Unintended consequences of new finance law could snuff out credit, bond market

RV Daily Report ^ | Wednesday July 21, 2010 | Greg Gerber

[Bigtigermike]

It took less than two hours from the time President Barrack Obama signed the new financial regulation bill before word of the latest unintended consequence hit the news wires.

According to a report at Bloomberg, which you can read by clicking here, the new law may "flash freeze" the nation's credit markets.

Moodys Investment Services, Standard and Poors, and Fitch Ratings have already told the Wall Street Journal that they are not going to allow underwriters to cite their ratings in bond-registration documents.

Rumor has it that Experian, Equifax and TransUnion are considering prohibiting lenders from using their credit scores to determine the credit worthiness of loan applicants. After all, a credit score can be considered a borrower's credit rating.

But, even if the consumer credit agencies don't impose similar restrictions, banks that pool their consumer loans into a big package and sell it to other investors in one big bond offering, may find it impossible to sell those securities without a bond rating.

You see, the new law eliminates the protection ratings agencies once had that shielded them from lawsuits regarding information contained in those reports. Without that protection in place, the credit rating agencies apparently aren't too keen on sharing information that could result in someone losing credit and suing the agency as a result.

On June 25, Senate Banking Committee Chairman Christopher Dodd (D-Conn.) told a reporter, "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."

Well, the law is in place, and now we're seeing how it works.

It is as though the federal government delivered a gold mine to trial lawyers, but a mountain of fool's gold to consumers and investors all over the nation who will pay for the shortsightedness.

According to Bloomberg, "Public pension funds have accused Moody’s, Fitch, and Standard & Poor’s of helping to fuel the financial crisis by giving top rankings to mortgage bonds that plunged in value when the U.S. housing market collapsed in 2007. Congress scrutinized the firms at hearings and tried to hold them more accountable by making it easier for investors to sue for inaccurate ratings."

The Royal Bank of Scotland issued the following statement shortly after Obama signed the law. "It will likely become more expensive for issuers to bring new transactions to the public market, potentially shrinking the total amount of issuance, lowering the availability of consumer and commercial credit, and raising costs for borrowers."

If the credit bureaus follow through with their talk of taking similar action as the bond rating companies, it may be a very long year for RV dealers and other small business owners -- not to mention consumers.

I'm not quite sure this qualifies as "change we can believe in."

[Bigtigermike]

Oh NO!

Oh Yeah, says Obama

[dila813]

Yep, it is true

70-120M Credit Card Cancellation Notices are going out.

People don’t load money for free. Didn’t Obama’s Daddy teach him that? Oh SNAP!, Nevermind

[NormsRevenge]

It is as though the federal government delivered a gold mine to trial lawyers, but a mountain of fool’s gold to consumers and investors all over the nation who will pay for the shortsightedness.

ouch!

[stayathomemom]

Who says they were unintended?

[BobP]

...Oh NO!

Oh Yeah, says Obama

The 'Dodd-Frank Wall Street Reform and Consumer Protection Act' does nothing to address the root cause of our current financial disaster.

The Act is another step in the direction of more government and union domination of all that we do. Nothing in the Act controls Fannie Mae and Freddie Mac--they remain a multibillion dollar drain on the US Treasury--or the financial disasters their corruption and poor management have created. Banks successfully lobbied for derivative exceptions big enough to drive a freight-train through. They succeeded. Derivatives reform is meaningless. Banks will have to set up separately capitalized affiliates to trade derivatives. The correct path would be to repeal the Commodity Futures Modernization Act of 2000, and reinstate leverage ratios. Before Summers, Geithner, Clinton, Gramm, Leach and Bliley rammed through the Commodity Futures Modernization Act of 2000 (the Enron Loophole), most States could have enforced their laws against uncollateralized derivatives.

The reform bill also did nothing to rein in the 'too big to fail' policies of the Fed. There is not a single thing in this bill that would have prevented the last crisis!

This bill was used to get unions more control of companies, and to get minorities and women more jobs where they can never be fired. Publicly traded companies will need to allow the unions and enviro groups to seat their members on the boards of said corporations. Also an enlarged staff at SEC, CFTC and the Fed stuffed with faithful and deserving Democrats selected by Chicago style patronage.

I can't wait for the minions of Sheila Jackson Lee to be seated on the Board of _______ [you fill in the blank]./s

God help us.

This picture of Frank and Dodd congratulating everyone on the 'reform' is f'in unbelievable! The two biggest culprits in the original damage to the economy. Why are these men not in jail?

We're in deep, deep economic trouble. And these liberals are going to friggin' sing and dance along, all the way, as they dance off a cliff.

WAKE UP AMERICA

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[givemELL]

No construction project, private or govt., proceeds without insurance coverage. Insurance coverage requires creditworthiness of the project and the companies involved!! Think about it.

No construction either?

[eyedigress]

One of our first axioms in my company is do not be afraid of risk. I’ll bet that changes.

[hinckley buzzard]

I hope every time a bank or other financial agency has to retrench they let their clients know in no uncertain terms that the change is a direct result of the obama--'rat seizure of the financial industry.

[SunTzuWu]

On June 25, Senate Banking Committee Chairman Christopher Dodd (D-Conn.) told a reporter, "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."

[chris37]

I just want to take a moment to thank the worthless ass republicans that voted for this marxist crapola.

F*** you very much, GOP.

[depressed in 06]

I think DumBO’s vision of America is one big golf course where one half the population caddies for the other half on alternating days.

[ModelBreaker]

“I think DumBO’s vision of America is one big golf course where one half the population caddies for the other half on alternating days.”

No. It’s a golf course. But everyone in the middle class or that owns a small business caddies for him and his buds. Once a year, the welfare class gets to play. It is very crowded that day. But they are very grateful and continue to vote for him.

[L,TOWM]

And don’t forget the brokerage firms losing the suitability standard and having that replaced with “fiduciary relationship”. Try to get some recommendations from a broker now if you have less than 6 figures to invest.

The investor without a bundle but hoping to have one in another decade or 5 (read young and or modest net worth investor) just got shut out of a decent retirement or higher education for their kids.

[TalBlack]

Obozo’s presidency will live in infamy.

[tbw2]

All the bill did was add thousands of bureaucrats who could say “No, you can’t do that.” Maybe it’s a scheme to force people to have to hire lawyers to get anything done.

[skr]

“No one will know until this is actually in place how it works.”

Hmmmm, that sounds chillingly familiar.

[piytar]

The rats just nationalized the finance industry using the fascist model: There is still an illusion of private ownership, but the govt really controls (and therefore owns) the whole thing.

Ditto for all publicly traded companies.

There is nothing of significance left to nationalize except energy and what’s left of small business. And the new 1099 rules hidden in obamacare take care of small business.

Anyone who wanted to know what it’s like to live in a marxist/fascist state, take a look around. We do.

After obama nationalizes energy (it’s coming soon), he can move on to securing his personal power at the top of the govt monster. There’s nothing else to do...

[OneWingedShark]

>No construction project, private or govt., proceeds without insurance coverage. Insurance coverage requires creditworthiness of the project and the companies involved!! Think about it.
>
>No construction either?

There will be an exemption for chain-link fence and Razor- or Concertina-wire.

[paul51]

Without that protection in place, the credit rating agencies apparently aren't too keen on sharing information that could result in someone losing credit and suing the agency as a result

Good. should have been that way from the start. Anyone that has ever been jerk assed around by these credit agency neanderthals while trying to remove incorrect information from their report get some justice.

[Fred Hayek]

“No one will know until this is actually in place how it works.”

Like they did not bother to read the damn bill? Or is there something they know about but not telling us?

During my senior year in high school I saw some of the drivel from the McGovern campaign, and started to ask if a liberal was a person who stabbed you in the back, cut you off at the knees, and had the gall to say “We’re doing this for your own good.”