House Passes Sweeping Financial Reform Bill

On Friday, the House passed the most sweeping federal financial reforms since the New Deal. The regulations were designed to prevent the kind of domino-effect that brought the US economy to its knees in '08 and '09.

The legislation would give the government the power to break up companies that threaten the economy and would create a new agency to oversee consumer banking, reports the Associated Press.

Those who believe that a truly "free" market can only exist in a fair market, might see the sweeping measure as a step in the right direction (I certainly do.)

"The crisis from which we are still recovering was born not only of failure on Wall Street, but also in Washington," President Barack Obama said, according to the AP. "We have a  responsibility to learn from it and to put in place reforms that will promote sound investment, encourage real competition and innovation and prevent such a crisis from ever happening again."

The vote was 223-202, with no Republican votes in favor, and 27 Democrats opposed.

The measure seeks to regulate every financial institution from the smallest bank to the biggest conglomerates. The legislation would also offer shareholders the right to a nonbinding vote on compensation for top executives. The government would also have to approve compensation practices, though not actual pay, at banks and bank holding companies.

Perhaps most importantly, the bill would create a Financial Services Oversight Council made up of the Treasury secretary, Federal Reserve chairman and heads of regulatory agencies to monitor the financial markets for potential threats to nation's system, while taking power out of the hands of the Federal Reserve. This council would identify firms and activities where more regulations should be put in place, including requiring those at risk to put more money in reserve. The bill also puts the power to dismantle failing firms into the hands of the government.

Republican leaders argued that the regulations institutionalize bailouts and hinder business, while some Democrats said the bill falls short in regulating abusive trading. The original bill proposed by Obama included regulations of derivatives without any exceptions, but a coalition of lobbyists, including Boeing, Caterpillar, General Electric and Cocal-Cola, among others fought to dilute restrictions

The bill is now headed to the Senate, which isn't expected to put it to a vote until early 2010.

Click here to read the bill in its entirety.

Photo courtesy of Wikimedia Commons.