Barney Frank introduced H. R. 4173 purportedly “To provide for financial regulatory reform, to protect consumers and investors, to enhance Federal understanding of insurance issues, to regulate the over-the-counter derivatives markets, and for other purposes.”
The bill is 1,279 pages long. I did not read it in entirety but Bloomberg columnist David Reilly did. It is amazing the things Barney Frank buried in a bill that is supposed to protect consumers. The bill does nothing for consumers, but does allocate $4 trillion to fighting the next financial crisis.
Please consider Bankers Get $4 Trillion Gift From Barney Frank: David Reilly.
To close out 2009, I decided to do something I bet no member of Congress has done — actually read from cover to cover one of the pieces of sweeping legislation bouncing around Capitol Hill.
Hunkering down by the fire, I snuggled up with H.R. 4173, the financial-reform legislation passed earlier this month by the House of Representatives. I quickly discovered why members of Congress rarely read legislation like this. At 1,279 pages, the “Wall Street Reform and Consumer Protection Act” is a real slog.
Here are some of the nuggets I gleaned from days spent reading Frank’s handiwork:
For all its heft, the bill doesn’t once mention the words “too-big-to-fail,” the main issue confronting the financial system.
Instead, it supports the biggest banks. It authorizes Federal Reserve banks to provide as much as $4 trillion in emergency funding the next time Wall Street crashes. So much for “no-more-bailouts” talk. That is more than twice what the Fed pumped into markets this time around. The size of the fund makes the bribes in the Senate’s health-care bill look minuscule.
Oh, hold on, the Federal Reserve and Treasury Secretary can’t authorize these funds unless “there is at least a 99 percent likelihood that all funds and interest will be paid back.” Too bad the same models used to foresee the housing meltdown probably will be used to predict this likelihood as well.
The bill also allows regulators to “prohibit any incentive-based payment arrangement.” In other words, banker bonuses are still in play.
The bill isn’t all bad, though. It creates a new Consumer Financial Protection Agency, the brainchild of Elizabeth Warren, currently head of a panel overseeing TARP. And the first director gets the cool job of designing a seal for the new agency. My suggestion: Warren riding a fiery chariot while hurling lightning bolts at Federal Reserve Chairman Ben Bernanke.
Best of all, the bill contains a provision that, in the event of another government request for emergency aid to prop up the financial system, debate in Congress be limited to just 10 hours. Anything that can get Congress to shut up can’t be all bad.
There’s much more in Reilly’s article. I was hoping this was a spoof, but sadly it is not. Here is the section of H. R. 4173 allocating up to $4 trillion.
FINANCIAL CRISIS MANAGEMENT
(1) IN GENERAL.
In unusual and exigent circumstances, the Board of Governors of the Federal Reserve System, upon the written determination, pursuant to section 1109 of the Financial Stability Improvement Act of 2009, of the Financial Stability Oversight Council, that a liquidity event exists that could destabilize the financial system …. and with the written consent of the Secretary of the Treasury (after certification by the President that an emergency exists), may authorize any Federal reserve bank, ….
Upon making any determination under this paragraph, with the consent of the Secretary of the Treasury, the Financial Stability Oversight Council shall promptly submit a notice of such determination to the Congress. The amounts made available under this subsection shall not exceed $4,000,000,000,000.
Don’t worry there is a 99% chance the money will come back as low quality collateral is excluded.
CLARIFICATION OF ‘SECURED TO THE SATISFACTION OF THE FEDERAL RESERVE BANK’.
No member of the Board of Governors of the Federal Reserve System shall vote to authorize any action permitted under paragraph (1) and the Secretary of the Treasury shall not provide the written consent required by paragraph (1) unless that member believes and the Secretary of the Treasury believes:
‘‘(A) that there is at least a 99 percent likelihood that all funds disbursed or put at risk by such action will be repaid to the Federal Reserve System; and ‘‘(B) that there is at least a 99 percent likelihood that all interest due on any funds disbursed will also be paid to the Federal Reserve System.
‘‘(3) LOW QUALITY ASSETS EXCLUDED.
The notes, drafts, and bills of exchange available for discount for purposes of paragraph (1), and the security for those notes, drafts and bills of exchange may only include any of the following assets if such asset is used to further enhance the security for those notes, drafts and bills of exchange which shall be fully secured with assets that are not any of the following assets: ….
Gee, I sure hope that makes you feel better.
Mike “Mish” Shedlock