To start, it should be made very clear that this article does not support any political ideology in judgment of the financial regulation bill that was signed into law today. My view point is from a long term investment manager stance that really wants to see some of the risk created by large financial firms removed from the market.
This bill does absolutely nothing to remove the threat of over-the-counter securities from the market and any statement by President Obama that claims this bill can protect the market from what caused the last crash is false. There are three basic reasons this bill will not protect the economy.
First, the hyped Volcker Rule to forbid large financial firms from leveraging assets in risky trades was watered down so banks can leave risky assets off of the book as long as those assets are no more than five percent of total bank assets. The weak wording is a basic defeat for the equity markets and a victory for large financial firms on Wall Street. They will be able to suck equity out of the markets until the next crisis.
The second reason this financial regulation bill fails is that there is absolutely no mention of the nationalized government banks of Fannie Mae and Freddie Mac. These two government back banks own 50 percent of all home mortgages. Let me state that again so the full magnitude of the size sinks in, 50 percent of all home mortgages are owned by Fannie Mae and Freddie Mac. Wall Street firms such as Goldman Sachs took their bundled mortgages to Fannie and Freddie who in turn for a fee, made those bundled mortgages into government backed securities. With a government guarantee that if those mortgages defaulted the federal government would pay the banks, Goldman and other firms were able to earn a top credit rating from government endorsed rating agencies (for a large fee of course). These mortgage backed securities had the best credit rating possible even though most were junk subprime loans given to people who could not afford the loan when rates increased. Fannie and Freddie allowed the government tax dollars to get caught up in a ponzi scheme and helped accelerate the housing bubble. The fact there is nothing addressing these two banks really means the government is still guarantee the loans irresponsible firms like Goldman make.
Lastly, for every new organization that the financial regulation bill creates there is already a department or organization in existence. We don't need more organizations or more consumer protection; we need more enforcement from existing organizations.
This country is still very much at risk of having another credit crunch caused by irresponsible investment firms in Washington. Washington and banking CEO's are all trying to protect each other and the economy suffers from that partnership.