By: Mike Campbell
The US Senate has just passed a bill said to be the most significant reform of US financial regulations since the aftermath of the Great Depression in the 1930s. Politicians of every shade in just about every country have laid the blame for the 2007 global financial crisis at the door of reckless (and stunningly wealthy) financial institutions which played fast and loose with other people’s money. Obviously, that is a very facile crack at an industry that is not well placed to defend its case; not least because it has no public platform from which to do so. Certainly, the political elite believe that the financial sector has got too big for its boots and needs to be the subject of substantive reforms – the only problem is that there is no agreement as to what these should be and a strong minority view says that they must be left alone to ensure that the mighty engines of global capitalism turn.
Amongst other measures, the US move will require that a new agency is established which will oversee the derivatives market. Individual mortgage borrowers will be required to demonstrate that they can make repayments on their loans and banks may need to undergo major restructuring. The bill needs to be merged with another that passed last year and the revised legislation could be signed into law by President Obama as early as July 4th.
This week’s move by the German government to temporarily ban “naked short selling” has been seen, in some quarters, as a stratagem to stimulate serious, international debate about the reforms which are needed to rein-in risky financial activity. Certainly, there is a growing appetite amongst legislators around the world to impose their authority over the markets. The Euro continues to be under pressure due to perceived worries over the EU debt crisis. Markets are lower on sovereign debt concerns, uncertainty over the German and US legislative moves and weaker than expected US employment data.