The Law Planet Blog

This morning I attended a Breakfast with Congressman Barney Frank sponsored by the New England Council in Massachusetts. I was excited to attend this breakfast to get a play by play as to how the financial reform was going. I have to say my initial fears of further regulation in yet another industry were put at bay, for the moment. I appreciated how Mr. Frank began his talk by giving some assurance that regulation was being initiated not with a socialist fervor but as recognizing that the financial industry is a private sector. The public sector is only being called on to create rules to deal with a present crisis.

Mr. Frank proceeded to discuss the historical regulatory creations as they have appeared in the past to deal with financial issues such as the Securities and Exchange Act of 1933 which dealt with the crash of 1929. He did not suggest that the repeal of the Glass-Steagall Act necessarily spawned this present financial crisis. However, he suggested that the present financial reform is meant to tackle non-financial, non-depository and non-regulated institutions. In light of the heavy regulation in the financial and insurance industry, Mr. Frank further suggested that the credit default swap, a form of an insurance product and a hedge, was not regulated and was based on a notional almost mystical value.

What the reforms are attempting to tackle are the products that have grown out of an industry that is continuously growing in sophistication. Mr. Frank mentioned that the means became the end which was only to make money, instead of the means leading to the end. He also suggested that the new reforms would abolish the requirement that credit ratings be obtained as required in the past and that buyers will have the right to sue a credit rating agency.

I think the government may be on the right track. We may never be quite sure how we got into the current crisis but we can try to prevent them from being repeated and wait for the next.

Wall Street look out... Change is in the air...The Senate Banking Committee passed a sweeping financial regulation bill on March 22. The bill now moves to the Senate for a full vote.

President Obama and his senior advisers are now planning to focus more on issues such as financial regulation reform. The administration is “seeking to tap into the anger among many voters over Wall Street excesses” that are at the root of the current economic crisis.

The financial regulation bill ultimate goal is to increase investor protections. If signed into law, the financial reform bill that passed the Senate panel would create a bureau within the Federal Reserve that provides investors with a greater level of security. The bill would also establish a regulatory council to “survey threats to the financial system.”

According to U.S. Senator Richard Shelby (R-Ala) major points of disagreements in the bill incude the following areas: the powers of a Consumer Financial Protection Bureau that would be created within the Federal Reserve, regulation of the sprawling market in over-the-counter derivatives and provisions that would give corporate shareholders a greater say over executive pay and boards of directors.

President Obama stated:

"We are now one step closer to passing real financial reform that will bring oversight and accountability to our financial system and help ensure that the American taxpayer never again pays the price for the irresponsibility of our largest banks and financial institutions."

Click on the following links to read more about the Financial Regulation Bill.

Senate panel passes sweeping financial-regulation bill - Washington Post
Panel Sends Financial Overhaul Bill To Full Senate - AP - NPR
Bank Panel Clears Bill on Overhaul - NYT