The new finance-reform law
Thursday, July 22nd, 2010[Update, July 25: Reconsidering, I do not care for my own article. I wrote it three days ago because most of the press reports I had seen on the new finance-reform law suggested that reporters had not read the text of the law but had merely recycled what other reporters and, as I guess, what Congressional aides were saying about it. Now, neither am I a lawyer nor have I read all the law’s 848 pages; but the law is important, it interests me, and it happens that (maybe unlike the writers of some other reports you have read) I have read substantial tracts of it. Having read, my overall impression is that the law is the overambitious work of two Congressmen, Sen. Chris Dodd and Rep. Barney Frank, the penetrating intellect of the latter of whom, and the liberal arrogance of both of whom, the text of the law displays. The law’s wholly incongruous sect. 342, which I understand from press reports to be the work of the vaguely dimwitted Democratic Rep. Maxine Waters, frustrates me as much as it likely will you if you happen to read it. My mistake, or one of my mistakes, was to try to treat sect. 342 in the same article in which I reviewed the rest of the law. I let my pique at sect. 342 get the better of me, and consequently I let my article’s tone veer into a frustrated, incoherent mean-spiritedness. The article has other flaws, too. Because the article does list some pertinent facts, I ought to leave it posted here in the blog’s archive; but since it does not represent a rhetorically defensible stance I ought to leave it here without further comment. I’ll try to do better next time. —Howard—]
President Obama Wednesday signed into law the 111th Congress’ 848-page H.R. 4173, the Dodd-Frank Wall Street Reform and Consumer Protection Act. This new law
- establishes a federal Financial Stability Oversight Council “to identify risks to the financial stability of the United States,… to promote market discipline by eliminating expectations on the part of shareholders [and] creditors … that the Government will shield them from losses,… and to respond to emerging threats to the stability of the United States financial system, [all of which considerations] shall … require supervision by the [U.S. Federal Reserve] Board of Governors for nonbank financial companies that may pose risks to the financial stability of the United States in the event of their material financial distress or failure” (sect. 112);
- requires companies the new Council wants supervised “[to] register with the Board of Governors, on forms provided by the Board of Governors, which shall include such information as the Board of Governors, in consultation with the Council, my deem necessary or appropriate to carry out” its new responsibilities under the law (sect. 114);
- authorizes the Board of Governors “[to] restrict the ability … [of] a bank holding company with total consolidated assets of $ 50 billion or more or a [supervised] nonbank financial company … to offer a financial product or products,” and further authorizes the Board “[to] require [such a] company to terminate … [or to] impose conditions on the manner in which [such a] company conducts one or more activities” (sect. 121: the words “one or more activities” seem purposely to grant the Board much discretionary latitude);
- grants the Board of Governors a broad and seemingly vague “authority to issue regulations to implement” the foregoing (sect. 168);
- establishes and specifies the duties of an information-gathering federal Office of Financial Research (sects. 151 through 156: these seem to me perhaps the most congenial sections of the entire law);
- provides (insofar as I correctly understand the statute’s language) for the federally-enforced liquidation of “failing financial companies that pose a significant risk to the financial stability of the United States in a manner that mitigates such risk and minimizes moral hazard” (sects. 204 and 205);
- redistributes certain already existing federal regulatory and ministerial prerogatives and responsibilities among federal officials (sects. 311 through 319, 1061, 1064, and probably several others);
- renders “private adviser[s]” subject to “the Investment Advisers Act of 1940″ (sect. 403);
- imposes what appear to be relatively minor new technical requirements on the several states in their regulation of the insurance business (Title V)—though, seemingly in contrast with the sensibility and tone of rest of the law, the law seems to have surprisingly little to say about the operations of reinsurers (sects. 531 and 532); is this a loophole? maybe not, but to the extent to which I understand reinsurance it is, at least potentially, a pretty generalized form of precisely the sort of risk swap the law’s Title VII means to regulate; fortunately, the misunderstanding is probably mine, since one doubts that the law’s co-author Sen. Dodd, of all people, would make this particular mistake;
- prohibits banks from “engag[ing] in proprietary trading or [owning] a hedge fund or a private equity fund,” and requires “supervised … nonbank financial compan[ies]” that do so “[to meet] additional capital requirements” (sect. 619, a long section, elaborately written to attempt to snare anyone who might try cleverly to evade it);
- lets either of two, distinct federal agencies restrict foreign participation in the esoteric sort of “swap” transactions that famously unraveled AIG, then Wall Street generally, in 2008 (sect. 715);
- enjoins that “no Federal assistance may be provided to any … swap dealer [or] major swap participant” (sect. 716); and lets a federal “prudential regulator” (sect. 113) restrict some banks and other major financial actors in their swap dealings.
- expands the SEC’s authority to regulate “novel derivative products” (sects. 717 and 718) and swaps (sect. 723), granting it power to detain certain kinds of swaps for its prior examination and approval;
- defines and regulates swap dealers (sect. 721);
- requires swap transactions to be reported indirectly to the federal government (sects. 728 and 729);
- empowers the SEC to limit a person’s position in commodity futures (sect. 737: I don’t like the look of this worrisome section; unlike most of the rest of the law it is written in obscure language);
- regulates securities swaps somewhat similarly as securities futures are already regulated (sect. 761, et al.);
- lets the SEC “commence a rulemaking” (an odd turn of phrase to my ear, by what do I know?) “to address the standards of care for brokers, dealers, investment advisers, [etc., and to require them] to act in the best interest of the customer without regard to the [broker’s, dealer’s, etc., own] interest” (sect. 913);
- establishes a federal Office of the Investor Advocate (sect. 915);
- “enhance[s] regulation … of” ratings agencies (read: S&P and Moody’s; sects. 931 and 932);
- “establish[es] in the Federal Reserve System an independent … Bureau of Consumer Financial Protection, which shall regulate the offering and provision of consumer financial products or services….” (Title X);
- in an emergency, authorizes the FDIC with the approval of the Board of Governors “[to] create a widely available program to guarantee obligations of [banks and certain others] during times of severe economic distress, [though not to provide] equity in any form (sect. 1105);
- forbids mortgage lenders from lending to borrowers who lack “a reasonable ability to repay the loan,…” and establishes a brittle-seeming set of rules by which lenders are to judge this ability (sect. 1411: this section lacks judgment in my view; it reads as though it were written on a Friday by someone in a bad mood);
- requires mortgage lenders issuing mortgages with nonstandard repayment schemes to explain those schemes and their financial consequences to their borrowers in a certain way (sect. 1418: have you ever signed your way through the thick stack of papers a mortgage lender gives you at closing time? do the law’s authors believe that adding another page to the stack will help? I wonder);
- requires the same lenders to advise their borrowers six months before adjusting a mortgage’s interest rate (sect. 1418 again: this section is technical and I have not carefully read it, so if this part of the law interests you then you might read the section yourself);
- establishes a federal Office of Housing Counseling (sect. 1442);
and so on and on and on. In its sect. 342, the law also brings some depressing and pretty ferocious anti-white-male—which is to say, anti-traditional-American-family—language apparently designed to ensure that every loan application and other financial document you might need action on gets lost on the desk of some incompetent black woman with a perpetual headache.
That last, of course, is a “racist” remark, and since I had the bad taste to make it we shall now have to talk about it, shan’t we? (If you already understand why I made it then you can skip straight to the next paragraph.) See: you’re not to worry about the lost paperwork or the perpetual headache, but only about the threat the present writer—the presumably assault-weapon-toting, flag-saluting, militia-joining, border-patrolling, SUV-driving, wife-suppressing, Bible-thumping, goose-stepping, stop-sign-shooting, food-and-ammo-storing, Ronald-Reagan-voting, pet-not-neutering-nor-spaying, blue-eyed-children-fathering, Nazi, KKK, Attila-the-Hun writer—poses to—well, to what, exactly? Look: if you fall for such Marxist bait, I can’t help you. However, for the benefit of readers new to the Economic Nationalist I will explain it again as in earlier articles. Literally hundreds of thousands of black American women are far too intelligent and decent ever purposely to lose your paperwork (being intelligent and decent, maybe they store food, ammo and Bibles, too, for all I know; though they probably never voted for Reagan and their children’s eyes are not blue). The trouble is that, precisely because of idiocies like the aforementioned sect. 342, your paperwork is unlikely to land on the desk of an intelligent, decent black woman—for she will have been promoted upward away from that desk iteratively until stranded in some job so high that even she cannot handle it, leaving an empty affirmative-action seat at the desk on which your paperwork still sits, gathering dust. Because of sect. 342 and because all the good black women will already have been promoted into higher jobs, the empty seat will have to be filled by some overweight African-American wench with a perpetual headache. Now do you get it? If and when Congress finally should repeal the tangled complex of wicked laws which constitute the federal Civil Rights regime, such problems would soon solve themselves. So don’t blame me. I didn’t write sect. 342.
Setting the inexcusable sect. 342 aside, the law is both interesting and revealing. The law is interesting in that, if you accept the nonlibertarian premise that banks, stock brokers and the like should be subject to some sort of licensing and regulatory regime—or even if you only accept the lesser premise that licensing and regulation are so deeply embedded in the actually existing U.S. financial system that the prospect of an unlicensed, unregulated regime is merely a theoretical one—then one has to admit that most of the law is artfully written with style, wit, discernment and care. The law distinguishes actors that bring $ 50 billion to financial markets from everybody smaller which, in view of the way the Panic of 2008 unfolded, seems to me a reasonably prudent thing to do. The famous Congressional homosexual Barney Frank may be a perennial, favorite target of Republican abuse (and, I must say, any out-of-the-closet fag with the nerve to run for Congress, having forfeited the otherwise rightful privacy of an indecent obscurity, has little cause to complain of political abuse of this kind); but Mr. Frank is also a very smart and fairly judicious man, as Democrats go one of the ones better liked by me. His experienced touch shows in the text of the law.
The law is revealing in its sheer ambition. Its authors seem to lack the sense that a complex regulatory regime, even were it desirable, ought to be built up one small piece at a time. Instead, with the House’s, the Senate’s and the president’s approval, Messrs. Dodd and Frank have just given eight hundred pages of speculative, untested notions the full force of federal law, turning the notions loose on the disordered but nonetheless globally preëminent national financial system of the United States. Evidently like most Republicans, I cannot persuade myself that such a law—passed more or less by the same Democrats who gave us the ridiculous Stimulus of 2009—is likely to work approximately as its authors expect.
HJH