The Coming Re-regulation Of The Financial System.

From 24/7 Wall Street: {Excerpt & Comments}

Pause and consider for a moment the fact that no amount of regulation of financial markets can squeeze the effects of stupidity out of the system. The Administration plans a radical overhaul of how banks and financial trading are regulated.......One of the keystones of the new programs is an agency to help consumers from being preyed on by Wall St. Banks and brokers will be prevented from taking advantage of the average citizen who wants a mortgage or a credit card. This part of the structure of the new regulation has an aspect of protecting consumers from themselves. A bank may offer a customer a $500,000 mortgage on a $400,000 home. The government means to prevent that.
While a good deal of what happened in the mortgage and consumer credit markets resulted from institutions giving people the ability to take on financial leverage that was beyond their means, it was based on the desire of millions of Americans to borrow money instead of save it. A person with a $50,000 pretax salary who cannot figure out that he cannot afford $20,000 in credit car debt which carries an 18% interest rate is either a rank optimist or extraordinarily naive.
The new laws that the Administration and Congress mean to put in place spring from the concerns that investment banks and commercial banks created leverage that they system was unable to sustain. A large insurance company could buy a mortgage-backed security and perhaps double its money on the investment in 18 months. No actuary at the company asked whether that was possible or whether the instrument carried extraordinary risk........
.....The new laws that will allow the government to look into the heart of financial companies balance sheets and bank management decisions about investment and risk will keep both companies and individuals from betting too many assets in the most dangerous parts of the market. No amount of risk can keep a floor trader from trying to triple his firm’s money in a single trading day.
Douglas A. McIntyre

Link: http://247wallst.com/2009/06/17/the-regulation-of-financial-markets-to-improve-consumer-protection/#more-37961

Comment: Government has a long history of creating financial regulation after a market collapse. That's what gave us the SEC in the 1930's. I think that when the history of this era is written we'll book end a 10 year period between the collapse of Long Term Capital Management and last fall's fianacial meltdown. Both cost lots of money to clean up. Both nearly broke the banking system. I think government is tired of cleaning up these kind of messes and isn't going to let go of the reins on the financial industry for an awful long time. Financial firms I think will become much slower growth vehicles going forward. That's not good news for all those MBAs in the pipeline with Wall Street riches dancing in their heads.