President Obama Signs Sweeping Financial Overhaul into Law

President Obama on Wednesday signed into law the most ambitious overhaul of financial regulation in generations, placing broad new authority in the hands of federal watchdogs in an effort to prevent a recurrence of the crisis that erupted nearly two years ago.

Source: Source: Washington Post | Published on July 21, 2010

"For years, our financial sector was governed by antiquated and poorly enforced rules that allowed some to game the system and take risks that endangered the entire economy," Obama said. As a result, he said, the system "left taxpayers on the hook if a big bank or financial institution ever failed."

Now, because of the law, "the American people will never again be asked to foot the bill for Wall Street's mistakes," he said. "There will be no more taxpayer-funded bailouts, period."

After his remarks, Obama signed the bill at the Ronald Reagan Building and International Trade Center near the White House. The crowd of 400 attendees included lawmakers, consumer advocates and stakeholders from the financial industry, as well as ordinary Americans who the president said would benefit from new regulation.

"These reforms represent the strongest consumer financial protections in history," Obama said. "And these protections will be enforced by a new consumer watchdog with just one job: looking out for people -- not big banks, not lenders, not investment houses -- looking out for people as they interact with the financial system. And that's not just good for consumers; that's good for the economy."

The event marked a significant legislative victory for Obama, who had pledged to rein in the reckless Wall Street behavior behind the crisis and to mend the government regulation that failed to prevent it. The House approved the bill in June, and the Senate followed last week, after more than a year of wrangling in both chambers over the shape of the new rules.

The final bill hews closely to the blueprint announced by the administration in June 2009. It establishes an independent consumer bureau within the Federal Reserve to protect borrowers against abuses in mortgage, credit card and some other types of lending. It grants the government new authority to seize and wind down large, troubled financial firms -- such as the failed investment bank Lehman Brothers -- and sets up a council of federal regulators to monitor for threats to the financial system.

Under the new rules, the vast market for derivatives -- complex financial instruments that helped exacerbate the crisis -- will face government oversight, in many instances for the first time. Shareholders, meanwhile, will gain more say on how corporate executives are paid.

With few exceptions, the legislation does little to alter the fundamental shape of Wall Street, disappointing some liberal lawmakers and consumer groups. It does not attempt to break up the nation's megabanks or ban the trading of certain derivatives. Nor does it significantly streamline the alphabet soup of financial regulators in Washington.

Rather, the bill places faith in the watchful eyes of regulators to prevent another financial meltdown, or at least to intervene authoritatively when a crisis arises. The new consumer watchdog would police consumer lending by looking for potentially abusive products and establishing consistency among lending standards. Bank supervisors would have the power to seize large, ailing financial firms whose collapse could threaten the entire system. The bill also could compel banks to hold more money in reserve to weather economic storms, although federal regulators will be responsible for many of the final details.

Even before Obama signed the bill on Wednesday, federal officials had been laying the groundwork to implement the reforms. Treasury officials have been meeting daily for weeks to plan how to carry out the law's many provisions, which will go into effect intermittently over the coming weeks and months. Similar efforts are underway at a host other agencies, such as the Securities and Exchange Commission, the Federal Deposit Insurance Corp. and the Federal Reserve, each of which will have new responsibilities.

One of the largest and most significant tasks will be setting up the new consumer bureau and choosing its leader, an appointment that has gotten much attention in recent days and one that officials have said Obama is likely to make soon.

While the scene at Wednesday's signing was celebratory, many Republicans on Capitol Hill and business and financial industry executives have argued that the bill will create a more expansive, intrusive government. They say it will fail to prevent future bailouts of financial companies using taxpayers' money and that the new rules could undermine the competitiveness of the U.S. economy, stifle growth and kill jobs at a time of high unemployment.

"The White House will call this a victory," Senate Minority Leader Mitch McConnell (R-Ky.) said just before the bill passed the Senate last week. "But as credit tightens, regulations multiply and job creation slows even further as a result of this bill, they'll have a hard time convincing the American people that this is a victory for them."

At the very least, he was correct on the first part. The White House did call Wednesday a victory. And the president focused not on the complicated details of the legislation, but rather on how he believes it will benefit the very people McConnell says it will hurt.