Financial Reform Bill: Good, Bad and the Ugly?

Last week the House passed the Financial Reform Bill and the Senate is expected to take a vote later this month.  There is much confusion about this bill and disbelief that it will do as Nancy Pelosi promised last week when she said,  "No longer again will recklessness on Wall Street cause joblessness on Main Street. No longer will the risky behavior of the few threaten the financial stability of our families, our businesses and our economy as a whole."  While I am not an expert on this subject (but who really is?), I will try to share a few highlights and low points.
 
First the Good.  While this bill will certainly not do all that Pelosi promises, it has placed much needed light on some very secretive and risky activities that large financial institutions were doing (commonly referred to as the "shadow banking system"). Few people understand derivatives, credit default swaps, collateralized debt obligations... but many more are asking questions about what impact they have.  This is good.
 
The Bad is that this bill really does not address Fannie Mae and Freddie Mac.  These two quasi-governmental organizations (that we the taxpayers now own) guarantee over half of all U.S. mortgages and have received about $145 billion in taxpayer bailouts since September 2008. Many believe tighter restrictions should have been placed on these two as their questionable lending helped trigger the housing meltdown.  This is bad.
 
Now the Ugly part of this bill is the politics that always seem to happen with legislation.  The Wall Street Journal did a great job pointing out how this new bill will provide new rules on "swipe fees" which are so important to banks and retailers.  Some are estimating that $20 billion from credit card companies has been shifted to retailers (with Wal-Mart being the biggest).  Credit card companies think this is ugly. Just days before the vote in the Senate to knife the banks with caps on credit card fees, Wal-Mart announced a $20 million donation to Chicago-area charities. The retail giant also announced an intention to open several new stores in the Windy City. So what's the connection to the legislation? The man who carried the ball almost single-handedly on the bill was Illinois Senator Richard Durbin. "This bill wouldn't have happened without Durbin," says one credit card spokesman.
 
Wal-Mart dismissed any idea of a payoff for a big political favor. The company says it routinely gives to Chicago charities -- $10 million over the last five years -- though the latest gift for 2010 still represents about a 10-fold increase in Wal-Mart's generosity.
 
The story doesn't end there. Behind the scenes, Arkansas (home of Wal-Mart) Senator Blanche Lincoln, one of the chief architects of the Wall Street bill, is working to attach an amendment to benefit an Arkansas bank, the Arvest Bank Group Inc. of Bentonville. Arvest is predominantly owned by the Walton family, founders of Wal-Mart. This is ugly and why so many people no longer trust politicians.

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by Scott Heintzelman - Scott is a CPA, CMA and CFE living in Pennsylvania. Scott is a partner serving on the executive team at McKonly & Asbury LLP, a regional accounting firm with multiple offices in the Mid-Atlantic. The firm has been an IPA ALL-STAR as well as winning Best Places to Work in Pennsylvania for numerous years.

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