Analysts on Financial Reform Signing

By The NewsHour, The NewsHour - July 21, 2010

JUDY WOODRUFF: The campaign to toughen financial regulation in the U.S. reached its climax today. It came nearly two years after the financial meltdown that triggered the current recession.

JUDY WOODRUFF: The financial overhaul bill was one of the chief items on the president's agenda. And he signed it with fanfare, before an audience of 400 lawmakers and others.

PRESIDENT BARACK OBAMA: It will finally bring transparency to the kind of complex and risky transactions that helped trigger the financial crisis. Shareholders will have a greater say on the pay of CEOs and other executives so they can reward success instead of failure. And finally, because of this law, the American people will never be asked again to foot the bill for Wall Street's mistakes.


BARACK OBAMA: There will be no more tax-funded bailouts, period.


JUDY WOODRUFF:Mr. Obama also billed the new law as the strongest package of consumer financial protections in history.

BARACK OBAMA: And that's not just good for consumers, that's good for the economy, because reform will put a stop to a lot of the bad loans that fueled a debt-based bubble. And it will mean all companies will have to seek customers by offering better products, instead of more deceptive ones.

JUDY WOODRUFF:Democrats, led by Senator Chris Dodd of Connecticut and Congressman Barney Frank of Massachusetts, pushed the bill to passage. But Republicans stayed away from the signing ceremony and remained skeptical.

Senate Minority Leader Mitch McConnell said today, the new law is bad for small business.

SEN. MITCH MCCONNELL, R-Ky., Minority Leader: When you cut through all the talking points about what financial regulation will do, the practical, real-world effect of this bill in the near term will be job loss.

That's the real story here. For more than a year-and-a-half, the president and his Democratic allies on Capitol Hill have pushed an anti-business, anti-jobs agenda on the American people in the form of one massive government intrusion after another.

JUDY WOODRUFF:Among other things, the new law will give the government new power to break up firms that pose a major risk to the economy, bring the complex financial transactions known as derivatives under federal regulation, and create a Consumer Financial Protection Agency under the Federal Reserve.

This afternoon, a White House spokesman said there's no decision yet on who would lead the agency. Elizabeth Warren is considered a leading contender for the post. She's currently chair of the congressional panel that oversees TARP, the bank rescue fund. But opposition in the Senate could make her confirmation difficult.

For more on the new law and how well it addresses the causes of the financial crisis, we get two views.

Phillip Swagel served as the Treasury Department's chief economist under President George W. Bush from 2006 to 2009 -- he is currently a professor of finance at Georgetown University -- and Lynn Stout, a professor of corporate and securities law at UCLA, whom we have talked to regularly since the crisis hit.

We thank you both for being with us.

Phillip Swagel, to you first.

Is this a significant step forward, an improvement?

PHILLIP SWAGEL, professor of finance, Georgetown University: It is. There's a lot of good in this bill. Not everything is good, and a lot depends on how the bill is implemented by the regulators, including the same regulators who didn't prevent the last crisis. But there are some good elements in it.

JUDY WOODRUFF: And, Lynn Stout, same question. Is this a positive thing, on balance?

LYNN STOUT, corporate and securities law professor, UCLA: Well, I think it looks like a step forward, but the reality is, in a lot of ways, the Congress just kicked the can down the road and deferred issues.

It's going to remain to be seen whether this proves to be effective. A lot is going to depend on what happens in the future in terms of the agencies being created and that are being asked to police against practices actually being able to do their jobs.

JUDY WOODRUFF: All right, well, let start out with what you think will be effective.

Phillip Swagel, what do you think is going to work in this legislation?


I mean, work -- I would say what would be helpful is giving the Fed in particular the ability to get financial information from any firm. So, a picture like AIG, that had a subsidiary in London, that was basically beneath the radar. Now the Fed will have the ability and the mandate to find out about those firms. So, that's good.

The transparency for derivatives, bringing those complex transactions into more daylight and giving regulators the ability to look at them, that's also good.

JUDY WOODRUFF: They're going to be traded on -- some of them will now be traded...

PHILLIP SWAGEL: Some of them, that's right.

JUDY WOODRUFF: On open exchanges.

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