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The Financial Reform Package: A Summing Up

It's not quite a done deal, because it still has to pass the Senate, but the outlines of financial reform are reasonably clear.

The bankers can pretty much "declare victory and go home." But the American consumer didn't come away empty handed. On the whole, the (prelimary) results look pretty "balanced" as defined below. But first, a look at some key provision areas:

Derivatives: I would like to see a ban on all derivatives. Ditto for tobacco. But it won't happen, beause the companies involved are making big money, AND, there are strong (buyers') interest on the other side willing to pay big money.

But at least most derivatives have to be cleared. That's a big step forward.

Prop trading: "Prop's to the banks for keeping this one. But even here, there was a step toward reform, with 3% capital and position limitations on a bank's investment in any one fund. Subsequent reductions of this number to 2%, 1%, or 0% couldĀ  result in a consumer victory on this one.

Executive comp and corporate governance: Basically, "nothing done."

Auto dealers and pawn shops: Got a free pass.

Credit cards: Significant restrictions on credit card practices. A win for the consumer, although the banks might make up for it by raising fees.

Rating agencies. They really took it on the chin, probably because they have no lobbyists. A clear victory for consumers.

Readers of my posts and comments will realize that I am consumer friendly. In this regard, the bill was not. On a scale of 0 (consumer friendly) to 1 (finance friendly), this bill appears to be at the 2/3 mark; closer to the banks' interests.

On one hand, there was the balance of power to consider. The consumers were at a disadvantage, meaning that they would never get a bill closer to their interests (less than 1/2 on this scale).

On the other hand, an economically "fair" result (bank losses just balanced by consumer gains) might be at the 1/3 mark. The final result was at the 2/3 mark, halfway between "fairness," (1/3) and "banks get everything (1). Considering that the greater power rested with the banks, this was a "balanced" result.