Financial Reform Act

Obama says the reform will keep tax payers from being on the hook for Wall Street mistakes. The legislation does provide for more government oversight; does tighten consumer lending rules; and will create a new government agency.

It does not correct the problem that led to the 2008 meltdown. The cause was Fannie Mae and Freddie Mac (FMs), the government run lending institutions. These institutions lent money to high risk people. When the loans looked like default was probable they packaged them and sold them to other financial institutions. These institutions had to deal with the defaults and suffer the losses.

At the same time FMs were lending, Federal regulators were encouraging private institutions to also lend to high risk individuals. If they did not, they would lose the lucrative Federal accounts they serviced. When the high risk loans began to default the government pointed the finger at the greedy private institutions for being predators. With one swift sleight of hand, the private sector went from 'obedient' to 'predator.' The institutions that gave up Federal accounts or never had any, didn't need a bail out.

Congress and the White House are still trying to decide if the FMs need to be investigated. After all they are quasi Federal institutions whose boards are appointed by agencies overseen by the White House. In fact,  many of the past FMs executives are Obama administrative appointees. In the twenty five years leading to the 2008 collapse these executives received millions in bonuses from FMs.

One note on tightening consumer lending, it doesn't apply to the auto industry. Maybe, because the government holds ownership stakes in GM and Chrysler.

Without the shutdown of FMs, this reform will merely add expense to the private financial institutions which they will pass to us the consumer.