itsallaboutfinance.comFinance , Insurance, Debts

Speaking of your financial reform package which would avert any future bailouts, the President Obama   claimed his package would create a permanent bailout system. On Thursday last in the New York City, the president pressed on the financial reform legislation.
Some of the good points of such financial plans are that it will create a transparent derivatives exchange where banks are required to create living wills that imply how they can be dismantled if needed. However, such legislation will not do enough in solving the current problems which caused the financial crisis.
In his speech on Thursday to the Wall Street at Cooper Union, the president discussed five key points.
•    The “Volcker Rule,” announced by Obama, would limit how big banks can get and how much risk they can take. This means that banks that take retail deposits would no longer be allowed to engage in proprietary trading which is not directly related to the market making and trading which they do for customers.

•    A too-big-to-fail (TBTF) circuit breaker. This practice would make sure that the financial and economic system and the economy are protected if a TBTF firm begins to fail. In other words, when a company or a firm wants to prevent a hostile takeover, its board may seek measures that will make the firm/company less desirable if it is purchased but this will not hinder its operations if it stays independent.

•    Transparency reforms that would “bring derivatives and other complicated financial instruments out of the dark.” The President will call for a single Congress-wide database system so that all of us can track earmarks.

•    “Say-on-pay” that would give investors a non-binding vote on how much public company executives gets paid.

•    Consumer protection that would give the US consumers more safeguards and security and power in the financial system. Consumer priority will be given the utmost importance and the consumer products should be at par with the govt prescribed standards.

Almost all the aspects of the above proposed plan are OK but cannot be up to the standard. The Volcker Rule may help with some of the concerns regarding TBTF. Say-on-pay may help limit issues with pay-packages, but since it lacks punch and depth, it will not please the investors much. Consumer protection could help by making it easy for people to understand and analyze the risks of a financial product.

Obama’s plan is to make as much government expansion as possible before the upcoming Congressional election. If he succeeds, the government will control health-care, our energy supply, and consumption our banks. He reiterated, “That may make for a good sound bite, but it’s not factually accurate,” Obama said in a speech in New York City. “A vote for reform is a vote to put a stop to taxpayer-funded bailouts. That’s the truth.”