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House, Senate to vote on financial reform bill

Chairman Rep. Barney Frank (D-MA) looks over papers at Senate-House Conference Committee discussing a joint financial regulatory reform bill.

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"No one knows what's in this bill": Deeper analysis of the bill from FTN Financial's Chris Low.

Risk regulation and a consumer protection agency: What's actually in the bill with The Economist's Matthew Bishop.


Morning Report Host Steve Chiotakis and Reporter Mitchell Hartman explore the financial reform bill.

TEXT OF INTERVIEW

Steve Chiotakis: Lawmakers in the House and Senate worked into the wee hours of this morning to agree on a financial reform compromise bill. Sticky issues such as derivatives and limits on what kinds of deals banks can engage in have been worked out. Early next week, each chamber will vote and if all goes as planned, a bill will land on President Obama's desk within one week. We're going to find out how it all went down, Marketplace's Mitchell Hartman is with us live to talk about it. Good morning Mitchell.

Mitchell Hartman: Good morning, Steve.

Chiotakis: Remind us again why this is being debated in the first place.

Hartman: Well, keep in mind this is the biggest overhaul of financial regulation since the Depression. And of course it was sparked by our recent financial catastrophe that almost got us into another Depression, and it tries to deal with some of the key financial players that the center of that crisis.

Chiotakis: Key players, so give me a list of some of the big things.

Hartman: Hedge funds and private equity firms, they're going to have to register
with regulators and open their books. Banks get treated in a number of ways, they're going to have to put aside more capital and they'll be restricted in dealing on their own behalf, it's what's called "proprietary trading." Finally, these complex transactions we've all heard about, derivatives. There was talk of a strict crackdown, that didn't happen. But still, Wall Street investment firms will face some new restrictions, and derivatives are going to be tracked on exchanges and clearing houses.

Chiotakis: And Mitchell, what about some of the consumer protections we've been hearing about that were also fiercely debated in the run-up to this legislation?

Hartman: Well, there will be a new consumer watchdog bureau, it's going to be within the Federal Reserve, with pretty broad powers -- it'll have power over mortgages and credit cards. But it is not a completely independent agency, that's what consumer advocates initially were pushing for. Finally, kind of looking at the big picture, there are measures in here to try and anticipate and problems and then head off the kinds of bailouts we've seen of investment banks and insurance companies that are deemed too big to fail. So there will be a new board of regulators looking for signs of trouble before things get really bad

Chiotakis: Marketplace's Mitchell Hartman, with us live on the historic financial reform legislation vote. Mitchell, thanks.

Hartman: You're welcome.


Morning Report Host Bill Radke gets deeper analysis of the revised financial reform bill from Chris Low, chief economist at FTN Financial.

TEXT OF INTERVIEW

Bill Radke: President Obama this morning endorsed the financial overhaul. He said the bill limits Wall Street's ability to get "too big to fail", helps protect the American consumer from predatory banking, and speaking outside the White House, he said it won't stop our economy recovery:

President Barack Obama: Our economic growth and prosperity depend on a strong and robust financial sector. And I will continue to do what I can to support a strong financial sector.

So let's bounce this off chief economist Christopher Low, FTN Financial, he joins us live every Friday from New York. Hi Chris.

Chris Low: Good morning.

Radke: So you were telling me off the air that you're going to read this bill. That's what you're doing this weekend, you're going to go through the whole thing. What are you looking for?

Low: That's right, I'm actually going to read it end to end. And I tell you what, one of the things that I think was the most interesting about the process, there was a ton of horse trading going on. And Congress actually broke its own rules -- they introduced things in the conference to get the bill through that weren't in either version of the bill going in. The reason that's important today is that nobody knows what's in this bill. The market reaction today for that reason: not all that meaningful. It'll mean more, whatever we do, on Monday.

Radke: OK. Well you heard the president say that this legislation will make the economy less at-risk without hurting it. What will you look for in this bill to decide whether that's true, or whether we're going to take a punch from clamping down on banks?

Low: OK, well obviously everyone knows, and the experience of '08 and '09 prove, that there were all sorts of abuses going on in finance. The goal of the bill was to address those abuses. At the same time, the U.S. economy is built on credit. We have grown for the last 40 years in part because debt in the private sector has grown for 40 years. So what we want to see is a bill that allows credit to grow, but in a responsible way. And that's what I'll be reading the bill for: I'm looking specifically for hurtles to borrowing that are maybe too high, restrictions that are too tough, and also capital rules that put U.S. banks at a disadvantage to their international competitions.

Radke: And I imagine you'll also be looking at rules aimed at preventing the next meltdown. I tell you what, when we talk in our Friday chat next week, maybe we can say more about that?

Low: Absolutely, yeah. I mean one of the things that is in here is a board at the Federal Reserve that'll be looking out for consumer rights, making sure people aren't ripped off. I think that's probably one of the most welcome aspects of the new bill.

Radke: Chris Low, FTN Financial, thanks.

Low: You're welcome.


Morning Report Host Steve Chiotakis talks to Matthew Bishop, U.S. Business Editor of the Economist, on what's included in the revised financial reform bill.

TEXT OF INTERVIEW

Steve Chiotakis: Matthew Bishop is U.S. Business Editor over at the Economist magazine. He also co-authored the book, "The Road from Ruin", which looks at what it would take to bring capitalism back from some troubling times. He's with us live from New York. Mr. Bishop, welcome back to the program.

Matthew Bishop: Thanks, good to be with you.

Chiotakis: So if your book is about how to build a road from ruin, does this bill do any of the paving?

Bishop: Well, I think we've got a few bricks in the road but it's a long way to go, unfortunately. And there's aspects of the reform I like. I like the fact they've got a systemic risk regulator, I like the fact they've got a consumer protection agency, and I like this resolution authority. But I think it's still more of a fine tune than a recognition for real fundamental reforms that are needed.

Chiotakis: Is it really a consumer agency though, or just is it under the guise of the Federal Reserve and not much teeth?

Bishop: Well one of the frustrations of this whole package is that there's so many of the details that remain to be resolved. So you're right, I would rather see no consumer protection agency as a standalone agency. After all, the Fed has arguably got many of the powers that it needed to protect consumers, but didn't use them. So another agency within the Fed wouldn't really make much difference.

Chiotakis: What are some of the biggest failures, other than the ones you just mentioned?

Bishop: Well, I think one failure is that the pension funds, the mutual funds that hold our retirement savings, did a terrible job of holding the companies they invested into account, and there's been nothing to really change the way they're going to behave and make them actually ask tough question about the management to the firms on Wall Street and other firms.

Chiotakis: Very quickly, bank stocks are actually going up this morning. What's that mean?

Bishop: Well I think the other thing it means is that fundamentally, all that money from Wall Street that is still going to Washington, that's what helped caused the crisis in the first place, all these bought politicians. And I fear that the politicians have been bought by Wall Street once again.

Chiotakis: Matthew Bishop, U.S. Business Editor of the Economist and author of the book "the Road from Ruin". Thank you.

About the author

Mitchell Hartman is the senior reporter for Marketplace’s Entrepreneurship Desk and also covers employment.

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