Editorial: Financial Regulations Overhaul Should Prevent Repeat of 2008-2009

Publication: MassLive.com


05/23/2010 - President Barack Obama who assumed office at the start of the worst economic downturn since the Great Depression scored an important victory last week with Senate passage of a financial regulatory bill expanding government oversight of America’s banking system and financial markets.

Obama – much as he savored the enactment of his health-care reform bill – basked in the moment Thursday afternoon during a Rose Garden press conference where he said the legislation represents a triumph over the financial industry “and hordes of lobbyists,” that tried to kill it.

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“American families have suffered the devastating and protracted effects of an economic crisis that has cost the nation dearly,” said John E. Morton, managing director of the Pew Economic Policy Group. The average U.S. household lost nearly $6,000 in income due to reduced economic growth during the acute state of the crisis from Sept. 2008 through the end of 2009, according a recent Pew study.

The reform legislation spreads the blame, however. It’s tough on both borrowers and lenders for inflating a housing bubble that, when it burst, plunged the nation into the prolonged recession.

Under the overhaul bill, home buyers won’t be able to get a mortgage without pay stubs or other evidence that they can afford their monthly payments. And a new consumer watchdog agency will police lenders who offer too-good-too-be-true subprime mortgages and then raise the interest rates on them to an impossible-to-pay level.

The bill also shines more light on complex, but hidden financial instruments, the “derivatives” that made long-odds bets on whether Americans could make payments on mortgage they never should have qualified for.

Pew’s Morton said the bill also addresses the “Too Big To Fail” problem, which should reduce the changes of future bailouts and help ensure that no large financial firm’s failure will collapse the entire system.

Read the full editorial, Financial Regulations Overhaul Should Prevent Repeat of 2008-2009, on the MassLive.com Web site.

Pew is no longer active in this line of work, but for more information, visit the main Pew Financial Reform page.

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