Frank-Dodd Financial Reform Act

[XULucho27]

I've studied a good deal of this new financial legislation closely and wanted to open it up for discussion. What are the general thoughts on it? Does it go too far? Does it go far enough?

In my opinion, it has some promising sections (corporate governance reform, consumer protection bureau, predatory lending liability etc.) Overall however, it does little (if nothing) to curtail centralized banking power (too big to fail financial institutions) and provides no guarantees against future tax-payer funded bailouts (two of the main points that were to be addressed in this bill).

I find this topic interesting and was wondering if you all had any thoughts.

[powerofX]

I've studied a good deal of this new financial legislation closely and wanted to open it up for discussion. What are the general thoughts on it? Does it go too far? Does it go far enough?

In my opinion, it has some promising sections (corporate governance reform, consumer protection bureau, predatory lending liability etc.) Overall however, it does little (if nothing) to curtail centralized banking power (too big to fail financial institutions) and provides no guarantees against future tax-payer funded bailouts (two of the main points that were to be addressed in this bill).

I find this topic interesting and was wondering if you all had any thoughts.

I'll write my feelings in more detail later when I have time, but two major concerns that I have include the predatory lending liability provision and not specifically addressing Frannie and Freddie. I feel that the term "predatory" lending has evolved into something too all encompassing. The provision puts too much responsibility on the lendor while not addressing personal responsibility in purchasing a mortgage. Lack of personal responsibility was a large part of the mess that started it all.

[Strange Brew]

Any Bill that does not address the true problem of F and F is worthless.
Any Bill that expands the power of the Fed is also worthless.

Thus. This new law is worthless.

[xu95]

Any Bill that does not address the true problem of F and F is worthless.
Any Bill that expands the power of the Fed is also worthless.

Thus. This new law is worthless.

That has been every bill written since 2009.

xu95

[madness31]

While personal responsibility is important, it is difficult to achieve without proper education. Schools do not focus on financial literacy and leave many without the ability to make responsible financial decisions.

Aside from that the real problem is banks had a short term profit focus rather than a long-term viability view. Banks have a responsibility to shareholders to make decisions that will maximize profits while not putting the company at risk. The huge incentives offered to management for providing short-term profits lead to them ignoring the long-term and going after short-term profits at any cost. Without compensation reform we will revisit this issue again. The US is the only developed country with such outsized financial rewards for top management. The worst part is management takes their bonuses whether earned or not as we all saw during the banking meltdown.

The government of course shouldn't set corporate pay but could change the rules to have compensation voted on directly by shareholders along with terms of bonuses. I suspect this wouldn't work with so much wealth being controlled by mutual funds that are likely corruptable but it is worth a shot. Not sure what other solutions are possible other than linking executive pay to a multiple of the median or lowest paid employee of each company. That would be great but difficult to monitor.

[XULucho27]

The government of course shouldn't set corporate pay but could change the rules to have compensation voted on directly by shareholders along with terms of bonuses. I suspect this wouldn't work with so much wealth being controlled by mutual funds that are likely corruptable but it is worth a shot. Not sure what other solutions are possible other than linking executive pay to a multiple of the median or lowest paid employee of each company. That would be great but difficult to monitor.

I'm glad you mentioned this because this is one area in which the Act has made a significant change. Overall, the corporate governance provisions of this legislation should have vast, far reaching effects. Note:


SEC. 951 SHAREHOLDER VOTE ON EXECUTIVE COMPENSATION DISCLOSURES...

(1) In general... the Commission require compensation disclosure shall include separate resolution subject to shareholder vote to APPROVE the compensation of executives as disclosed.

Further:


SEC. 957 VOTING BY BROKERS...

(10) (A) ...Prohibit any member that is not beneficial owner of a security from granting a proxy to vote the security ... unless the beneficial owner has instructed the member

Basically the Act has provided a provision in which shareholders now have the right to vote on executive compensation. Furthermore, it bars brokers from voting the proxy's of shareholders without their consent (if voting on "significant" matters). This is definitely a great step in the right direction given that brokers, for the most part, vote in favor of management. While of course these provisions will be subject to statutory interpretation and years of litigation to come into full effect, the message is clear: Corporate compensation should and will not go unchecked in the future. As a matter of corporate governance reform, this is an effective piece of the legislation.

[powerofX]

While personal responsibility is important, it is difficult to achieve without proper education. Schools do not focus on financial literacy and leave many without the ability to make responsible financial decisions.



Excusess can be made for pretty much any bad decision.

[GoMuskies]

I'm not a huge fan of say on pay. IMO pay should be set by directors who shareholders elect. I guess I'm a bigger fan of representative democracy than direct democracy.

I do like the direction the SEC has been going on greater disclosure around executive comp (if you're getting ridiculous amounts of compensation, it has to be clearly disclosed with all the reasons you deserve to be treated so well and the Comp. Committee's justification for it). Granted, as a corporate lawyer, CD&A is pretty much a pain in the ass to write and review.

[madness31]

One would think that boards setting pay would be sufficient but the problem is one of ethics. Most board members are executives at other companies or were executives and it becomes the you scratch my back, I'll scratch yours. No direct conversation is needed about this as everytime an executive gets higher compensation the mean rises and other boards follow.

The boards justify this with silly notions of the stock price rose, profits grew, or they need to be competitive with the market. The reason these notions are silly beyond the obvious that one of the justifications will always point to higher compensation and therefore support higher pay is that they don't measure performance against a benchmark. Since governments always aim to create inflation stocks and economic activity tend to always go up, at least until irresponsibility and greed get too out of control to create systemic problems. If stock price, profitability or revenue growth is going to be used as a guideline then it must be compared to a benchmark. If a company stock is up 10% but the market is up 12% then the execs of that company should take a pay cut not get an increase. You could of course go by industry stock, revenue, profit performance rather than the market as a whole but the measure should be consistent from year to year. The competitive argument must be thrown out other than possibly setting compensation for a new exec. If the current staff is under performing then it would be great to force them out with low pay. All golden parachutes should be eliminated as no one should be rewarded for failure.

Good to see compensation will now be up to shareholders. Could work with brokers having no say.

[GoMuskies]

We just disagree fundamentally on the best solution on executive comp. I prefer greater disclosure to greater regulation in this particular arena. If the comp. committee is doing outrageous things, vote them out.