Government vs. lobbyists
Adelina Marini, July 19, 2010
Quite quickly and with a surprising majority the US Senate approved the American Financial System Reform bill, right after the same did the House of Representative in the American Congress. This week President Barack Obama will sign it into Act, thus keeping another pre-election promise just a year and a half after taking office in the White House.
One of the basic pillars of the bill is that it puts an end to the practice "too big to fail" which requires their salvation with money from the federal budget (i.e. taxpayers' money). In case a too big company falls into financial troubles, the bill gives the federal government the authority to shut down and break apart large non-bank financial firms whose imminent failure might threaten the broader system. As President Barack Obama noted, this bill puts an end to the chance of a repetition of the Lehman Brothers or AIG failures.
The second component of the reform provides for simplification of credit contracts. For the purpose a special Bureau will be created - an independent entity within the Federal Reserve, which will have one mission: to promote transparency and consumer choice, and to prevent abusive and deceptive practices. For example, credit contracts will be simplified in order not to mislead consumers by complex texts and terms, behind which there are hidden fees or interest rates.
Financial regulators will be provided with tools to identify and prevent reckless risk taking. The very foundation of the crisis was exactly the problem with risk taking, aimed at larger and quicker profits. As part of this component is supervision over CEO' renumeration. Shareholders will have greater say when defining CEOs' bonuses, so that success is stimulated and recklessness not being boosted any more.
President Obama defined the approval of the bill as a victory over "hordes of lobbyists driven by a desire to protect a lucrative status quo". According to the reactions of the rest, it seems that a larger part of Republicans in the US, as well as key players on Wall Street are not happy with the reform.