Ten things that Dodd's fake financial reform will not do

[eridani]

http://www.alternet.org/story/146428/speculating_banks_still_rule_--_ten_ways_dems_and_dodd_are_failing_on_financial_reform?page=entire

3) It won't change the nature, transparency, size, complexity or usage of the most heinous derivatives. Why? Because the derivatives that are not standardized or over-the-counter (OTC) will not be required to be traded on regulated exchanges, though they may have to show up on trading depositories (private entities, whose boards are comprised of bankers).


4) It won't prevent the creation of new toxic assets. It will require issuers of these assets to retain 5 percent of any package they sell off to investors (keeping some skin in the game), but there is no way to monitor which 5 percent is kept, and even that rule has a bunch of embedded exemptions.

5) It won't contain the risk to the shadow banking system from hedge funds, private equity firms and venture capital funds. Venture capital and private equity advisers still won't have to register or report to the SEC, though hedge funds with over $100 million in assets will. There's also no statutory definition of what actually constitutes a hedge fund, and the bill doesn't close the tax loophole that allows fund managers to be taxed at the lower capital-gains tax rate of 15 percent, rather than the higher income tax rate of 34 percent. If it sounds crazy to you that the richest people in America are being taxed at the lowest rates, it is: the loophole cost taxpayers about $5 billion this year alone.

6) It won't remove the conflicts of interest between banks that issue securities and rating agencies that rate them, and get paid a fee for doing so. Rather than nationalizing the rating process for these unconstrained securitized deals, it would create a new entity (Office of Credit Ratings) within the SEC to examine rating agency practices and methodology annually and at some point in the future, issue rules to keep sales and marketing considerations from influencing ratings, leaving a lot of exemption room. The SEC had authority to regulating the rating agencies before the collapse, and it didn't exercise it.

7) It won't contain systemic risk. The Dodd bill's primary attempt to limit systemic risk is the creation of a new Financial Stability Oversight Council led by the Treasury Secretary to help the Fed develop more better standards regarding the biggest banks it oversees, based on recommendations, not rules. Another effort is to suggest an (undefined) increase in capital requirements that will be deferred to the Fed for the biggest banks. And, as mentioned above, banks are already hoarding capital at the Fed, and increasing their trading operations and decreasing lending, so that doesn't really help better the system. Let's not forget—if the Fed wanted to raise capital requirements on big banks it could do so right now, with no Congressional action whatsoever. What are the odds that this suggestion from Congress will result in meaningful action?