I have to confess that the latest ‘reform’ legislation has aroused a bit of skepticism in me. The Senate just passed a 2,000 page bank reform bill that was positioned as a tough measure to reform big banks and Wall Street. The goal is to make sure events like the financial panic of 2008 never happen again. Who could argue with that? However, this statement from the chief architect of the legislation, Senator Christopher Dodd (D-CT), aroused my concerns. He was quoted in this Washington Post piece as saying, [emphasis added]:
“It’s a great moment. I’m proud to have been here,” said a teary-eyed Sen. Christopher J. Dodd (D-Conn.), who as chairman of the Senate Banking Committee led the effort in the Senate. “No one will know until this is actually in place how it works. But we believe we’ve done something that has been needed for a long time. It took a crisis to bring us to the point where we could actually get this job done.”
I’ll leave aside any snarky comments about the fact that the Senator got teary-eyed over this. Otherwise, I may have to get some mandatory sensitivity training or something. My main concern was the last point he made:
‘No one will know until this is actually in place how it works.’
Not exactly reassuring, eh? One would hope that the chief architect of legislation would have a pretty fair idea of how a bill will work in practice, but maybe that’s an old fashioned concept. Though the Senator claims no one will know how this 2,000 page bill will work out, I think the evidence is already in that at least one group knows. What evidence you ask?
From a lengthy MarketWatch.com piece on the potential impact of the legislation, note the ironic juxtaposition of a statement from a bank analyst about how big banks (financial supermarkets) will be hard hit by this legislation right next to stock quotes showing those very stocks soaring. The stock quotes are embedded in the text [emphasis added]:
…”Financial supermarkets” like Bank of America Corp. (BAC 15.42, +0.40, +2.66%) , Citigroup Inc. (C 3.94, +0.16, +4.23%) , J.P. Morgan Chase & Co. (JPM 39.44, +1.41, +3.71%) and Wells Fargo & Co. (WFC 27.05, +0.19, +0.71%) will be hit the hardest, the analyst said…
Hard hitting legislation? On the day it was announced, we have Bank of America up 2.66%. Citigroup up 4.23%. JP Morgan up 3.71%. Wells Fargo up on 0.71%. We will see how this works out in the long run, but I suspect the answer to Sen. Dodd’s assertion lies in the paragraph above.
The big banks know how this will work out. They like it.
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Kurt,
>> Not exactly reassuring, eh? <<
I don’t know what you were expecting from this regulation. First, big banks were not the only ones to blame — everyone has to take credit for the financial metldown. Certainly big banks deserve a lot of credit, but so does the little guy who took a mortgage that he could never afford. How did you really want politicans to phrase a financial reform bill that is suppose to prevent a “financial meltdown” from occuring again. In my opinion, this entire financial regulation thing was nothing more than political rhetoric from the get go. Think of it as a political pacifier for the little guy; if you look at it that way, this reform bill is a huge success.
P.S.
Kurt: This is a good time to load up on bank stocks. I personally like C and BAC.
one would hope one sentence wouldn’t be taken out of context to write an article.
Wayne - I did not want this reform either because I have no faith in Congress’ ability to understand our financial system. This ‘reform’ was sold as a way to rein in Wall Street, yet bank stocks soared after it passed, so I sincerely doubt if there is much actual reform in it. That is, I doubt if there is much in it that would actually forestall another financial panic. Nor does this undo past so-called reforms such as the repeal of Glass-Steagall that was signed by President Clinton in early 2000.
Unfortunately, this is another example of vastly complex legislation being passed with little or no regard or understanding of what it does or what impact it will have on us.
Bank stocks soared because they were priced down in anticipation for tougher regulation. I hope our government goes through with taxing our banks, so the banks can increase their fees to the 47% of Americans who do not pay any taxes, then finally we can start to pay down are nations debt, unless President Obama decides to spend those proceeds on the people who continue drain our resources, like he wants to do with the repaid TARP money.
Kurt Brouwer is a fee-only financial advisor with three decades of experience. He is the chairman and co-founder of Brouwer & Janachowski, LLC. Kurt has written books, articles and hundreds of blog posts on mutual funds, ETFs and other investment topics. E-mail: kurt.brouwer *at* gmail.com.
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