Fixing Wall Street, Protecting Main Street

[NJmaverick]

The Dodd-Frank bill is an important step toward crafting a financial system that doesn’t allow for that sort of excess and that reinstates consumer protection as a key ingredient of fairness and financial stability. It creates a new Consumer Financial Protection Bureau, housed within the Federal Reserve, which will be solely tasked with policing consumer lending. It will have a presidentially appointed director, an independent source of funding, and the ability to ban financial products that are deemed unfair and predatory.

No longer will consumer protection be left to federal bank regulators torn between dual mandates of consumer protection and bank safety and soundness. As Harvard Law Professor and consumer advocate Elizabeth Warren explains, the new agency “will have the tools to rein in industry tricks and traps and to cut out the fine print. For the first time, there will be a financial regulator in Washington watching out for families instead of banks.”

The bill also bring the $600 trillion market in over-the-counter derivatives, which is almost entirely unregulated, out of the dark by forcing standardized derivatives trades onto public exchanges (like those used for stocks) and putting customized trades through central clearinghouses (which ensure that the two parties in a trade have adequate collateral backing it up). As we have pointed out before, these are key reforms that will give investors a much clearer picture of derivatives prices and give regulators transparent paths to follow as they police fraud and abuse in the market.

Due to a reform known as the Volcker rule—named after former Federal Reserve chairman and current Obama administration adviser Paul Volcker—big financial institutions will no longer be able to engage in risky trading for their own benefit with federally insured dollars. And should they get into trouble due to making bets that don’t pay off, federal regulators will be empowered with a new resolution authority for dismantling failed firms without resorting to the ad hoc bailouts of 2008.

http://www.americanprogress.org/issues/2010/06/fixing_wall_street.html