Thursday, June 18, 2009

Obama’s Sweeping Financial Regulations

Some details of Obama’s plans for sweeping reform of financial regulations are now out. Even the full 88-page report lacks detail because of the scope of the reforms.

It’s hard to figure out what effect all this will have on individual investors. The goals seem to be to prevent large financial disasters like the one the US is now pulling out of and to increase consumer protections. Not surprisingly, commentators disagree on whether these reforms will achieve these goals.

One of the more interesting articles I found on this topic is some collected reactions from different financial experts. For example, it was somewhat comforting to hear that Edward Yingling, President and CEO of the American Bankers Association (which represents all banks), doesn’t like the reforms. If bankers were supportive of the reforms, I would have suspected that Obama was on the wrong path.

A common theme from these experts is that “the devil is in the details.” There just isn’t enough information available yet to know what specific new regulations will be put in place to make investing in the US safer.

The commentator who made the most plausible prediction was Ethan Siegel of the Washington Exchange, a firm that follows legislation for institutional investors. Siegel predicted that financial companies will try to slow down adoption of the new legislation, and there will be “opposition from congressional committee chairs who oppose giving up oversight of federal agencies proposed to be phased out or consolidated.”

Even when changes will benefit the vast majority of people, there will still be an unhappy majority who oppose the changes. Here’s hoping that Obama’s changes get adopted and that they actually do help the majority of people.

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