The new 1,300 page (plus almost 400 amendments--a.k.a. pork!) Financial Reform Bill (FRB) is a complete disaster.
The fact that it's having such a hard time getting passed shows that at least a couple of Senators and Congressmen actually know enough about business and finance to appreciate the devastating effects this bill would have to our economy.
Just a few wonderful highlights:
1) The Up-tick rule- At the end of 2007 (at the request of the Lehman Brothers (remember them?), Goldman Sachs, JP Morgan, et. al) the up-tick rule was abandoned. This rule prevented large institutional investors from conducting a stock market manipulation trick called hen-pecking, which is when a HUGE amount of small sell orders are placed back to back on a stock in order to drive the price down to make money on a short-sell position.
Let me put it another way... Suppose you bet on a horse called "Poor Investor" to finish dead last. Just before the race, you take a baseball bat to "Poor Investor's" knee caps, the race starts and sure enough, "Poor Investor" finishes dead last and you collect your winnings.
Now Suppose this was legal.
Well, now you understand the concept of abandoning the up-tick rule.
The wonderful 1,300 page Financial Reform Bill, of course, doesn't reinstate or even mention the up-tick rule.... I wonder why?
Do you think the lack of an up-tick rule is why Goldman Sachs recently made money 63 STRAIGHT trading days regardless of whether the market went up or down? Nah... They're just reeeeeealy smart.
2) Naked Shorting- This is pretty complicated to explain but it is basically another stock price manipulation practice where large institutional investors work out deals with market makers where short positions are made but the shorted shares are not actually borrowed as required by law.
It's completely illegal to do this, but SEC doesn't enforce the law or fine people for practicing it. It's just another trick to assure that "Poor Investor" always finishes dead last on a short position held by the big guys.
Of course, the 1,300 page FRB doesn't even mention Naked Shorting.
3) Angel Investors-- Angel Investors are basically rich individuals that invest their own money in start-up companies (usually requiring a large equity stake) if the new company is having trouble finding traditional capital from banks or venture capital. Angel Investors are an essential part of our economy in helping start
The new FRB puts a bunch of regulations in place to limit Angle Investor financing. Vastly increasing net-worth requirements, putting them under State control and subject to a 4-month SEC review.
4) Too Big to Fail-- Rather than preventing further gigantic bailouts to struggling companies, the new FRB actually sets up a HUGE slush fund that can be used to "rescue" any company deemed by the the Treasury Department (without Congressional oversight of course) to be in need of emergency financing.
The Treasure Department (under its sole discretion) can take over any company, for whatever reason, and fire the whole upper-management team and board of directors and replace them with government flunkies. Wow! what a wonderfully tyrannical idea! I'm sure our glorious leaders won't abuse this power.
It's ridiculous and dangerous. With such a back-up plan, companies will be encouraged to conduct even riskier business as they know our socialist government will be there to bail them out if terrible mistakes are made. How nice...
The Finance Reform Bill is of the big banks, for the big banks and by the big banks... It is basically to make them richer, enables them to practice even riskier business and bails them out if they make disastrous and risky decisions.
And to top it all off with a little cherry on top, It will greatly decrease the number of new businesses that must be started to get this economy rolling again. They didn't miss a beat.
Tell your Senator and Congressman not to vote for this garbage legislation.
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