I’d like to comment on this intelligently, but I simply don’t know enough about it.
The problem with a financial reform bill is that it’s just as much about finance law as it is economics, and it’s rare to have those two specialties overlap in a person who cares more about the system as a whole than they do about representing their wealthy clients. I care about pragmatic solutions, and I can make a dozen broad economic points about what this bill should do, but I simply don’t know enough about the specificities of finance to say anything insightful.
For these reasons, I make a point to read a lot of financial commentary (that I don’t completely understand). I’d say the best of the lot, to my untrained eyes, is Economics of Contempt, a Wall Street lawyer who writes pseudonymously for obvious reasons. He’s known to the econ-blogosphere–even Paul Krugman has responded to him before. My impressions, filtered heavily through EoC:
Limiting credit-card fees (the “interchange” amendment) will get stripped by the House because of pressure from community banks, who have a lot of political oomph because there are community banks in every district. It’s DOA.
The Consumer Financial Protection Agency is a good idea and made it through the Senate, but the lobbyists are searching for ways to plug it full of exemptions. Right now, they’re considering exemptions for the auto dealers–also because the dealers tend to be a big political voice in their areas. There’s no reason to make the exemption, but maybe it’ll happen anyway.
It creates new procedures for resolution authority–winding a failing firm in a way that doesn’t undermine the broader system. Of course, this would require a standing reserve of funds to be used in case of emergency. As it turns out, the GOP sided directly with the banks to avoid pre-funding this reserve. It was a complete sell out on this one, because the funding would’ve come from those big banks. Still, the rule for resolution authority is there, and that’s a good step forward.
The Volcker rule made it through the Senate. Good news there, because early attempts to compromise on the rule, like Merkley-Levin, are being pushed by unscrupulous people. The banks are still scared of a full-strength Volcker rule, though, so they’re not going to give up without a fight. The House didn’t include the rule, but it’s not the sort of thing that small community bankers would hate, so they might be able to resist Wall Street pressure on that one.
Blanche Lincoln proposed an incredibly stupid amendment to spin off swap desks from banks, as if swaps were something different entirely from modern banking. They’re not. Swaps are essential, and they are the essence of banking (borrow short, lend long), and there’s no reason to spin them off as something else. The banks might panic politically because of how ridiculous this amendment is, but it’s no problem. Everyone knows how terrible it is, and it’ll be pulled out in conference.
A lot of those derivatives will have to be traded on clearinghouses. This is also a good move, a key part of giving stability to those crazy financial products. With all these things, this reform bill is a lot better than just about anybody had dared to hope a month before. Fingers crossed.
Here are some other finance bloggers who write obviously intelligent and interesting commentary: The Epicurean Dealmaker, an pseudonymous investment banker; Interfluidity; Rortybomb; Felix Salmon at Reuters. There are, of course, many others. It can be useful when they disagree with each other, too, so you can get a feel of where the fault lines are even among intelligent people. Recently Rortybomb and EoC have been squabbling about Merkley-Levin’s twist on the Volcker rule, but as I said before, I’m more convinced right now by EoC.
