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Rep. Frank Fights for Financial Reform

The U.S. House Financial Services Committee chairman, Massachusetts Rep. Barney Frank, recently announced that a final version of the financial reform bill that has recently passed the Senate, the House version having passed in December, is likely to be ready for President Obama's signature before the July 4th recess. The 15-term Representative has achieved protecting Legal Services (representing the poor) from dismantling, repealing a ban on gay immigrants, and championing housing reform.

This recent attempt at financial reform is being challenged left and right. Last week, Frank's committee approved a package of bills designed to regulate the financial industry, keeping firms from growing "too big to fail." He hopes control can be gained over the expansive market in "over the counter" derivatives by forcing trading out into the open where it can be monitored by regulators. Unregulated derivatives have been implicated in wrecking our financial system last year, including subprime-mortgage-backed securities. The market in these mostly unmonitored derivatives is one of the most profitable businesses for the biggest banks, including Goldman Sachs, JPMorgan Chase, Citigroup, Bank of America, and Morgan Stanley. Needless to say, Wall Street would rather that Washington left the issue alone. Rep. Frank has ruffled feathers by requesting that conference committee negotiations be televised. Money is influential," Frank said, "but votes will kick money's ass any time they come up against each other.

In the Senate, once public opinion got engaged, it blew away the lobbyists, the money, campaign contributions. Public opinion drove that bill." The financial industry has opposed the legislation, saying that curbs on derivatives will hurt all Americans, not only Wall Street. For instance, airlines use derivatives to protect against fluctuations in fuel prices by "swapping" interest-rate payments or currencies with other companies. Banks want such contracts to remain privately negotiated. However it has been argued that this makes it harder for investors and regulators to assess risk and value, making it easier for banks to charge a large "spread" and turn huge profits.

End-user companies have been willing to enter these deals privately because they aren't required to post capital to cover margins, something that regulation would change. Many have pointed out, however, that corporations could get better prices for their derivatives deals through open bidding on exchanges, despite the fact that it could cost them more upfront. Rep. Frank is optimistic about the July 4th deadline because of the relative consensus between the Senate and House bills. "It's rare that two major bills come out of the House and Senate on a similar piece of legislation that are this close," Frank said. He promised that when the financial reform bill passes, "There will be no entity in America that does not have to report financial transactions to a regulator." Frank has been wearied by the financial reform process. "It's taken over my life in a way that nothing ever has before," he said. "I started out with what I wanted to do and then tried to come as close to it as possible."

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