Tuesday, July 6, 2010

Independence Day for the Feds:
Lawmakers to Let the Federal Reserve Retain Their Independence

Wall Street reform, begins to take shape as the House of Representatives and the Senate attempt to hammer out the details of the much anticipated plan.
The Federal Reserve has been the subject of much sustained criticism for its role in the financial crisis. Eventually the Feds admitted to being complacent and not responding to mitigate mounting housing troubles due to risky lending practices back in ‘2007. Accordingly, there was a not-so-subtle push to make the head of the Federal Reserve Bank a political appointment. This idea was, thankfully, abandoned according to a Reuters report. Nevertheless, the Federal Reserve did not get off completely, as Lawmakers allegedly signed off on a one-time review of its emergency lending during the Crisis, and has ordered them to disclose the Discount Window and Open Market operations on an on-going basis. Even though the information requested is at a 3-year lag, this may come as huge adjustment for the Feds. Hey Feds...you win some, you loose some.
I am guarded but excited about the prospect of Wall Street reform, but I anticipate a difficult road ahead for the lawmakers as they chisel out the historical bill. It will certainly be interesting to see how they revise and attempt to blend the separate(and very different) bills that previously emerged from the House and the Senate. This July 4th weekend, which was the White House dead line, should quickly reveal just how bumpy the road might have been. As of week before last, the key issues were as follows:
1. "Yes" or "No" to a provision that would open the Fed’s interest-rate policy to congressional audits. If not perhaps they would look at examining other less sensitive areas.
2. Establish tighter regulations that would essentially crimp financial firms' profits, but serve to avert a repeat of the financial crisis of 2009.
3. Establish improved consumer protections. This would protect consumers from predatory and unsavory loan rates and fees.
4. Set up a process for dismantling troubled firms, in lieu of costly bail outs
5. Limit the range of high-risk, but profitable trading activities, which played a key role in the financial collapse of banking firms.

Although the Lawmakers differ in the details, both the Senate and the House would like to see funds set aside for dismantling troubled companies, rather than save them because they're “too big to fail. Regulators have also been directed to find ways to eliminate the conflict of interest that may have lead to credit-rating agencies. I wonder why they're ignoring the conflict of interest concerning research analysts who issued “strong buy” reports to stocks and companies that were troubled? Will they be included? You may or may not recall that one of the research analysts of a major investment bank was fired after pressure from Enron, because he did not give them a "strong buy" rating. Once the analyst was fired, Enron rewarded the Investment bank with a $50 million transaction. I can only imagine the numerous stories that have not been made public? At some point this week the details will be made public on this widely anticipated bill.

K Reilly
Cohn-Reilly Report

Post Script

Geithner and Michelle Obama at The U.S. Treasury

The two talk about the hard work of the treadury department employees, and the finance reform programs that are designed to mitigate another financial crisis from happenign again. Mrs. Obama talks about her child obesity initialtive.

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