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Financial deregulation: too soon or just around the corner?

By Jia Lynn Yang

Thumbnail image for midtermmoney.gifBy Jia Lynn Yang
As my fellow Political Economy denizen Brady Dennis makes clear in this story, it's highly unlikely that Republicans -- if they win big tomorrow -- will be able to repeal Dodd-Frank financial overhaul law altogether. Even just killing off portions, such as the Consumer Financial Protection Agency or the derivatives portion of the bill, would be tough to pull off, too.

But there are changes in the margins that Republicans could still push forward that would benefit Wall Street.

One example: curtailing the independence of the consumer protection agency, according to Jaret Seiberg, senior vice president covering financial services policy at the Washington Research Group.

A Republican majority could try to force the new agency to be run by a board of directors, which would include some bank regulators, much like the Federal Deposit Insurance Corporation, Seiberg suggested.

"Putting in a better system of checks and balances would reassure the markets and reassure the banks that they're not going to deal with overreaching," he said.

Seiberg also thinks that the pendulum could already start swinging back toward deregulation, and a Republican takeover of the House would accelerate this.

Think that's too soon, given that Dodd-Frank is only in the earliest stages of implementation? Seiberg points to what happened soon after the banking crises of the late 1980s and early 1990s. Despite passing a slew of laws that imposed tough capital rules on thrifts and creating the Office of Thrift Supervision, by 1992, Congress had begun easing up on banks. The Housing and Community Development Act of 1992 made changes that pared back some prior rules. Then by 1999, Congress passed the Gramm-Leach-Bliley Act, a landmark bill that allowed banks to conduct investment banking, commercial banking and insurance all under one roof.

This latest era of regulation has included Sarbanes-Oxley, new credit card regulations and Dodd-Frank. "The climate is ripe in 2011 for the start of deregulation," Seiberg wrote in a recent note. He predicts that bold legislation is possible within five to 10 years.

By Jia Lynn Yang  | November 1, 2010; 4:08 PM ET
Categories:  2010 Elections, Financial regulation  
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It may be good for Wall Street bonuses, but it would be terrible for investors and consumers.

There is one major situation building that would demonstrate once more that Wall Street needs to be seriously regulated. That is the foreclosure crisis. It was caused by Wall Street ignoring hundreds of years of state and local law on land and mortgage recordation. They wanted to get bigger bonuses, to be able to rapidly trade the securitized sliced/diced mortgages, and to hide the identities of predatory lenders.

They set up an illegal system called "MERS" to record mortgages in competition with the legal systems. When foreclosures came into the picture, they needed the paperwork from the legal system of records and it didn't exist. So they fraudulently forged the paperwork and lied about it.

I strongly suspect some bank CEO's and lawyers are going to wind up in jail over the fraud and perjury that they committed or ordered.

Posted by: Stan Klein | November 1, 2010 8:03 PM | Report abuse

Someone should tell the Ivy-League economists in other media with their endless prattle to take a hike, haven't they miss-informed the public enough with their wrong theories (which don't work anyway - as the past two years have proven already)? Their suggestions about more stimulus spending are the equivalent of inflating all the onboard life-jackets and tying them together to try to keep the Titanic afloat after it has hit the iceberg - their curves with their disproportionate scales don't account for size or volume so they have no sense of size or volume. lol.

The only other mathematician on this continent intellectually capable of cross-checking my math (who just happens to be my father - luckily I am visiting him right now) just cross-checked my math and confirmed my results - the U.S. government accounts for such a small portion of the U.S. economy that increasing government spending hardly makes a dent in an economic downturn. America isn't some Third World country or China where the government is the largest part of the economy, where the government can increase economic activity just by increasing spending. lol.

The problems of the U.S. economy and the multiple competing global systems that form the U.S. economy are serious, and will require the best mathematical minds in the world to sit down with the leaders of a business-oriented congress (lets see if we get one Tuesday) to fix it, eight words - no business means no jobs and no recovery.

Posted by: darkasnight1234 | November 1, 2010 9:09 PM | Report abuse

Somewhere, someplace, there may be some magical land where magical regulations prohibit and prevent unwise extensions of credit to all of those who won’t be able to repay their loans, and still allows credit to be extended to all of those who will use it wisely and successfully to promote new businesses, increase employment, increase productivity and growth, and contribute to greater prosperity for all of us, all the while those magical regulations will protect all of us from the vicissitudes of the market and a vacillating and unpredictable government which is constantly adjusting its monetary and fiscal policy to the undulations of public opinion as driven by the demagogy of the day, but I doubt it. And, it is a little disconcerting that they are either so foolish or arrogant as to keep trying, but I suppose it is a job at least.

Posted by: droberts57 | November 1, 2010 9:19 PM | Report abuse

Consumers need to take hold of the power in banking. Banks used to serve the people, now the people serve them. If the CFPB gets the funding and starts to build an online community for long is it going to take? 1 year? 2 years? The party fighting and infighting is going to slow its progress immensely... solution-

Posted by: Anonymous | November 2, 2010 2:35 PM | Report abuse

darkasnight1234: Your ignorance is only exceeded by your arrogance.

Posted by: mini1071 | November 2, 2010 2:47 PM | Report abuse

You mean you folks haven't figured it out yet?

It should be pretty obvious that deregulation (as presently conceived) will not work in this country! Until Corporate America figures out that running a business, let alone a government, should not entail following Voltaire's philosophy on statistics, it won't happen!

The economy is the perfect example that "If you don't cheat, you're not trying..." doesn't really work. If you want less regulation, then you need to prove you can do the right thing without having someone breathe down your neck!!!

PS: For those who think that ignorance is bliss, here's what Voltaire said...

"Statistics are like lies, they'll say anything you want."

PPS: The idea is to achieve genuine results, not to skew them by cutting staffs, employee working hours & "paring" expenses! It doesn't take a MBA to figure that one out!! It goes to show what happens when you let the accountants make the calls instead of exercizing true leadership!!!

Posted by: Anonymous | November 2, 2010 3:22 PM | Report abuse

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