Financial Reform Bill

In WorldMovers Sunday School class, we have had some discusssions about economics and the Bible. At the request of WorldMover Audrey Johnson, here is a reprint of the article I wrote for Presidential Prayer Team web site on the upcoming Financial Reform Bill vote:

Financial Reform Bill

The near-collapse of the world financial system in the fall of 2008 and the global credit crisis that followed gave rise to widespread calls for changes in the regulatory system. In June 2009, President Obama proposed sweeping reform legislation. After months of negotiations and weeks of debate, on May 20, 2010, the Senate passed a reform bill similar to one the House had passed in December. On June 10, a committee began addressing differences in the bills.

The three primary features of the Senate bill, as summarized by the committee, are:

Consumer Protections with Authority and Independence: Creates a new independent watchdog with the authority to ensure American consumers get the clear, accurate information they need to shop for mortgages, credit cards, and other financial products.

Ends Too Big to Fail: Creates a safe way to liquidate failed financial firms; imposes tough new capital and leverage requirements that make it undesirable to get too big; and establishes rigorous standards to protect the economy and American consumers, investors and businesses.

Federal Bank Supervision: Streamlines bank supervision to create clarity and accountability; protects the dual banking system that supports community banks.

Other provisions in the bill would eliminate loopholes for risky practices, allow stockholder to limit executive compensation, require accountability for credit rating agencies, and empowers investigators to aggressively pursue fraud and conflicts of interest.

Many of the concerns which first prompted the legislation revolved around the “too big to fail” category above. In response to that concern, proposed legislation would provide more authority for regulators to monitor everything from mortgages to complex securities. This is meant to keep future financial time bombs, like the no-documentation loans and collateralized debt obligations of the past decade, from becoming rife. Secondly, financial firms would be forced to reduce the debt they take on and to hold more capital in reserve. This is the equivalent of requiring home buyers to make larger down payments: more capital will give firms a bigger cushion when investments start to go bad. Finally, if that cushion proves insufficient, the government would be allowed to seize a collapsing financial firm, much as it can already do with a traditional bank. Regulators would then keep the firm operating long enough to prevent a panic and slowly sell off its pieces.

While some opposition to the bill would expected from minority Republicans, critics of the bill include members of both parties, including some who were involved in drafting the original House version. As you pray for the committee and the upcoming July vote, keep in mind some of these concerns:

• Some of the original drafters, including Rep. Scott Garret (R-NJ), believe the bill gives too much authority to expend federal monies for bailouts; he would prefer to see some of these handled privately by strengthening the Bankruptcy Code.
• Sen. Ted Kaufman (D-DE) would prefer clearer limits on Federal involvement as well, with a firm limit on the amount of government insured deposits a firm can hold, as a way of capping its size.
• Rep. Brad Sherman (D-CA) further believes that the emergency lending authority this bill will give to Federal regulators leaves room for “massive taxpayer exposure,” essentially leaving all taxpayers vulnerable to fund bailouts for huge corporations.
• Sen. Bob Corker (R-TN) and Sen. Kaufman see the bill as giving too much authority to federal regulators, just as the Obama administration desired. Their concern is that the crisis last year “was not that they [federal regulators] were asleep on the job, but that they had little interest in doing it,” according to Kaufman.

For the past hundred years, the role of the federal government in regulating and directing the economic functions of corporations and private citizens in the United States has increased steadily and dramatically. There is probably little that can be done at this point to completely rid the American economy of such regulation. However, the twentieth century should have taught us that neither capitalism or socialism hold the ultimate cure for the covetousness of the human heart. Only repentance before God in faith of redemption through Christ can liberate us from the greed that courses through human veins.

As individual believers, we must pray to be good stewards of that which God has entrusted to us, without covetousness, and with charity toward others. As Christian citizens, we must pray for wisdom for those responsible for federal coffers containing a huge amount of our collected wealth.