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Industries keep eye on financial reform

Marketplace Staff May 28, 2010

Industries keep eye on financial reform

Marketplace Staff May 28, 2010


Steve Chiotakis: But first, Congress has only started on the sticky business of reconciling a couple of financial reform bills. Different measures passed the House and Senate, and it could be quite a while before we see a law. A lot of people are waiting to find out how those reforms will affect them.

Wall Streeters are the obvious ones, but as Marketplace’s Nancy Marshall-Genzer has found, there are many more. Some in industries you might not expect. Nancy, thanks for being with us.

Nancy Marshall-Genzer: You’re welcome.

Chiotakis: You’ve identified three specific groups — car dealers, farmers and airlines. Let’s start with the car dealers: Why are they waiting to see what happens with this financial overhaul?

Marshall-Genzer: Well, it’s almost certain that we’ll see the creation of a new consumer financial bureau. And lenders that fall under that agency’s umbrella will have to abide by new laws to protect consumers. But car dealers could be exempt, which means they would be able to keep doing business as usual.

Now, I went to a car dealership in Annapolis, Md. to hear the dealers’ argument first-hand. You hear the sounds of the showroom there; it was full of shiny, new Infinities. I asked the owner of the dealership, Vince Sheehy, why he’s so opposed to being regulated by the new bureau.

Vince Sheehy: We’re at the intersection of where the customers, where they’re looking for a car and they need financing and we’re in a position to arrange that financing with multiple banks. So we provide a service, but we are not lenders.

Marshall-Genzer: But, consumer advocates say that some dealers arrange financing in a way that’s a lot more expensive than consumers would get at a bank.

Chiotakis: Alright, let’s move onto the airlines. They’re also waiting to see what happens with all of this. What are the financial overhaul implications there?

Marshall-Genzer: Well, there’s a lot of debate around what the bill should do as far as derivatives go. Brace yourself, Steve, we’re going to talk about derivatives. They are used to make side bets on the value of things like, say, oil. And that has led to wild swings in the price of jet fuel, which the airlines obviously hate. Jim May is CEO of the Air Transport Association, that’s a trade group for the airlines here in Washington. And I asked him why regulation of derivatives is such a big deal.

Jim May: To the extent that supply and demand truly drive the price of oil, then it is a far more stable environment than it is if a group of Wall Street banks are trading in dark markets effecting that price in significant ways. We’ve seen 20, 30 percent swings.

Chiotakis: Alright Nancy. You’re going to have to translate that from derivatives to English.

Marshall-Genzer: We need a derivatives dictionary. Basically, what Jim May is saying is that, look, it’s really hard to know what’s happening in the oil trading markets at any given time. Right now, these derivatives are not traded on any kind of open exchange. The financial overhaul would create an exchange, so anyone trading in oil would have to do it in the open and that would make it a lot easier for the airlines.

Chiotakis: I see. What about farmers?

Marshall-Genzer: Well, farmers say the financial overhaul could drive up the cost of their loans. Dave Miller is a farmer in south central Iowa. He says tighter regulation of the country’s biggest banks could actually filter down to him.

Dave Miller: I think there’s a lot of perception out here that the credit markets work like they did in the movie “It’s a Wonderful Life,” where you had the Bailey home in savings and people deposited money, and they loaned out just those deposits. The reality is, our credit system is much more complex than that.

Marshall-Genzer: And that’s because banks like Miller’s get their money from big banks and those big banks have profitable operations that deal in all kinds of exotic investments and the bill could force those big banks to spin off those operations. Miller is afraid the banks would react by raising fees.

Chiotakis: Alright, so three very different groups, Nancy, who are holding their breath as they wait for the final financial reform bill. How long do you think before they’ll begin to breathe again?

Marshall-Genzer: I think they’ll be purple, Steve. Some members of Congress have said they hope to get a final bill on the president’s desk by July 4, but there are no certainties in this world, especially with Congress.

Chiotakis: Marketplace’s Nancy Marshall Genzer reporting from Washington. Nancy, thanks.

Marshall-Genzer: You’re welcome.

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