Congress Passes Sweeping Financial Reforms

The president hailed the passage of the bill today, remarking that it will provide long-deserved economic security to families and businesses. He said it ensures there that will be no more taxpayer bailouts and that Americans won’t have to foot the bill for Wall Street’s excesses.

The new rules are aimed at making the financial system safer by creating more oversight over banks and money traders, protecting consumers from abusive credit card and lending practices, and ending some so-called “shadow banking” practices that many blame for the financial meltdown. But critics worry that it will end up slowing down economic recovery.

It’s as if the government is putting “speed limits” and “seat belts” on the money highway, where traffic was speeding out of control, explained Chrystia Freeland, global editor for Reuters.

She adds, “But what it also means is that capital [money] is going to move a little more slowly. That is the inevitable cost. And for Main Street, that means, yes, it will be harder to get a mortgage than it was in the go-go years of 2006, 2007.”

Compromises made to push the bill through Congress

	President Obama, shown here with Treasury Secretary Timothy Geithner, praised the bill’s passage and will sign it into law in the next few days.

After passing the House of Representatives last month, the bill passed the Senate Thursday on a near-party-line vote, with a few key Republicans breaking ranks to support it. President Barack Obama is expected to sign it into law within the next few days.

The law is a compromise between lawmakers who wanted much more radical changes to the banking system and conservatives who did not want to burden banks at a time of economic uncertainty.

In 2,300 pages, the law sets up stricter regulations on risky practices of Wall Street banks and a Consumer Protection Agency that oversees mortgages and credit cards.

“We are poised to pass the toughest financial reform since the ones we created in the aftermath of the Great Depression,” said President Obama. “…We’ve all seen what happens when there is inadequate oversight and insufficient transparency on Wall Street.” 

The biggest financial reform law since Roosevelt’s New Deal

	President Franklin Delano Roosevelt signed the legislation creating the New Deal, bank reforms created after the stock market crash of 1929.

The new law is both similar and different to the banking reforms passed after the crash of 1929 — coined “Black Tuesday” — that ushered in the Great Depression. 

When Franklin Roosevelt assumed office in 1933, the unemployment rate was near 25 percent and millions of Americans scoured the country looking for jobs.

Then, as now, millions of families lost their homes because they could not pay their mortgages.  

In his pivotal, first “100 days” as president, Roosevelt pushed emergency legislation through Congress that served three concrete purposes: to provide relief to the unemployed, recover lost jobs and create reform to help prevent a catastrophic economic downturn in the future.

The Emergency Banking Act of 1933 was one of the first measures. It set out to close defunct banks that were unable to pay debts. As a way of bolstering the confidence of investors, the act then reorganized the banks and reopened them. 

Republicans say new law will harm the economy

	Republicans criticized the reform legislation, saying it made too many regulations the crisis on Wall Street.

Christopher Dodd, the Senate Democrat who worked with the House to create a compromise bill, said that the new law cannot make bankers and financial traders behave better, but it can improve the policing system. 

“I can’t legislate wisdom. I can’t legislate passion or competency,” Dodd said. “What we can do is create the tools and the architecture that allow good people to do a good job on behalf of the American public….I regret it can’t give you your job back, restore that foreclosed home, put retirement moneys back in your account. What I can do is to see to it that we never, ever again have to go through what this nation has been through.”

Republicans, however, were quick to criticize the law as more wasteful government expansion.

Senate Minority Leader Mitch McConnell said: “Once again, the administration and its Democratic allies in Congress have taken a crisis and used it, rather than solving it. How else do you explain the fact that a bill that was meant to address the excesses on Wall Street is expected to hit individuals and industries that had nothing to do with the crisis it was meant to prevent?”

Other critics argue that more rules will result in banks moving their money from the United States to countries with less oversight.

After the president signs the bill into law, the newly-empowered regulators will get to work coming up with ways to identify abuses and prevent the next financial crisis.