This week the House and Senate will appoint their conferees and begin work to merge the House and Senate versions of Financial Reform. The stakes for America are high. This article by Robert Kuttner previews the key issues:
…Despite the David-Goliath nature of this fight, a lot of good provisions are in either the House or Senate bills, and the challenge will be to make sure that the final law includes the stronger rather than the weaker version. Among the key fights:
Derivatives: Senator Blanche Lincoln’s language requiring that all derivatives trades be cleared on public exchanges, that no banking company with deposit insurance may also trade derivatives, and that sundry other loopholes be closed, survived fierce industry opposition and only lukewarm support from the administration. Whether or not Lincoln wins her own primary Tuesday, this measure has increasing support of House and Senate progressives. A companion measure by Sen. Maria Cantwell, which did not make it into the senate bill, would close more loopholes and require adequate capital for all such trades. This approach now appears to have the support of both Senate Banking Chair Chris Dodd and House Chair Barney Frank, as well as Gary Gensler on behalf of the administration. Banks want to continue their gambling games, and this is the number one target of the big banks to kill.
Consumer Protection: The House bill includes a free standing consumer financial protection agency, but it would be hobbled by the requirement that it report to a committee as well as limits on its jurisdiction. The Senate version nests the proposed agency as an independent body inside the Federal Reserve, but without many of the restrictions. This is one of the few provisions that enjoys the hands-on personal support of President Obama. The challenge of the conference is to retain the best features of both bills.
Credit Rating Agencies: It was the corruption of credit rating agencies that made possible the sub-prime meltdown. Reform of these private agencies, such as Moody’s and Standard and Poors, was not even part of the original legislation. But a surprise amendment by Sen. Al Franken requiring random assignment of agency ratings rather than payment of the agencies by clients narrowly passed the Senate and was included in the bill. There is no House counterpart, and industry is gunning for this one. But the House does provide that credit rating agencies are legally liable for deceptive practices.
Cover Auto Dealers: New and used car dealers are among the most notorious purveyors of deceptive bait-and-switch financing. But the auto industry, which operates in every congressional district, worked with Senate Republicans on a parliamentary maneuver to win an exemption for car dealers; a similar provision is in the House bill. There is an outside chance that this could be reversed. Both Dodd and Frank are sympathetic to reversing this outrageous carve-out.
Bring Back Glass-Steagall: Among the crucially important provisions that did not make it into either final bill is the Merkley-Levin amendment which would draw a bright line separating taxpayer-insured commercial banks from financial firms that gamble and trade derivatives and other risky other securities for their own accounts (the "Volcker Rule.") There is still a decent chance that this could make it into the final bill.
Break up the Biggest Banks: Another key provision that developed significant support but that was defeated in a floor right was the Brown-Kaufman amendment to limit the percent of deposits held by any one bank, and thereby break up the biggest banks. But this measure will be back another day.
Duty to Clients: Among the most instructive revelations of the hearings, investigations and debates was the disclosure that big Wall Street houses routinely bet against their own customers. An amendment providing that investment banks have a fiduciary duty to their clients was not included in the final senate bill, but has increasing support.
Fix the Mortgage Mess: The House and Senate bills both have modest reforms to tighten mortgage standards but no major breakthrough to end the logjam on refinancing distressed mortgages so that besieged homeowners can keep their homes. This is also a fight for another day.
Despite its limitations, the financial bill is a start that progressives need to defend. Given where we began, this process has come a long way. At the outset, the administration was backing a far weaker bill. House Financial Services Chairman Barney Frank was hobbled by the presence of fifteen pro-industry "New Democrats" on his committee who weakened the bill at every opportunity. As recently as March, Senate Banking Chairman Chris Dodd was on the verge of making a bipartisan deal with Committee Republicans for a measure that would have been reform in name only.
But as the public has begun paying more attention, as AFR has grown into the most effective financial reform coalition ever; and as heroic progressive legislators have moved their colleagues, the bill has gotten better over time. Other progressive leaders such as Elizabeth Warren and AFL-CIO President Rich Trumka have pushed public opinion, key legislators, and the Obama Administration. All of this is no small achievement, given how esoteric most of these issues are to most voters… [emphasis added]
Inserted from <Huffington Post>
On Derivatives, I predicted that conference would be delayed until after Lincoln’s primary runoff and that her amendment would then Please let me be wrong on that! It needs to stay. We need an independent CFPA without the rules in the House version. Support the Franken Amendment reforming the selection of credit rating agencies. Auto Dealers should be covered, but I don’t expect it. Glass-Steagall should be added, but won’t. Breaking up TBTF banks should be included, but won’t. Clients should be informed if their banks are betting against then, but won’t.
Tomorrow, the conferees will be selected. If your Senator or Representative is one of them, call them. Ask them to support these issues please.
I hope this has helped make the subject a little less esoteric.
11 Responses to “Will Financial Reform Survive Conference?”
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TC – thank you for that excellent summary of what is in or out of the bill. This is complicated shit and hard to understand – that summary was clear and concise and should be read by everyone. Thanks.
You’re most welcome, Lisa. Thank you.
Predatory Lending is a major contributor to the economic turmoil we are currently experiencing.
Here is an example of what I am talking about:
Scott Veerkamp / Predatory Lending (Franklin Township School Board Member.)
Please review this information from U.S. Senator Jeff Merkley regarding deceptive lending practices:
“Steering payments were made to brokers who enticed unsuspecting homeowners into deceptive and expensive mortgages. These secret bonus payments, often called Yield Spread Premiums, turned home mortgages into a SCAM.”
The Center for Responsible Lending says YSP “steals equity from struggling families.”
1. Scott collected nearly $10,000 on two separate mortgages using YSP and junk fees. 2. This is an average of $5,000 per loan. 3. The median value of the properties was $135,000. 4. Clearly, this type of lending represents a major ripoff for consumers.
http://merkley.senate.gov/newsroom/press/release/?id=A09C6A80-537A-4EB1-83C5-31925F046B6F
Hi jmb. Jeff is my Senator. In fact I worked on his campaign to overthrow the incumbent Goose-stepping Gordon Smith, that so-called moderate who stood for progressive issues, whenever we didn’t need him, but always GOP goose-stepped whenever the chips were down. I fully support Jeff’s proplsed legislation.
It would be a travesty if Glass-Steagall is not included. Al Franken is still a genius.
What we don’t need is anything else watered down. As far as Blanch, it would be a real good goodbye gift. Good post!
PS thanks again for the help…
Hi Tim. Odds are it won’t be. It’s not in either bill.
Thanks, and you’re most welcome.
As a handy reference from “The New York Times” which recently published a chart comparing different provisions on financial reform based on [1] Their Effect; [2] Differences between House & Senate Versions; and [3] Proposals that were omitted or defeated:
http://www.nytimes.com/interactive/2010/05/20/business/20100520-regulation-graphic.html
Thanks Nameless. Good info!
jmb27, you have NO CLUE!!!! A Mortgage Broker is limited to 4% maximum earnings on a file (MAXIUM, GET IT – THIS INCLUDES YIELD SPREAD AND/OR ORIGINATION FEES) this ALSO includes ALL admn fees.
Example – $100,000 x 4% = 4,000 less lenders fees – approc. 1000 leaving $3000 to the Mortgage Broker firm..naturally they have to pay the Loan Officer, Processor, Receptionist, rent, utilities, Health insurance premiums leaving a VERY SMALL profit to the Princiapl Broker!
A BANK IS NOT RESTRICTED AT ALL THEY CAN CHARGE WHAT EVER THEY WOULD LIKE AND THEY RECEIVE A SERVICE RELEASE PREMIUM!!!!!! IT IS OBVIOUS YOU DO NOT KNOW WHAT YOU ARE TALKING ABOUT!!!!
After working for a REPUTABLE firm for 15 years answering my cell 24/7 and going way above & beyond, we were taken over by a psuedo “Mortgage Banker” which allowed me to make MUCH, MUCH more and yes the law allows a Mortgage Banker (a mortgage broker masked with a now required net worth to still in affect BROKER LOANS….the only difference is they close the loan in thier name & than sell it after the closing). So please, get your facts straight!
As for the “steering”; where was Congress when these types of products were being made & sold…..ahhh, never mind, I guess they too thought they could get a 1.95% interest rate….these loans were sold by the sleeze bags of the ENTIRE MORTGAGE INDUSTRY!!! However, if Wallstreet, the rating agency & the Banks did not have the product to push to the street – WE WOULD NOT BE HEAR AND YES I DO feel the consumer should bear some responsibility…surely their Mother warned them if it sounds to good to be true beware, but I guess it’s easier, more simple for a small mind to push the responsibilty to small mom & pop Businesses (Main ST) as these samll businesses DO NOT MAKE the big profit YOU seem to think is made….to pay the lobbyist that inturn line Frank & Dodd’s pockets!!!
Welcome, CN. Just so you understand, here we argue issues while treating each other with respect and courtesy.
Aren’t there different regulations for mortgage brokers in different states?
TomCat – It is most difficult to be respectful & courteous to the ignorant minds that have no idea what they are talking about – that said it is even harder to grasp Merkley and the like are out there pushing change based on erroneous information. Sad, knowing the push will & is only driving our economy in a deeper whole!! Yes, a Housing Crisis occured, DUE TO THE BANKS & WALL ST pushing toxic products to the street; the banks started the origination of these products & Wall ST bought’em up & sold them to poor unsuspecting clients, THAT’S IT!!! As for Appraisers; values were increasing, I did not know ONE APPRAISER I could call & ask to increase value beyond what comparables would support, not to say this did not happen but tell me what sector is pure & rightgeous, we have criminals poping up in our own Congress making “deals”. I agree ALL originators should be Licensed & fined if found breaking the law and/or ethics. But, Merkley’s bill is a joke – eliminate YSP, after the compay I worked at for 15 years we essentially were taken over by a “Mortgage Banker” and essentially I was being paid the same way..just a “twist” SRP, it is the EXACT SAME THING as YSP, EXACTLY THE SAME…only a banker does not have to disclose as Mortgage Brokers do!!! Better yet, at a bank I had no cieling, so I could make more, yipppee – right, WRONG! Making more is not my goal doing a public service without all the Corporate B.S. as IF the Government hasn’t already put enough in to it; HVCC – the cause of values dropping and lets not mention the idea of holding a customers Appraisal hostage after the customer PAID FOR IT, MDIA – PURE WASTE OF TIME! GFE a joke, no signature page & our local Attorneys call us to walk them through the new HUD.
Their are different regulations and some are much less than 4%. However, I do not know one investor out there allowing more than 5%….so lets ask ourselves, WHO IS THIS HURTING..do the math on a 50-85k loan; I specialize in helping low to moderate borrowers..I can no longer do these loans, they need the most help and are the hardest loans to bring together at 4%, less ADMN fees, I’d be paying the borrower.
The long short is if you add all the appraisers, mortgage brokers, staff clsoing Main St shops down all over our Country and take a look at the ripple affect; local Rest., Hair Salons, Plumbers, Elec., Local Governments..Mortgage Brokering has been around for 30 years..sooOooo what the Obama Admn. felt a need to dismantle & rebuild it not realizing the hundres of thousands of jobs loss & lets not talk about the add’l foreclosures …
I just can not believe Congress is not aware of the simplicity of YSP or SRP, IT IS THE SAME THING..so tell me Mr. JMB7, why, WHY are you singling out a Mortgage Borkers YSP, that is CLEARLY DISCLOSED and WHY ARE YOU NOT HANGING THE BANKS for this “secret” you are referring to, sad very sad. Sad for Americans as if this is passed many will be left behind & have one choice the Anti-Christ BOA….maybe this is JUST WHY they are doing what they are doing…..