In the past few years, millions of Americans have lost their jobs and/or homes and ruined their credit ratings.
Banks and other lenders took a major hit when their customers could no longer pay back loans, prompting the federal government to step in and provide billions of dollars in bailout money to troubled companies.
President Barack Obama introduced a sweeping financial-reform bill that would prevent this same type of crisis from occurring in the future. Obama last month signed into law the most sweeping overhaul of financial regulations since the Great Depression.
Opponents of the law argue that it does nothing to remodel the dangerously insolvent, and government-owned, home mortgage entities Fannie Mae and Freddie Mac. The mortgage giants, which hold trillions of dollars in consumer mortgages, were created decades ago by Congress to build an investment market for the exchange of mortgage notes in bundles on the secondary market.
Although the financial markets are now large enough to perform this task, the new law fails to provide any reform whatsoever to Fannie Mae and Freddie Mac, let alone eliminate them.
The biggest trouble with these institutions is that when government is involved in the home-loan business, it is susceptible to pressures from Congress or other government branches to fulfill certain political goals.
The housing-industry problems that the country recently experienced were caused in part by these pressures. Fannie Mae and Freddie Mac to lose billions of dollars on bad mortgages; those costs are still being passed to taxpayers.
One of the largest issues with this hybrid system is that shareholders profit in bad times while taxpayers suffer. The current financial-reform law does nothing to address this issue.
These companies at the center of the housing crisis were the government-sponsored enterprises (GSEs), however their complete absence in the financial-reform bill suggests that blame is being placed entirely on numerous private and public companies for causing the entire financial collapse.
The GSEs were, in fact, at the center of the crisis, using practices such as pooling less-stable consumer loans into securities packages sold to investors.
Obama’s financial reform contains no mention whatsoever of restructuring, phasing out or doing anything with Freddie Mac and Fannie Mae.
So, what was touted as the most sweeping crackdown on banking institutions since the Great Depression ironically provides no evidence that the huge lenders will stop gambling with taxpayer dollars by continuing their current practices.
The measure is officially called the Dodd-Frank Wall Street Reform and Consumer Protection Act after retiring Connecticut Democrat Sen. Chris Dodd, the head of the Senate Banking Committee, and Rep. Barney Frank, D-Mass.
It’s a complete shame to call it “consumer protection.”
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