Bank shot

At the Ronald Reagan Building in Washington, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 21, a sweeping restructuring of financial rules that further shifts power from the private sector to the federal government. Dodd-Frank, named for co-sponsors Sen. Christopher Dodd, D-Conn., and Rep. Barney Frank, D-Mass., is expected to affect virtually every segment of the U.S. financial services industry, including banks, thrifts, mortgage lenders, insurance companies, bond-rating companies, hedge funds, and investment advisory firms. Among other things, the law:

• Creates a Consumer Financial Protection Bureau (with rule-making powers) within the Federal Reserve;

• Establishes a Financial Stability Oversight Council to monitor financial markets for possible problems;

• Empowers federal regulators to seize and dismantle troubled financial firms whose collapse might cause collateral damage to other firms;

• Makes companies that rate bond quality (such as Standard & Poor's and Moody's Investors Service) legally liable for the accuracy of their ratings decisions; and

• Implements national minimum standards for the underwriting of mortgages.

"The American people will never again be asked to foot the bill for Wall Street's mistakes," Obama said, referring to the federal government's infusion of hundreds of billions of dollars into Wall Street firms, mortgage lenders, and other companies in 2008 to help stabilize teetering financial markets.

Critics characterized Dodd-Frank itself as a mistake. "This financial-­services reform is nothing more than a permanent bailout of Wall Street that will restrict credit, kill jobs, raise taxes, and expand government control of the private sector," argued Indiana Rep. Mike Pence, the No. 3 Republican in the House. Harvey Pitt, former chairman of the Securities and Exchange Commission, called the new law a "classic legislative monstrosity" that is "likely to harm competition, force a 'brain drain' of talent away from Wall Street, and boost the performance of commercial and investment banks located outside the U.S."

Despite the law's broad scope, it has no provisions aimed at restructuring Fannie Mae and Freddie Mac, the two quasi-government mortgage companies that played a key role in the subprime mortgage collapse that helped trigger the financial crisis. Joseph Slife is the assistant editor of SoundMindInvesting.com.

Out at home

Home foreclosures hit a record high in the second quarter to 269,952-up 38 percent over the same period last year, according to the research firm Realty Trac. Meanwhile, the government's independent watchdog over TARP bailout spending told Congress that the Obama administration's multibillion-dollar effort to help homeowners avoid foreclosure isn't working. The Home Affordable Modification Program "has not put an appreciable dent in foreclosure filings," inspector general Neil Barofsky testified before the Senate Finance Committee. The Treasury Department had estimated that the $50 billion program would help 3 million to 4 million homeowners, but so far only 340,000 have seen their mortgages permanently modified. "Any claims of success [for this program] just aren't credible," Barofsky said.