By KEVIN WALKER
Michigan Correspondent
 
WASHINGTON, D.C. — Those who authored financial reform legislation signed into law last month praised it as a huge step forward, while others questioned whether the new law will be helpful at all.

In his weekly address a few days after signing the bill, President Obama said the new law “will protect consumers and our entire economy from the recklessness and irresponsibility that led to the worst recession of our lifetime. It’s reform that will help put a stop to the abusive practices of mortgage lenders and credit card companies. It will end taxpayer bailouts of Wall Street firms. And it will finally bring the shadowy deals that caused the financial crisis into the light of day.”

A few weeks prior to that, Rep. Collin Peterson (D-Minn.), chair of the U.S. House Agriculture Committee, praised the legislation, which had just been passed by the House as a conference report for the President’s signature. The bill, called the Wall Street Reform and Protection Act (H.R. 4173), was signed into law July 21.

“I am pleased the conference report contains many of the provisions the House agriculture committee endorsed in three different bills on these topics,” Peterson said in a statement.

“This bill will mitigate the outrageous price spikes in commodity markets that we first saw two years ago, bring greater transparency to the derivatives market through mandatory clearing and ensure that end users can continue using derivatives to hedge risk.”

The legislation will create a clearinghouse to keep track of all the swaps that go on in the derivatives market. It will also create the Consumer Financial Protection Board, which is designed to protect the average citizen from the unethical practices of banks.

Other conversations going on at the same time question whether any of this will work as advertised by its supporters.

Economist Simon Johnson and attorney James Kwak co-host a blog called BaselineScenario.com and co-wrote a book, 13 Bankers. They are skeptical of the new law.

A few days before Obama signed the bill, Kwak had this to say on his blog: “It’s become a commonplace observation by now that the reform bill, instead of making structural changes to the financial sector, instead increases regulators’ discretionary power to constrain – or not constrain – the behavior of the industry.

“As a result, the success of reform, in the words of its supposed architect, depends on hoping that presidents will appoint good people and that that will be enough to attract people to being regulators.”

Kwak went on to say this approach usually doesn’t work. Johnson sounded even more pessimistic last March as the financial reform package was being put together.

“The ‘financial reform’ legislation currently before Congress and still prevailing pro-banker attitudes at the top of the Obama administration are really not helpful …” Johnson wrote on March 30. “At best, this will be another very nasty boom-bust-bailout cycle. At worst, we are heading towards a situation in which our banks are so massive that when they fail, there is no way the government (or anyone else) can offset the damage that causes.”

Despite these criticisms, some people in agriculture seem to think some of the particulars of the legislation will be helpful and effective, though at the same time there are others who don’t like the bill.

The American Feed Industry Assoc. (AFIA), for example, provided a list of provisions in the new law that it believes are a definite step forward. They include authority for setting aggregate speculative position limits for market participants across various exchanges and products; significant enhancement of transparency in market transactions, including a requirement that virtually all clearable transactions be reported on a timely basis; and mandatory clearing of nearly all swaps as well as mandatory trading rules for nearly all swaps.

The boom and bust of the commodities run-up created winners and losers; some people made a great deal of money from high prices.
AFIA President Joel Newman believes the changes made in the bill that will impact the farming community will be meaningful and positive.

“Basically our focus was on the derivatives portion of the bill as it relates to ag communities,” Newman said. “(Investors) put that money in there and it creates false demand for those commodities. They’re not moving in and out as a typical hedger would ... They gave the CFTC (Commodity Futures Trading Commission) the authority to fix those problems. In essence, it brings everybody back to a level playing field.”

Newman said derivatives and swaps for all commodities will now fall under the purview of CFTC, not the Securities and Exchange Commission (SEC).