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Financial Reform passes!

In another stunning victory for the Obama Administration, the US Senate passed the financial regulatory reform bill by a vote of 59-39 on Thursday night. (A summary of the legislation can be found on the Senate Banking Committee website.)

We are optimistic that this legislation will begin to address the "trust issues" that now dominate the equity marketplace. It was these "trust issues" that caused a 1,000 point intra-day fall in the Dow Jones Industrial Index on May 6. Until now, rational, fair or effective solutions to the practices that caused so much turmoil in 2007, 2008 and 2009 had not been enacted in any Western economy or market system.

Market mechanisms are simply stressed to the breaking point, given the sharp rise in transaction costs. Transaction costs increased as marketplace ethics decreased. Financial market institutions, recognizing that a decline in ethical standards eventually leads to a decline in trust and an increase in transaction costs, atte…

Hearing on the Banking Industry Perspectives on the Obama Administration’s Financial Regulatory Reform Proposals(Jui-Kai Li)

On July 15th , the Full committee of the House Financial Services Committee held a hearing on the banking industry perspectives on the Obama administration’s financial regulatory reform proposals. Testifying were Steve Bartlett-Financial Services Roundtable, John A. Courson- Mortgage Bankers Association, Chris Stinebert- American Financial Services Association, Steven I. Zeisel- Consumer Bankers Association, Professor Todd J. Zywicki- George Mason University, Denise M. Leonard- National Association of Mortgage Brokers, Edward L. Yingling- American Bankers Association, R. Michael S. Menzies- Independent Community Bankers of America.

In his opening statement, Chairman Barney Frank explained that there are lots of opinions and complaints with regard to the Obama administration’s financial regulatory reform proposals. He believes that these opinions and complaints are important during the establishment of this new regulation. He anticipated today’s discussion from the banking industry pers…

Financial Market Regulatory Proposals by the Obama Administration

The Obama Administration is gearing up to reform the financial marketplace. Today, two proposals were released. The first, according to the New York Times,"seek(s) new authority to supervise the virtually unregulated complex financial instruments, known as derivatives, that were a major cause of the market crisis.."

And, according to Reuters, the second proposal "reforms..financial industry compensation practices to discourage excessive risk-taking, which is considered to have sown the seeds of the current credit crisis."

The two proposals are linked and reinforcing. The derivatives reform play seeks to eliminate or regulate a key tool used by executives at financial institutions to justify large amounts of compensation. (Unless you can produce outsized returns via standard financial instruments, extremely generous pay packages are unlikely to be received.)

And, in case that fails, the compensation reform play says we will limit your compensation no matter what you do…

Treasury Outlines Framework For Regulatory Reform

The U.S Department of the Treasury today proposed a new set of rules and regulations governing activities and firms in the financial marketplace. We applaud and fully support this effort. It follow a regulatory structure we first outlined in 1998, and expanded in 2007. As such we are hopeful.

The proposal consists of four broad outlines:

1. "Addressing Systemic Risk: large, interconnected firms and markets need to be under a more consistent and more conservative regulatory regime.

2. Protecting Consumers and Investors: clear rules of the road that prevent manipulation and abuse.

3. Eliminating Gaps in Our Regulatory Structure: clear authority, resources, and accountability for key functions. A substantive system of regulation that meets the needs of the American people.

4. Fostering International Coordination: ensure that international rules for financial regulation are consistent with the high standards in the United States. Launch (of) a new initiative to address prudential super…

Advisory Board Member Howie Hodges mentioned

In an article on the Black Enterprise Magazine blog about the nomination of New Mexico Gov. Bill Richardson as Obama Administration Commerce Secretary, Creative Investment Research, Inc. Advisory Board Member C. Howie Hodges, "who was an assistant director for the department’s Minority Business Development Agency during Clinton’s first administration" noted that,

"Richardson had a very good strategic team and I have no doubt that he will put in place a very capable combination of savvy business people who will also have the political skills to help execute Obama’s mandate to create economic and job growth,' says Hodges, who is currently a senior vice president of One Economy Corp., a global nonprofit that delivers access to technology and content to low- and moderate-income households.

In addition, says Hodges, during the Clinton administration, the agency actively aimed to expand opportunities for minority and women-owned businesses in the private and international t…

Obama - Socially Responsible Investor

According to Slate.com:

"For a couple in their mid-40s, the Obamas' investment holdings are arguably too conservative. One of the single largest chunks of their money (between $US150,000 and $US350,000 as of year-end 2006) was invested in the Vanguard Wellington Fund, which has about 65 per cent in stocks, 33 per cent in bonds, and 2 per cent in cash. Obama reportedly sold this fund after learning it was invested in Schlumberger, a French oil-field-services company that does business in Sudan. He put that $US180,000 in proceeds into the Vanguard FTSE Social Index Fund, a socially responsible fund that invests in large and midcap stocks. The Obamas had another $US100,000 to $US250,000 in Vanguard's Wellesley Fund, which allocates 60 per cent of its money in high-quality bonds. Considering the Obamas have more than 20 years to go before retirement, many financial advisers would tell them to be more aggressive and increase their stock exposure to 80 per cent of their portfoli…