Obama’s Financial Market Proposals

President Obama gave a speech today outlining the pillars of his financial market regulatory policy. Below are the high points. The first one means that anyone with a consumer-facing finance job can expect more disclosures and, most likely, more confusion for the consumer, at least in the first year. Anyone who’s gone through the recent wave of disclosure rules knows that the result of these efforts is more paper, not less. More confusing language for consumers, not less.

Example 1: most mortgage firms now have to give at least three home valuation/appraisal process disclosures to borrowers, they all say the same thing the original, single appraisal disclosures used to say. Example 2: The updated Truth In Lending rules mean that if anything during a real estate transaction changes (such as the seller issuing a credit to buyer, or buyer needing a few extra days to close the deal), it will delay the transaction 3 days (so everything can be re-disclosed), which often means that a rate lock becomes more expensive.

New regulation is needed, but regulation is written by people answering political agendas, not working on pragmatic processes. As such, the very goal of protecting and saving money for the consumer are compromised. At least in the beginning until businesses and lawmakers can fine tune the rules.

(1) Consumer Finance Protection Agency. This new agency will oversee and update disclosures for mortgage and credit card issuers to make sure that rates and programs are clearly disclosed and consumers understand their risk.

(2) Close Regulatory Loopholes. Make it so firms like hedge funds can’t subvert regulation, and so big firms can’t continually create off-balance-sheet vehicles to avoid regulation. To ensure large firms can’t take risks that threaten financial system, and make it so they have adequate capital to weather storms that inevitably come. Also shift cost of recovery to companies themselves and not taxpayers.

(3) Closely coordinate with non-U.S. governments to ensure regulation and capital standards are standardized in an increasingly global economic environment.

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