There has been heightened activity among Democrat lawmakers as they try to give one final push to getting the financial reform bill ready. The contents of the bill are to be made public next week but so far it has faced fierce opposition from the Republicans, and even from some Democrats.
The bill, which is being authored by Senator Christopher Dodd, who is the chairman of the banking committee has attracted controversy and there have already been heated debates on what actions need to be taken to ensure that there is no repeat of the financial crisis.
The latest strategy to secure some bipartisan agreement on the bill has been private consultations with some Republicans to understand their reservations and make appropriate changes to the bill. But this has not gone down well with some Democrats and their supporters as they feel that any major compromises would make the bill ineffective.
Some of the key objectives of the legislation would be to put an end to government bailouts of reckless financial companies. These bailouts cost the taxpayers a huge amount and the policy has attracted a lot of anger from voters. Other proposals that could be included in the bill are restricting private banks from indulging in proprietary trading, where the bank makes investments in hedge funds and private equity funds using its own money. It has been argued that such trading significantly weakens the position of the banks and can lead to accumulation of toxic assets.
The creation of a consumer protection agency to ensure that borrowers do not suffer because of malpractice of large banks could also be one of the proposals in the bill. It would be aimed at preventing another subprime crisis, which was blamed at aggressive lending tactics by banks. Such an agency already exists in some countries, including Canada. These countries remained relatively shielded from the financial crisis. The Republicans have argued that it is the job of the Federal Reserve to oversee the functioning of banks, while Democrats say that the Fed has clearly failed in this duty. A potential compromise could be a new agency that works under the Fed umbrella.
A lot hinges on the success of the financial reform bill and it would be a major test of the Obama administration. Some economists have argued that a weak reform could be worse than no reform, as it would give a false sense of security and make the economy vulnerable to another crisis.
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