This Wall Street Reform Bill Is One Big Sham

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Chuck Jaffe

July 18, 2010, 12:01 p.m. EDT · Recommend (17) · Post:

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By Chuck Jaffe, MarketWatch

BOSTON (MarketWatch) -- It took Congress about 2,400 pages to document its plan for reforming America's financial system, but the appropriate reaction for the nation's consumers can be summed up in just three words: Thanks for nothing.

The Dodd-Frank Wall Street Reform and Consumer Protection Act is a big sham, and all of the back-slapping and spin-doctoring that will hail it as a grand success as it gets signed into law is pure hogwash.

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If the premise of this legislative exercise was to promote substantive change so Mom and Pop Investor -- trying to build a retirement nest-egg in their 401(k) plan -- or Joe and Jane Average -- hoping to pay off their mortgage someday -- could be more secure and confident, it's a near-complete failure.

But if the aim was full employment for lawyers and lobbyists, then it worked like a charm.

Let's examine the major flaws:

This law is so ponderous, no one seems sure of what's in it. I pride myself on my ability to get through detailed legal documents, but after reading this bill to the point just before my eyes started bleeding, the one thing that becomes clear is that no one can be entirely sure what the heck they voted for.

The law was written by congressional aides, who were buttonholed by lobbyists and were more concerned with passing legislation that would be popular with the public come mid-term elections.

There is so much stuff in this bill, it feels like legislators simply wanted to wear the public down. Try reading this on your own (I dare you), and the sight of politicians spinning sound bites and bullet points doesn't look so bad. The legislation is so painful to get through that you could punish white-collar criminals by forcing them to read this thing aloud for hours on end.

The Securities and Exchange Commission was unable to stop major events that precipitated the most recent financial crisis. Yet the agency now gets more power over rulemaking, while it has to take on more studies and more regulatory burdens.

That's a recipe for the next disaster. But at least when it happens, lawmakers will be able to point to someone -- the SEC -- and proclaim that the problems were somebody else's fault.

Here's where good intentions fall apart. The SEC is now going to oversee more than 10,000 hedge funds and a similar number of private-equity firms. That would be a step in the right direction, except it's not clear how such regulation is going to be paid for.

Those exams should be self-funded, of course, but that would make regulated firms feel like they were paying what amounts to an oversight tax, and no self-respecting politician needing the support of those newly regulated firms would want management to feel like it's facing a tax increase; it cuts into the funds available to make those political contributions.

So the SEC gets the power of oversight, but not the financial muscle to carry it out. Bad regulation is, at times, worse than no regulation. Without oversight, investors in unregulated securities understand that they might be dancing with monsters; once they think they are protected, however, they tend to let their guard down. That's a problem when new protections are a façade and a sham.

Chuck Jaffe is a senior columnist for MarketWatch. Through syndication in newspapers, his "Your Funds" column is the most widely read feature on mutual fund investing in America. He also writes a general-interest personal finance column and the Stupid Investment of the Week column. Chuck does two weekly podcasts for MarketWatch, and frequently makes guest appearances on television, and on radio shows across the country. He is the author of three personal-finance books, with his latest, "Getting Started in Hiring Financial Advisors," set to be published in the spring of 2010 by John Wiley & Sons.

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4:08 p.m. July 16, 2010 | Comments: 89

From the comments, the bill is about what most people expected from this Congress. It is a total disaster. It can't even work on a budget and has delayed that until after the election, passing a temporary spending bill instead. No wonder the approval rating of Congress is lower than the belly of a snake.2400 pages to say nothing meaningful? What bunch of garbage."

- JanPaul | 2:14 p.m. July 18, 2010

"Wall Street reform does nothing for Main Street http://on.mktw.net/cJ92Bk" 11:15 a.m. EDT, July 18, 2010 from MKTWJaffe

"Shares of Whole Foods may spoil your portfolio http://on.mktw.net/cHLyTg" 5:10 p.m. EDT, July 16, 2010 from MKTWJaffe

"Did anyone else see in "Despicable Me" that beneath the sign for the "Evil Bank" it said "formerly Lehman Bros." Best line in the movie." 8:54 a.m. EDT, July 14, 2010 from MKTWJaffe

"A financial talk before the kid heads to college http://on.mktw.net/cp4zqj" 8:03 a.m. EDT, July 14, 2010 from MKTWJaffe

"A new aisle for the financial supermarket http://on.mktw.net/c6r876" 1:22 p.m. EDT, July 11, 2010 from MKTWJaffe

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