The Republicans seem to have given up their objection that the financial reform bill will institutionalize bailouts of banks that are too big to fail. Instead, they have now shifted their focus to the consumer protection provision of the bill, which they claim is over-reaching. They are demanding modifications to the bill and want Senator Christopher Dodd, chairman of the Senate Banking Committee, to incorporate their suggestions.
The provision on consumer protection calls for the creation of a regulatory body to be called the Consumer Financial Protection Bureau, which will monitor financial institutions to ensure that the products they sell to their customers do not have underlying risks that the customers are not aware of. The Obama administration wants to make financial institutions transparent and accountable to their customers.
The consumer protection provision will provide security to investors from unscrupulous financial institutions that indulge in unfair trade practices and pose a huge risk to the financial system. The proposed provisions will put stringent regulation of financial companies in place and ensure that the crisis witnessed in 2008 is not repeated.
However, the Democrats themselves are not completely united in favor of the bill. Democratic Senator, Ben Nelson, a vocal critic of the bill’s provision on derivatives, has called it “unconstitutional”. The derivatives provision requires financial institutions trading in derivatives to place large sums of money as collateral to minimize their customers’ risks and protect their investments.
Republicans are also opposed to this provision and have the support of banks and influential financial firms such as Berkshire Hathaway, owned by billionaire and veteran investor Warren Buffett. It is rumored that Senator Nelson and his wife own a substantial number of Berkshire Hathaway shares and some people claim that this is the reason behind his outburst against the bill.
It appears that the public is standing behind the Obama administration’s efforts to bring in greater regulation of Wall Street. This sentiment is understandable, as it is believed that Wall Street bigwigs were to blame for the financial crisis that crippled the economy.
Goldman Sachs, which has become the target of many lawsuits, is taking the brunt of criticism, as it seems to represent everything that is wrong with Wall Street. It has been accused of introducing risky financial products and betting against the housing market, causing losses to many of its own clients while the company made billions of dollars.