FINANCIAL STABILITY IMPROVEMENT ACT OF 2009

It's here. The first draft of proposed legislation for financial reform is out. It's titled the "FINANCIAL STABILITY IMPROVEMENT ACT OF 2009."

Here's what I like:


* If the Secretary of the Treasury, the Board, and the FDIC (Council-Board members) determines that a financial company is in trouble, and that it must adhere to "heightened" standards, they can go to the President to alert and certify their concerns (SEC. 1103).
- I would like to think this means the buck stops with the President.

* Standards imposed by a primary financial regulatory agency can also include "other similar standards" that the Board deems acceptable (SEC. 1104).
- I'm pretty sure this means that the Council can draw from other agency standards to impose the law. I doubt this one makes it out of committee.


Here's what I don't like:


* The Council and the Board may not publicly release a list of companies that are identified as troubled institutions (SEC. 1103).
- Hey, what about transparency?


* Every federal or state agency represented on the regulatory council is to be compensated by each government agency represented, and not the industry (SEC. 1005).
- Federal and state employees are not only over worked, but the budgets of their agencies are stretched as it is. Full time staffers need to be available, and they need to be paid from a fund set aside by the financial sector. Why should the U.S. taxpayer pay for supervision that the industry has made necessary?

* The council "may request the production of, any data or information from members of the Council, as necessary" (SEC. 1101).
- What "request"? How about "may demand and receive" whatever the hell they want? Have we not learned anything from the indudstry's "propriety" hide and seek games from the past ten years? Hello ... Enron calling.

* A financial company's credit exposure to an "unaffiliated company" (i.e. a company that is not a subsidiary) cannot exceed 25% (SEC. 1104)
- Here's my question: How is this supposed to work with FASB's new 3-tiered category for financial instruments?


There's more, much more. The NY Times has this article, which suggests that the proposal is a good one because it puts the burden of paying for cleaning up future messes on firms with more than $10 billion in assets. What amounts to clean-up fees will be assessed on these companies. Here's my problem with this provision. First, fee assessments on companies "would be made only after the collapse of a large institution." Second, if we do nothing with the "too big to fail" firms, and do nothing to separate firms like we did with the Glass-Steagall Act, this stipulation is largely worthless.

I don't know. At first glance (and a very quick first glance at that), while there are a few good things in the proposed legislation, it seems an awful lot like we're rearranging deck chairs on the Titanic.

I may feel different after after I read the entire proposal, or after it comes out of committee.

Stay tuned.

- Mark