Regulation

The United States is one of the only countries in the world with 30-year fixed rates for mortgages, and Arnold Kling suggests that this is "an artifact of government intervention, and that without it we would have a simpler, safer mortgage finance system." For example, Canadian mortgages carry a fixed interest rate for a maximum of five years, and rates are then re-negotiated for the next five years, similar to a five-year adjustable rate. That type of five-year mortgage is much more typical around the world than the U.S. system of fixed-rates for 30 years.

Last night, the Senate passed its financial reform bill – “The Restoring American Financial Stability Act” – by a vote of 59 to 39, with two Democrats voting against the bill and four Republicans voting for it. The next step for the legislation as it makes its way to President Obama’s desk is a conference committee, in which the freshly passed Senate bill will be reconciled with the House bill – the “Wall Street Reform and Consumer Protection Act” – passed on December 11th of last year.

The Senate passed their financial reform bill last night. But this isn’t the end of the story. Whether this is reconciled with the House version behind closed doors or in public debate will be key. House members do not like the price-fixing or derivatives measures present in the Senate version, and we can expect a few fights in the conference process.

One question yet to be addressed is, how much does this correctly balance the need for financial reform with international competitiveness?

Americans are angry at banks – and they should be. The wrenching financial crisis and the resulting damage to the broader economy and millions of American lives were avoidable and should have been prevented. Many factors contributed to the crisis and many parties are deserving of blame: members of Congress on both sides of the aisle, at least two Administrations, financial regulators, and, to be sure, the financial services industry.

The Washington Post is reporting (see article here) that the House-passed financial regulation reform bill would give enforcement power over the internet to the Federal Trade Commission. Specifically, it “would allow the FTC to issue rules on a fast track and permit the agency to impose civil penalties on companies that hurt consumers.”

Everyone’s favorite line from the movie “Casablanca” is when Inspector Renault says to Rick (as he collects his gambling winnings), “I am shocked, shocked to find gambling going on here.”

In the case of the Commodity Futures Trading Commission, I am actually shocked, shocked that the CFTC just gave the go-ahead to idea of gambling on the future prospects of movie box office receipts.

I think there will be a deal on financial services reform, or Wall Street reform as the White House now calls it.

But first there has to be the requisite Kabuki dance.

According to Wikipedia, “in common English usage, a Kabuki dance is an activity or drama carried out in real life in a predictable or stylized fashion, reminiscent of the Kabuki style of Japanese stage play.”

Unlike in health care reform, where the Kabuki theater pointed towards conflict, this play leads, in my estimation, towards resolution.