Congress Guts Financial Reform Bill, Pats Self on Back

"Step into my office". "Why"? "Because you're fired".

“No one will know until this is actually in place how it works. But we believe we’ve done something that has been needed for a long time. It took a crisis to bring us to the point where we could actually get this job done.”

-Senator Chris Dodd (D-Connecticut)

Really?  Really Chris Dodd*?  You sponsored a bill that is intended to cause sweeping changes in the financial industry, and after it passes, you tell us nobody will really know how (if) the bill works until is becomes law?  You “think you’ve done something that has been needed for a long time”?  How can you think what you have done is needed if you don’t even know if it will work?  How is this possible?

*Interesting side note:  the industry that donated the most money to Chris Dodd over 2005-2010?  You guessed it: securities and investment. Just saying.

Congress reached a compromised (read: watered-down) version of the financial reform bill this morning after an all-night session. The bill was intended to clamp down on banks and financial institutions that had largely been de-regulated by former Senator Phil Gramm in the Gramm-Leach-Blilely Act in 1999.  This deregulation, along with a variety of other factors, set in motion a series of events that would eventually lead to the subprime meltdown and the worst financial crisis since the Great Depression.

According to an article today from Bloomberg:

“The overhaul, which still requires approval from the full Congress, won’t shrink banks deemed “too big to fail,” leaving largely intact a U.S. financial industry dominated by six companies with a combined $9.4 trillion of assets. The changes also do little to solve the danger posed by leveraged companies reliant on fickle markets for funding, which can evaporate in a panic like the one that spread in late 2008″.

Here’s another money quote:

“There’s going to be some adaptation, but I don’t think there’s going to be any colossal impact,” said Benjamin Wallace, an analyst at Grimes & Co. in Westborough, Massachusetts, which manages $900 million and holds stakes in Bank of America, JPMorgan and Wells Fargo & Co. Derivatives rules mean “there’s going to be a capital raise, but the analysis we’ve seen suggests we’re talking in the pennies in terms of dilution” of earnings per share.

The bill is very complex, and I won’t bore you with a point-by-point description of what it does.  Here is a pretty decent analysis from this morning’s Wall Street Journal if you are interested.  After surveying the opinions of various analysts this morning, it appears that this legislation will not prevent future crises such as we have endured over the last few years.  Thank your congressmen and women (from both sides of the aisle), and the financial industry lobbyists to which they are beholden.

As if to hammer home the point, bank stocks have rallied this morning after news of the bill came out.

For more about this legislation, check Slate, or the New York Times, or Foxnews, or the Huffington Post.