Protection Agency” (CFPA), as proposed in the financial regulation bill now before the House, would raise costs for consumers, reduce the number and type of products available to them, increase the micro-management of financial services firms, and greatly increase the confusion caused by differing and conflicting consumer laws in the different states. A far better approach has been proposed as an amendment by Rep. Walter Minnick (D-ID). His amendment would coordinate the consumer activities of existing state and federal financial regulators by creating a coordinating …
Just as the housing market is showing definite signs that it is stabilizing after a lengthy drop in housing prices, the House of Representatives is about to vote on proposal that would destabilize it once again while also raising the cost of mortgages for future home buyers. The proposal – to be offered by Rep. John Conyers (D-MI) as an amendment to the financial regulation bill now before the House -would allow bankruptcy judges to reduce the principal owed on a mortgage, a practice often referred to as a “cramdown.” …
Sunday, CIT Group, with $71 billion in assets one of the largest small business lenders in the country and the recipient last December of $2.3 billion in taxpayer money filed for bankruptcy. It was the fifth largest bankruptcy in US history. Monday, nothing much happened. Stocks didn’t collapse. There was no panic. In fact, all of the major US stock indices actually went up. Even a tracker of all of the financial stocks in the S&P 500 stock index only lost about 0.14 percent. CIT’s failure was pretty much a …
The Treasury Department and House Financial Services Committee Chairman Barney Frank have just released a highly complex 253 page draft bill that is supposed to deal with questions ranging from indentifying and dealing with systemic risk facing the financial services system, regulating and closing failing “too big to fail” financial services firms, and a wide variety of other potential problems. As expected with a bill that long and detailed, it will take a while to understand everything that it contains, but first impressions are that it contains many bad ideas …
One of the larger mistakes in the Obama financial regulatory reform package was its attempt to give the Federal Reserve additional powers so that it could in theory protect the economy from risks such as the housing bubble that could endanger the entire financial system. As we have argued in the past, the entire concept of minimizing systemic risk is a thankless task that is probably impossible. A key question is how much power such a regulator would have. As we said in June, “Congress could grant it such wide …
While many aspects of the Obama budget are questionable and just plain wrong, they recognize the need for more Americans to be able to save for retirement. The budget includes the Automatic IRA, a cross-ideological proposal developed jointly by The Heritage Foundation and the Brookings Institution which will give up to 80 million workers a simple and easy way to save for retirement. It also has support from publications as diverse as National Review and the New York Times. The Auto IRA allows employees who don’t have any other types …
The economic rescue package that the House will vote on tomorrow provides federal regulators with a broader array of tools to fight the economic problems facing the nation than the version that was defeated Monday. As the effects of the crisis continue to spread, these additional tools are likely to be increasingly important because it addresses the growing lack of confidence in the broad financial markets which extends well beyond the crisis with mortgage backed securities. The centerpiece $700 billion government purchase of troubled assets remains essential to get those …
“There are risks and costs to action. But they are far less than the long-range risks of comfortable inaction.” –John F. Kennedy “We are increasingly concerned about inaction on the financial challenges facing the Social Security and Medicare programs. The longer we wait to address these challenges, the more limited will be the options available, the greater will be the required adjustments, and the more severe the potential detrimental economic impact on our nation.” –2007 Trustees Report Today, Social Security celebrates its 73rd birthday. While the program can look back …
