K Street

This article was published by GQ China in June 2012.

To read the full article in Chinese, visit my Flickr site. If I get an English translation, I will post it also.

D.C. area housing market feels the pinch from lower jumbo mortgage limits

This article was first published on Saturday, November 5, by the Washington Post.

By Katherine Reynolds Lewis

Srinivasan Soundararajan and Jennifer Nordin have been thinking about selling their Potomac townhouse and moving into a detached house for some time. With two small children, 1 and 3 years old, they are beginning to outgrow their three-bedroom house.

This past summer, the couple stayed out of the market because of Congress’s gridlock over the U.S. debt ceiling; they feared that a spike in interest rates could disrupt a pending house purchase. Once lawmakers agreed to raise the ceiling, they started looking at houses again.

Now that they’re close to making an offer on a property, a change in federal housing policy has hampered their plans.

On Oct. 1, Fannie Mae and Freddie Mac lowered the maximum size of so-called jumbo mortgages that they would back to $625,500. Before Oct. 1, Washington-area mortgages as big as $729,750 could be purchased by Fannie and Freddie and repackaged to sell to bond investors, or guaranteed by the Federal Housing Administration. The change was the result of a law Congress passed in 2008 to stimulate the housing market in the depths of the crisis.

As a result, the upper end of the Washington real estate market is feeling the pain as buyers have fewer options to finance the purchase of a house. And sellers, like Soundararajan and Nordin, feel the change constrains the pool of potential buyers for their townhouse, which they expect to list at $725,000.

“It would definitely affect the ability of someone to buy our house,” said Soundararajan, a 43-year-old attorney, noting that his sale price equals the new cap plus a down payment of $100,000. “That’s not a first-time buyer. We’re going to lose that market.”

4 Reasons the Mortgage Mess Won't Get Fixed

This article was originally published by the Fiscal Times on Friday, Oct. 14, 2011.

By Katherine Reynolds Lewis, The Fiscal Times

Every day seems to bring fresh bad news about the housing market. Sales are down, foreclosures are up, mortgages are harder to obtain. Americans had better get used to it -- the housing mess is unlikely to see a near-term fix.

Since taking over mortgage giants Fannie Mae and Freddie Mac in the heat of the 2008 financial crisis, the government now stands behind about 95 percent of U.S. residential mortgages. Without any policy changes, this course will push the national debt to $30 trillion in ten years, according to Peter J. Wallison, a fellow at the American Enterprise Institute.

It could get even worse. CoreLogic estimates that 10.9 million homeowners owe more on their mortgages than the property is worth, or 22.5 percent of all outstanding loans. Amherst Securities Group projects that without further policy changes, 10.4 million additional borrowers are likely to default on their mortgages.

Policy experts agree that the situation poses unacceptably high risks to taxpayers and that private investors must eventually replace the federal government in housing finance -- but they disagree on both the path forward and how the future system will be structured.

"It certainly feels as though we are stalled," said Susan Wachter, professor of financial management at the University of Pennsylvania's Wharton School, before testifying to Congress on housing finance on Thursday morning. "The most important thing that has to happen is that there needs to be consensus."

Unfortunately for U.S. taxpayers and homeowners, there's little hope that the deadlock will break. Here are four reasons that the mortgage mess won't get fixed any time soon.

Congressional Reform is for Dreamers: When Congress passed comprehensive financial reform last year, the future of Fannie and Freddie was the biggest piece that lawmakers failed to address, largely for lack of political will. But with presidential election season in full swing, experts predict housing finance legislation will have to wait at least until 2013, at the earliest.
"Ultimately you need legislation to have a defined role for the future of Fannie and Freddie," said Phillip Swagel, public policy professor at the University of Maryland. "I don't see that happening in 2011 or 2012."

Financial regulation lags after Dodd-Frank

It's been a year since Congress passed and President Barack Obama signed into law the most sweeping financial reform since the Great Depression. But as of the Dodd-Frank Act's July 21 anniversary, regulators had completed only 49 of the hundreds of rules mandated by the 2,000-plus page law.

This article was originally published by Bankrate.com on Thursday, July 21, 2011.

By Katherine Reynolds Lewis • Bankrate.com

Are you any better off now than before new financial regulations became law? When it was signed into law, Dodd-Frank drew a line in the sand on mortgage abuses, predatory lending, credit information and other vital issues for consumers. But since then, the dozen-plus regulators writing the rules under the new FinReg law have struggled to work out most of the specifics. The law sets more than 240 deadlines for 22 different regulators to write rules, issue recommendations and write reports in the implementation of Dodd-Frank. Most deadlines must be met by only 10 regulators.

"In one sense, everything's different because financial institutions know what's coming, so they're already anticipating and making business changes," says Margaret Tahyar, a partner at Davis Polk & Wardwell, a New York law firm tracking Dodd-Frank for its clients. "In another sense, there's still a great deal of uncertainty."

As for the handful of rules that have been written, here is a closer look at the financial regulations that have been implemented and how they affect you.
A new consumer watchdog
The Dodd-Frank Act created a new federal agency to protect consumers who use a range of financial products. The agency is financed out of the federal budget. FinReg advocates hail that as an important development because the regulator won't be as beholden to the private sector as other agencies that rely on institutions they regulate for their budget.

On July 21, the Consumer Financial Protection Bureau received responsibility for enforcing laws meant to regulate consumer finance in the following areas:

The 5 Best and 5 Worst Regulations in Dodd-Frank

This article was originally published by the Fiscal Times on Tuesday, July 19, 2011.

By Katherine Reynolds Lewis, The Fiscal Times

Next to health care reform, no other recent legislation has caught as much heat as financial regulation. Born of the subprime housing mortgage scandal and financial meltdown three years ago, the Dodd-Frank legislation provokes either glowing praise from consumers and reformists or angry diatribes from industry officials and Republican lawmakers.

In the year since President Obama signed the financial regulatory overhaul into law, the debate has largely shifted from the halls of Congress to the offices of the regulators who are writing some 250 new rules and delivering reports and guidance ordered by the law.

But Republicans and their industry allies are still pressing for changes to dilute the impact of the legislation. Their opposition forced Obama over the weekend to abandon plans to nominate former Harvard professor Elizabeth Warren, a harsh critic of the financial industry and darling of liberal groups, to head a new Consumer Financial Protection Bureau, and instead choose former Ohio attorney general Richard Cordray.

As the new financial regulatory landscape begins to take shape, supporters of the legislation crafted by former Sen. Christopher Dodd, D-Conn, and Rep. Barney Frank D-Mass., say the government and industry are better positioned to withstand a new crisis. "The reforms put in place in Dodd-Frank will help to provide for a more resilient and strong financial system that can help to grow the economy and create jobs," said Michael S. Barr, law professor at the University of Michigan.

Detractors claim the measure actually hurts the already troubled economy and job growth, leaving the financial system less stable than it was in 2008. "While it may have increased transparency, it has increased the amount of uncertainty. We've created a new cost of capital, called regulatory risk," said Rep. Randy Neugebauer, R-Tex., chairman of the House Financial Services Subcommittee on Oversight and Investigations.

With Dodd-Frank's one-year anniversary this Thursday, The Fiscal Times assessed the best and worst effects of the landmark law, for consumers and business .

The 5 Best According to Consumer and Reform Advocates

The ‘Warren Report’ - GOP Attacks Consumer Agency

This article was originally published by the Fiscal Times on Thursday, May 19, 2011.

By Katherine Reynolds Lewis

Even before it formally opens its doors this summer, the new federal agency created to protect consumers from unscrupulous financial industry practices is coming under withering attack by Wall Street and Republican lawmakers. And despite a months-long charm offensive by Elizabeth Warren, the former Harvard professor and chief architect of the new agency, Warren has been unable to win over many of her critics on Wall Street and within the GOP.

Bills pending in the House would curb the power of the Consumer Financial Protection Bureau, while 44 Republican senators have promised to block confirmation of a director for the new agency unless those restrictive measures are approved.

With Democrats in control of the White House and the Senate, but not of the House, the legislation is unlikely to become law. But between the Senate GOP ultimatum and financial industry criticism of Warren, few believe she could be confirmed if President Obama nominates her as the director.

As a result, Obama may have little choice but to name Warren as director during a congressional recess in order for the agency to have someone at the helm when it begins to wield regulatory power this summer. Warren currently is overseeing the creation of the consumer protection bureau as a special assistant to the president. If she is made director through a recess appointment that would all but assure a politically bumpy future for the agency.

The Senate GOP pledge "creates a climate that is ugly. That is an in-your-face kind of attack that I haven't seen in 20 years in Washington," said Ed Mierzwinski, director of the consumer program at the advocacy organization U.S. PIRG. "Elizabeth Warren wants to come in and make that marketplace fair. Wall Street would prefer to decide on their own how to make money."

New Tax Laws Make Filing a Bureaucratic Nightmare

This article was originally published by the Fiscal Times on Friday, March 18, 2011.

By Katherine Reynolds Lewis

Taxes are never fun, but this year is proving especially painful. Not only did the Internal Revenue Service fail to finalize all its systems and forms until mid-February, some popular tax breaks expired in 2010.

It wasn’t until mid-December that Congress reached a compromise for legislation to extend tax cuts enacted under President George W. Bush that were set to expire at the end of last year. As a result, the IRS wouldn’t accept tax returns filed electronically until mid-February, as it updated its tax guidance, instructions and software, and many tax preparers waited until that point to begin work on clients' returns.

The delay was unavoidable because of the late action by Congress, said IRS spokesman Eric Smith. "Some returns could not be actually sent electronically until mid-February."

This year's headaches reflect the increasingly complicated tax code and contentious debate over tax legislation, which leads to last-minute legislation with short-term compromises. In the near term, lawmakers struggling to agree on a budget -- and pare a projected $1.6 trillion deficit -- are in their fifth month of stop-gap measures to keep the government operating. In the long term, they hope to reduce the federal debt and deficit without sending tax rates through the roof or eliminating cherished federal programs.

"We've had so many changes in tax law in the last 18 months that people are genuinely confused about what the rules are," said Joseph McLeod, tax partner in the Raleigh, N.C. office of Cherry, Bekaert & Holland, a certified public accounting firm. "Tax-return preparation has gotten more lengthy, more complicated. It takes more of our time, so we have to bill more at the very point in time when people want to pay less."

State Debt Crisis: Preview of Federal Pain to Come

This article was originally published by the Fiscal Times on Monday, Feb. 28, 2011.

By Katherine Reynolds Lewis

As Illinois lawmakers wrestle with a $13 billion budget deficit – the equivalent of half the overall budget for the year – they are finding that simply keeping up with the interest payments on the debt is an onerous task. This year’s price tag: a crippling penalty of more than a half-billion dollars on debt issued in 2010.

Nevada, California and Texas are struggling with deficits as large as 44 percent, 29 percent and 32 percent, respectively, and these and other states will feel the impact of rising borrowing costs. So far, the solutions from both Democratic and Republican governors, including proposals for sharp cuts in government workers' benefits and a scaling back of bargaining rights, have sparked protests in Wisconsin and Ohio.

Beyond the grim implications for cash-strapped states, this scenario offers a preview of the pain that might befall the federal government if investors in U.S. Treasuries start to demand a premium because of uncertainty over the federal fiscal situation. Already, the Obama administration's budget proposal for 2012 projects that interest payments on the national debt will quadruple over the next decade, from $207 billion in 2011to $844 billion in 2021. Interest on debt held by the public is estimated to climb from 7.7 percent of total federal outlays in 2011, to 15.8 percent in 2016. If interest rates rise, those debt costs will climb even higher.

"If we don’t get a handle on our fiscal situation, investors will grow more nervous and demand a higher interest rate to buy our debt," said Mark Zandi, chief economist at Moody's Economy.com. "That, combined with deficits, will start to gobble up our budget and resources and ultimately will swamp us, much like rising interest payments swamped a number of European countries."

Treasury Plan to Wind Down Fannie and Freddie

This article was originally published by the Fiscal Times on Friday, Feb. 11, 2011.

The Obama administration released a white paper proposing the gradual winding down of Fannie Mae and Freddie Mac and overhauling the mortgage securities market.

By Katherine Reynolds Lewis

The Obama administration Friday laid out an ambitious vision for U.S. housing finance reform, in which the government gradually diminishes its role and private investors return to the mortgage securities market.

But the plan doesn't specify how to overhaul or eliminate Fannie Mae and Freddie Mac, instead setting out three possible options for the mortgage giants, which have been operating under government conservatorship since September 2008. Under the landmark Dodd-Frank financial overhaul legislation approved last year, the Treasury Department was supposed to present to Congress by Jan. 31 a report on the government-sponsored enterprises (GSEs) to help lawmakers write legislation to reform the agencies.

"This is a plan for fundamental reform — to wind down the GSEs, strengthen consumer protection, and preserve access to affordable housing for people who need it," said Treasury Secretary Timothy Geithner in a statement. "We are going to start the process of reform now, but we are going to do it responsibly and carefully so that we support the recovery and the process of repair of the housing market."

At stake are the health of the real estate market, economic growth and, some argue, the future of the 30-year fixed-rate mortgage. The challenge for policymakers is to attract private investors back into the mortgage market while retaining the benefits that Fannie and Freddie established — a liquid secondary mortgage market and greater access to homeownership. The administration and lawmakers are also attempting to prevent a repeat of the excessive risk-taking and inadequate supervision of the housing market that led to the 2008 financial crisis, while reassuring foreign investors in housing bonds and U.S. government debt.


Administration Split Over Fannie Freddie Strategy

This article was originally published by the Fiscal Times on Thursday, Jan. 20, 2011.

With a Jan. 31 deadline looming for making recommendations, the Obama administration is badly divided over how to reform Fannie Mae and Freddie Mac, the financially strapped and controversial mortgage giants.

By Katherine Reynolds Lewis

The Obama administration is sorely divided over how to reform Fannie Mae and Freddie Mac, the controversial mortgage giants. Sources familiar with the discussions raise the possibility that the White House will miss its statutory deadline for submitting recommendations to Congress.

The dispute pits White House economic advisers, who favor merely offering lawmakers a menu of possible next steps without committing to a specific direction, against officials at the Treasury and Department of Housing and Urban Development, who want to endorse an explicit federal guarantee for the mortgage companies and throw the administration's support behind it, the sources said.

The controversy is as much over strategy as substance. White House advisers aren’t certain whether going out on a limb with a specific plan will drive reforms of the federal housing finance program in a constructive way, or present an easy target for opponents. Administration officials who object to offering an explicit guarantee so early in the process say it would make it harder to negotiate a compromise. Instead, they argue, the administration would be better off laying out a range of options, to give them maximum flexibility in talks with Democratic and Republican lawmakers and industry officials.

The government currently supports 97 percent of the mortgage market, and the two entities own or guarantee nearly three quarters of that amount, or $6 trillion in debt, which policy experts and stakeholders agree can’t be indefinitely sustained.

House Republicans' Latest Fight Against Derivatives Reform

This article was originally published by the Fiscal Times on Thursday, Dec. 16, 2010.

Two House Republican lawmakers want financial regulators to slow down new rules for derivatives trading to avoid the effects on big corporations.

By Katherine Reynolds Lewis

Two key Republican lawmakers urged financial regulators to slow down the progress of new rules for the nearly $500 trillion over-the-counter derivatives market, an early sign that the new Republican House majority aims to delay and scale back the landmark financial regulatory overhaul that President Obama signed into law in July.

"As our economy slowly recovers, we have serious concerns that the Dodd-Frank bill for Wall Street reform will force American companies, which did not cause nor contribute to the financial crisis, to move billions of dollars in capital onto the sidelines to comply with the law," Reps. Spencer Bachus, R.-Ala., and Frank Lucas, R.-Okla., wrote in a letter dated Thursday, Dec. 16, to the heads of the Treasury Department, Securities and Exchange Commission, Federal Reserve Board and Commodity Futures Trading Commission. The two are the incoming chairmen of the House Financial Services and Agriculture Committees, respectively.

The Republicans' strategy is to delay implementation of the Dodd-Frank legislation until 2012, in hopes that a new Republican president and Senate will roll back or repeal the law, said David Min, associate director for financial markets policy at the Center for American Progress.

"They're trying to run out the clock a little bit," Min said. "They will try to delay the process through hearings, through tough letters and proposed legislation, but ultimately the presidency is held by Obama and the Senate is held by Democrats."

Banks Lose with New Derivatives Controls

This article was originally published by the Fiscal Times on Thursday, Dec. 9, 2010.

The Commodity Futures Trading Commission is considering new rules that could move derivatives trading to an exchange or clearinghouse, which would have a big impact on the profits of Wall Street banks.

By Katherine Reynolds Lewis

Federal regulators next week are set to propose new rules for trading over-the-counter derivatives, part of an effort to bring the $450 trillion market under government control for the first time, and shifting the balance of power between centralized exchanges and the world's largest financial institutions.

Congress tasked the Commodity Futures Trading Commission with shedding light on the opaque derivatives markets and bringing the majority of market activity -- possibly 80 or 90 percent -- into clearinghouses and centralized trading facilities. At stake is which market participants will profit and the cost of the new rules. Derivatives, financial contracts whose value is based on the price of an underlying asset such as a commodity, interest rate or currency, have been wildly profitable for Wall Street in recent years. The five largest U.S. dealers reaped an estimated $28 billion in 2009, according to an analysis by Bloomberg News.

Financial Advisors: New Rules Protect Consumers

This article was originally published by the Fiscal Times on Friday, Nov. 5, 2010

With more than 100 professional designations for financial-services providers, it can be hard to figure out who you can trust with your with your money. New government regulations may change that.

By Katherine Reynolds Lewis

Wondering whether to jump back into the market after the Federal Reserve's plan to pump $600 billion into the economy sent stocks to their highest level since September 2008, but worried about the uncertain outlook? People looking for good financial advice can have a hard time.

There are no federal rules for the training or conduct of someone who hangs a shingle as a financial planner. “Certified” financial service providers include more than 100 professional designations, with acronyms like CFP, CFM, CIMA, CFA, CLU, CPA, EA and PFC, representing everything from a single self-study course to years of education, professional training, continuing education, testing and ethics.

Adela Pena, 63, thought she was being responsible when she took early retirement from a telecommunications company in 1998 and invested a $400,000 lump sum pension payment in an annuity recommended by a financial adviser. She watched the value of her portfolio plummet and the adviser stopped returning phone calls. By 2008, she had only $49,000 left.

“Now all I’m living off is my Social Security and the generosity of my children,” she said in an interview from her San Jose, Calif., home. “It’s not like I spend my money foolishly. My children and I never really went on vacation because I wanted to make sure I had some money in my old age so they wouldn’t have to worry about me.”

New Government Oversight
Now, for the first time, financial planners could be subject to government oversight and broker-dealers could be required to act in their customers’ best interests, after two landmark reviews ordered by Congress in this summer's financial regulatory overhaul. The initiatives could reshape the marketplace for financial and investment advice. Policymakers hope new rules will restore some of the confidence shaken by the global financial crisis and stock market collapse in 2008, and better protect investors for the future.

“If I go to someone who markets himself as a doctor or a lawyer, I know that person has passed an exam and that person is subject to a code of professional conduct,” said Marilyn Mohrman-Gillis, managing director for public policy at the Certified Financial Planner Board of Standards, the organization that grants the CFP designation. “It’s easier to be a financial planner than it is to be a cosmetologist.”

Study Harder

This article was originally published by Financial Planning magazine in October 2010.

The Dodd-Frank legislation calls for studies of fiduciary duty and financial planning oversight. What they find could change the industry.

By Katherine Reynolds Lewis

The buzz of activity in Washington over financial regulatory reform hasn't died since Congress passed the sweeping Dodd-Frank legislation and President Barack Obama signed it into law on July 21; it's merely moved from the halls of Congress to the regulatory agencies. For planners, the legislation kick-started two major initiatives that could transform the way financial advice is regulated and for the first time subject financial planning to explicit regulatory oversight.

The first is a study by the SEC about the obligations of brokers, dealers and investment advisors toward their clients. This study is likely to result in new rules imposing a fiduciary duty on all professionals who provide personalized investment advice, given SEC Chair Mary Schapiro's support for a uniform fiduciary standard. The second is a study by the Government Accountability Office (GAO) on the oversight of financial planning, which will result in recommendations to Congress of any legislation needed to close regulatory gaps and protect investors. Both studies are due in six months.

"It's very significant. Many major policy initiatives grow from government studies," says Marilyn Mohrman-Gillis, managing director of public policy for the CFP Board of Standards. "This regulatory reform bill provides a golden opportunity to start important change in the industry."

Justice quizzed on death penalty

This article was originally published by Gannett News Service and the Jackson Clarion-Ledger on Thursday, Sept. 30, 2010.

By Katherine Reynolds Lewis

WASHINGTON — Mississippi Justice James Graves Jr. clarified his position on the death penalty Wednesday during a Senate hearing on his nomination for a federal judgeship.

Responding to a question from Sen. Jeff Sessions, R-Ala., Graves explained that he joined a dissenting opinion in a capital murder case for reasons related only to claims by the defendant, Anthony Doss, that his attorneys had been ineffective and that he was mentally retarded.

"I take responsibility for joining that opinion, but I have not now nor have I ever subscribed to any point of view that the death penalty was unconstitutional," Graves told members of the Senate Judiciary Committee. "The United States Supreme Court has determined that the death penalty does not constitute cruel and unusual punishment. I would follow the law as handed down by the United States Supreme Court."

Graves, 56, is a nominee for the 5th U.S. Circuit Court of Appeals in New Orleans, which hears appeals from case in Mississippi, Louisiana and Texas.

He pointed to his nine years as a Mississippi justice, during which he voted to affirm convictions and the death penalty in at least a dozen capital punishment cases.

Graves is the only black justice on the court, which he joined in 2001. Before that, he was a Hinds County Circuit judge for 10 years.

He holds a bachelor's degree from Millsaps College and law and master's degrees from Syracuse University.

Are There Still Banks Too Big to Fail?

This article was originally published by the Fiscal Times on Friday, Sept. 3, 2010.

Fed Chairman Ben Bernanke told the Financial Crisis Inquiry Commission that federal regulators must be ready to close down the largest banks and financial institutions if they once again threaten to bring down the global financial system.

By Katherine Reynolds Lewis

Two years after Washington had to spend hundreds of billions to bail out much of Wall Street, members of a Financial Crisis Inquiry Commission said Thursday the country still has a problem with financial institutions that are "too big to fail."

Federal officials and most financial experts agree that so-called too-big-to-fail-institutions like AIG and Citigroup helped cause the crisis and were a huge drain on the Treasury and Federal Reserve.

The major financial overhaul legislation pushed through by President Obama this year put in safeguards to try to avoid a repeat of the crisis in which federal officials were forced to decide which firms would go under or be auctioned off and which had to be propped up because of their importance to the financial world. But commissioner Byron Georgiou, a skeptic, noted that the six largest financial groups in 2009 constituted 63 percent of gross domestic product, an increase over the 58 percent of GDP they represented in 2007, at the height of the housing bubble, and both up from a mere 17 percent in 1995.

“Given their increasing size, do you really believe these institutions would be allowed to fail today?” said Georgiou, a personal injury and financial fraud lawyer. “Are we really in any better shape today to avoid the bailouts that have been so criticized in the last few years?”

Could Lehman Brothers Have Been Saved?

This article was originally published by the Fiscal Times on Thursday, Sept. 2, 2010.

The former CEO of Lehman Brothers testified during one of the final hearings of the commission investigating the U.S. financial crisis that federal regulators prematurely forced the firm into bankruptcy before all other options were exhausted.

By Katherine Reynolds Lewis

Just days before the two-year anniversary of Lehman Brothers' collapse, banking regulators passionately defended their handling of the crisis at a Financial Crisis Inquiry Commission hearing, while the former Lehman CEO insisted the government prematurely forced the firm into bankruptcy before all other options were exhausted.

"Lehman was forced into bankruptcy not because it neglected to act responsibly or seek solutions to the crisis, but because of a decision, based on flawed information, not to provide Lehman with the support given to each of its competitors," said Richard S. Fuld Jr., the former chairman and chief executive officer. "We had the collateral. We had the capital."

In testimony Thursday, Federal Reserve Chairman Ben Bernanke countered that charge, saying it was impossible for the Fed to rescue Lehman Brothers from bankruptcy in 2008 because the Wall Street firm lacked sufficient collateral to secure a loan. Asked how the Lehman case differed from that of American International Group Inc., which received $182 billion in taxpayer aid, Bernanke said there was a fundamental difference.

AIG, as the biggest insurance company in the U.S., had valuable assets which could back up the Fed's emergency loan, he said. "The Federal Reserve will absolutely be paid back by AIG," Bernanke said.

Whether it would have been possible to save Lehman Brothers is one of the most perplexing questions to emerge from the financial meltdown that led to one of the worst recessions in U.S. history. That question clearly divided the 10 members of the commission, whose questions at each were other almost as pointed as the ones they posed to witnesses, who gave sworn testimony.

The hearings underscored a hard truth: that for all the new laws and pending regulations Congress and the Obama administration have put forth in response to the meltdown, future crises will only be averted if industry professionals and the regulators who oversee them use good judgment and pursue hints of trouble even in the face of rosy conventional wisdom.

New Financial Rules Will Lower Bank Profits

This article was originally published by the Fiscal Times on Friday, July 2, 2010.

The landmark financial overhaul legislation will raise banking industry regulatory costs, lower their profits and limit their use of their own assets in risky investments.

By Katherine Reynolds Lewis

A major overhaul of financial regulations that cleared the House this week will put the banking industry on course for higher regulatory costs, lower profits and a renewed emphasis on more traditional activities like taking deposits and making loans.

The landmark legislation awaiting final action in the Senate later this month stops short of banning banks from investing their own assets, dealing in highly speculative derivatives or investing in hedge funds and private equity firms, as many reformists had urged. But the complex web of new rules in the 2,000-plus-page document will add an estimated $11 billion to the industry’s regulatory costs in the coming years. And it would put a crimp in the industry’s activities and shed more light on their activities with the use of clearinghouses and data repositories.

Rather than marking the finish line in marathon legislative negotiations, the new law's approval is more of a handoff in a relay race. Regulators will receive the baton and a mandate to write dozens of new rules to restrict banks' activities, increase capital requirements, protect consumers from fraud, and impose more oversight to prevent a repeat of the problems that caused the near meltdown of global financial markets and triggered a worldwide recession.

Once the financial industry emerges from the near-term pain of that transition, the new regulatory structure could facilitate measured growth in a new environment with less moneymaking potential but greater transparency and protection from failure, analysts said.

"In the long run the industry will be safer, people will be more confident and the spreads will be narrower," said Robert Litan, vice president for research and policy at the Kauffman Foundation. "The bill is sweeping in nature but a lot of the details have yet to be filled in" by regulators, Litan noted. "We don't know whether that's going to be a heavy touch or light touch."

Scott Brown Blocks Financial Reform Vote

This article was originally published by the Fiscal Times on Wednesday, June 30, 2010.

Freshman Republican Sen. Scott Brown objected to a stiff new banking fee which would cover the $19 billion cost of implementing new financial regulation.

By Katherine Reynolds Lewis

Just as Congress was on the verge of passing the broadest overhaul of financial regulation since the Great Depression — following hundreds of hours of debate over the last year — lawmakers are back at the drawing boards. Freshman Republican Sen. Scott Brown objected to a stiff new banking fee which would cover the $19 billion cost of implementing the new regulation.

"It is especially troubling that this provision was inserted in the conference report in the dead of night without hearings or economic analysis," Brown, R-Mass., wrote to the Democratic lawmakers shepherding the legislation through Congress. "Costs would be passed on to the millions of American consumers and small businesses who rely on major U.S. financial institutions for their checking, ATM, loans or other services."

Brown's constituents include the country's largest mutual funds, such as Fidelity Investments and State Street Corp., which objected to paying a fee when it was excesses in the banking industry at the heart of the financial crisis that sparked a worldwide recession.

Banking Bill Leaves Huge Gaps in Financial Reform

This article was originally published by the Fiscal Times on Monday, May 24, 2010.

Financial regulation legislation silent on key issues.

By Katherine Reynolds Lewis

The Senate's action last week to discourage high-risk behavior and regulatory failures has been hailed as the most sweeping reform of the banking and financial system since the 1930s, yet the landmark legislation leaves huge gaps in addressing the causes of the 2008 financial crisis, according to analysts and experts.

Most notably, the Senate-passed bill doesn't address the future of Fannie Mae and Freddie Mac, the mortgage giants at the center of the credit market collapse, which hold $5.5 trillion of residential housing loans, about three-quarters of the market. Nor does the massive, 1,500-page bill establish comprehensive regulation of insurance companies, such as American International Group. Instead, the bill would create an insurance office at the Treasury Department merely to collect data from state insurance regulators.