Saxby Chambliss weigh's in on the new financial regulatory reform bill, voicing the concern's of many Republican's and Democrat's alike. Chambliss states on his webiste, "Nothing in these 2300 plus pages deals with the primary catalyst of the market instability in our economy – the bailout behemoths, Fannie Mae and Freddie Mac. This bill simply ignores the devastating impact these two entities continue to have not only on our capital markets, but also our nation’s deficit – demanding over $145 billion dollars in taxpayer assistance with no end in sight.
"And the newly created Consumer Protection Bureau is an affirmation that the proponents of the legislation have acknowledged government failures were a significant cause of our economic turmoil, but they still believe bigger government is the solution going forward – that despite failure after failure among various regulatory agencies, a new agency is the answer to these short-comings -- that this time will be different.
"Instead of addressing the problems of the consumer protections in place under our current regulatory structure, this new oversight agency is an added layer of bureaucracy with the authority to examine and enforce new regulations for not only ALL mortgage-related businesses, but also small “mom and pop businesses” on Main Street like pay day lenders, check cashers, and other non-bank financial firms. These types of entities were clearly not the cause of the economic crisis, and yet, they will now be subject to the same regulations as the large financial institutions on Wall Street. This is simply another example of the Democrat’s preference for 'a one-size fits all' regulatory structure, stifling economic growth."
Chambliss confronts the disregard for addressing the real issues at hand, stating that "...there needs to be greater transparency, registration, more clearing, and compliance with a whole host of business conduct and efficient market operation regulations. And this is important because it is a 180 degree shift away from current law where over the counter swaps are essentially unregulated. Within this general agreement that swaps need to go from being unregulated to fully regulated, we have had disagreements about who should be required to clear their transactions, and how best to require swaps to be transacted and reported. And these disagreements are significant because they involve real burdens and duties which will result in real costs to businesses and consumers. I want to make sure our new regulations are targeted to serve a useful purpose. Unfortunately, this legislation will enable regulators to impose restrictions on businesses that had nothing to do with creating the financial crisis.
"Every industry in the country uses derivatives to manage their business risks and many of them will now be forced to clear their derivative transactions. This seems simple enough until you realize that clearing does not make risk within the financial system disappear, risk is simply transferred from the individual counterparties to the clearinghouse – a service provided at considerable expense in the form of margin posted to the clearinghouse. So this bill would not eliminate risk, but rather transfer risk from one place to another and impose costs on market participants that had nothing to do with creating the financial crisis. I fear that consumers will ultimately pay the price."
Confirming clearinghouse standards, Saxby Chambliss states, "...this legislation would force the farm credit system institutions to run their interest rate swaps through a clearinghouse, which will result in additional costs in the form of higher interest rates to their customers without doing anything to lessen systemic risk. Let me be clear as to who this will ultimately affect: our farmers and ranchers, our electric cooperatives and our ethanol facilities who seek financing from these institutions. Institutions like Cobank will be forced to clear their swaps and execute them on a trading facility which will impose significant new costs and result in higher rates for their customer or worse discourage them from managing their risk which will again result in higher costs for their borrowers. And why? Because this legislation broadly applies regulation, treating all financial institutions the same: Cobank and Goldman Sachs are not the same and should not be regulated in the same manner. Cobank should have the option to clear their swaps, not mandated to do so. "
WHO WILL PAY FOR THESE NEW MARGIN REQUIREMENTS? PUBLIC AND PRIVATE COMPANIES ACROSS THE NATION WHO HAD NOTHING TO DO WITH THE FINANCIAL CRISIS
Saxby states, "While the conference report provides an exemption for some businesses from this derivative clearing mandate, it is also imposes new margin requirements on derivative dealers for these same uncleared transactions. And who will likely pay for these new margin requirements in the form of higher fees - public and private companies across the nation that had nothing to do with the financial crisis and that are simply seeking to minimize risk. The entire point of exempting some of them from the clearing mandate was to ensure that they do not bare the burden of increased margin costs, but this language would indirectly subject these businesses to the expense of margin imposed on their dealer counterparties – counterparties that will be forced to recoup this cost in the form of fees, and businesses will be forced to pass their costs onto consumers."
Chambliss remains concerned, "Also related to derivatives, there were considerable improvements made to the so called “swap desk push out” provision. Banks would be able to continue to engage in interest rate and foreign currency swaps, which is essential to the business of banks. However, I remain concerned that forcing swap dealer banks to spin off their commodity trading will hurt those utilities and airlines wishing to hedge their energy risks in the immediate future: They will be forced to establish new credit standings with these affiliates rather than take advantage of their long standing relationship with the bank itself.
"I fail to understand why forcing these entities to spin off any aspect of their swap business is necessary, especially once we require the much needed transparency that has been absent in these markets for far too long. I wholeheartedly support efforts to make the swaps market more transparent and I believe this will be accomplished once regulators have access to the data which has to date been completely unavailable to them. The public will benefit from knowing who is participating in these markets and we will finally have the data we need to make informed policy decisions related to derivatives. This bill will provide much needed transparency, but unfortunately, the overreaching nature of this legislation goes far beyond evaluating the market place and policing it for abuse. I cannot support the vast regulatory intrusion and costs that our businesses and consumers will face once this becomes law."
What need's to be done to address our economy needs? Chambliss give's his affirmative resolve, "Our economy needs more opportunities for all businesses to grow and prosper. Time and time again, it is the small and medium size businesses that create the lion’s share of the jobs after a major economic recession, and we need to foster and incubate these small and medium sized businesses right now. We need to ensure that they are able to access capital and manage their risk through the use of derivatives. Right now, there are a lot of these small and medium-sized companies that are ready to expand, but cannot get adequate access to capital because lenders are saying that it’s too risky and regulators won’t allow these lenders to help. These businesses had absolutely nothing to do with the financial crisis and should not be punished with increased costs and burdens.
"We certainly do not want to discourage them from managing their risk, especially not in the current economic environment. We need to ask ourselves whether this will even address the underlying problem. Why take a chance in these uncertain times to make legislative and regulatory changes that could possibly make things worse, potentially dry up more capital, and force the cost of doing business higher?
"Republicans have been painted in the press as the party of Wall Street and against reform, and I want folks to know that this is disingenuous. Republicans believe that there is a need to respond to what went wrong in our financial system and we support doing so in a responsible way that will continue to allow Main Street businesses to manage their risk appropriately, hold those responsible for this mess accountable and not create huge new government bureaucracies. Unfortunately, this legislation falls far short of those goals."