Financial regulation reform deal reached in the U.S.

The NYT is reporting that the Senate and House have reached agreement on financial regulation reform:
A 20-hour marathon by members of a House-Senate conference committee to complete work on toughened financial regulations culminated at 5:39 a.m. Friday in agreements on the two most contentious portions of the financial regulatory overhaul and a host of other provisions.
The agreements were reached after hours of negotiations, most of it behind closed doors and outside the public forum of the conference committee discussions. The approvals cleared the way for both houses of Congress to vote on the full financial regulatory bill next week.

The bill has been the subject of furious and expensive lobbying efforts by businesses and financial trade groups in recent months. While those efforts produced some specific exceptions to new regulations, by and large the bill’s financial regulations not only remained strong but in some cases gained strength as public outrage grew at the excesses that fueled the financial meltdown of 2008.

Interestingly, despite the efforts of lobbyists, the Volcker rule seems to have survived:
The rule, named for Paul Volcker, the former Federal Reserve chairman who proposed the measure earlier this year, restricts the ability of banks whose deposits are federally insured from trading for their own benefit. That measure had been fiercely opposed by banks and large Wall Street firms, who viewed it as a major incursion on some of their most profitable activities.

But the devil is in the details:
Banks managed to wrangle limited exceptions to the rule that would allow them to continue some investing and trading activity. The agreement limits banks’ investments in hedge funds or private equity funds to no more than 3 percent of a fund’s capital; those investments could also total no more than 3 percent of a bank’s tangible equity.

Other key provisions:

• Securities and Exchange Commission to have authority to require stockbrokers to protect their clients’ interest when recommending investments, potentially subjecting brokers to the same fiduciary duty as financial advisers.

• S.E.C. to complete a study within six months of the financial bill’s enactment to evaluate the effectiveness of current rules governing those who give financial advice to or sell securities to consumers.

The law is over 1500 pages long and certainly not cheap:
The Congressional Budget Office estimated that the financial regulatory bill would cost roughly $20 billion over 10 years. The conference committee agreed to pay for the bill by imposing an assessment on large financial institutions; the assessments would be made according to a “risk matrix” that charges higher amounts to riskier institutions.Mr. Frank said that the assessments — which Republicans called a tax — are an acceptable solution for “the collective errors of many in the financial institutions that caused this set of problems.”

Stay tuned for more on this topic in the coming weeks and months.

Do we still live in a free market?

The Independent has a populist piece about "fat cat barristers" making too much money, loaded with threats from the "Enterprise" Minister. It would be funny if we were talking about some tin pot little communist regime, but this is Ireland? I know that we are in a recession but state mandated fee cuts for professional services? Presumably these fees are being freely negotiated and parties have a choice with regard to paying them or taking their business elsewhere. While there is limited room for state intervention if there is evidence of obstacles to competition, these sorts of populist moves have no place in a free market economy.

Have a look at some quotes from the article:
Figures from the Central Statistics Office reveal that, while every other section of the workforce, from civil servants to builders, is experiencing pay cuts, legal fees were 2.8 per cent higher in "the latter part of 2008'' than their average for that year.

... not all professions are suffering equally, for outside of our legal friends, accountants, PR people and management consultants reduced their fees by just 1.5 per cent.

The bad news for our cosseted elites is that Enterprise Minister Batt O'Keeffe has written to the representative bodies of the major professional services and told them to reduce fees as "a gesture of fairness to the public and in the spirit of competitiveness".
The minister has also commissioned a three-pronged investigation into excessive professional fees.
Speaking to the Sunday Independent, a senior departmental source noted growing concerns about professional profiteering that "the minister is quite happy to use the carrot to resolve the issue, but the stick is lying in wait should it be necessary''.

The source added that Mr O'Keeffe wants professionals such as "barristers, solicitors accountants, doctors, dentists management consultants and others to cut their fees by at least 10 per cent''.
It is believed the minister was particularly unimpressed with "our legal friends who are spending too long tinkering with Daniel O'Connell's snuff box in the law library and are totally removed from the pressures being experienced by ordinary citizens''.
The Sunday Independent was told the minister also thinks it is "time for the rest of the professions to come into line with what is happening in the real economy instead of living in the current Narnia where they are still charging Celtic Tiger rates''.

Some of these remarks from the "source" are quite comical. I doubt if Irish (Narnian) barristers are quaking in their boots at what the White Witch (Enterprise Minister) might do to them with the "stick".

More evidence of lack of competition - and less talk - would be the way forward if the state wants to hit "fat cat barristers." Until then, law is still a good career option come boom or bust.

FSA wakes up in 2010

After years of rather tepid action, the UK's Financial Services Authority has shown signs of life in 2010. The Times reports that the regulator has issued summons to former directors of iSoft, including Patrick Cryne, its founder and former chairman. Others implicated are Timothy Whiston, the former chief executive, and former directors Stephen Graham and John Whelan. They are required to appear at a Magistrates Court to answer charges for conspiracy to make misleading statements. If convicted, they face up to 7 years in jail. Here are more details:
The regulator began investigating iSoft in 2006 after it told the London Stock Exchange that it had been booking profits relating to its work on a giant NHS computer project when the contracts were signed rather than when it actually received payment. The revelation forced iSoft, which was worth £1 billion at its stockmarket peak, to restate its accounts by £174 million and led to the resignation of several key executives.
This is small fry. The FSA has to act against the big fish in order to be taken seriously. Otherwise, it will continue to be regarded as a poor cousin to the SEC.