We're all Bozo's on this bus: the wisdom of Dodd-Frank

At some point Congressional imbecility becomes malfeasance. The Wall Street Journal today reports: 

Standard & Poor's, Moody's Investors Service and Fitch Ratings are all refusing to allow their ratings to be used in documentation for new bond sales, each said in statements in recent days. Each says it fears being exposed to new legal liability created by the landmark Dodd-Frank financial reform law....

That is important because some bonds, notably those that are made up of consumer loans, are required by law to include ratings in their official documentation. That means new bond sales in the $1.4 trillion market for mortgages, autos, student loans and credit cards could effectively shut down.

There have been no new asset-backed bonds put on sale this week, in stark contrast to last week, when $3 billion of issues were sold. Market participants say the new law is partly behind the slowdown.

"We are at a standstill right now," said Bingham McCutchen partner Ed Gainor, who specializes in asset-backed securities.

Several companies are shelving their bond offerings "indefinitely," according to Tom Deutsch, executive director of the American Securitization Forum, which represents the market for bonds backed by assets such as auto loans and credit cards.

The first unanticipated consequence of this bill shuts down an important segment of the capital markets! The manner by which Congress operates is simply reckless. This is the very essense of malfeasance in matters of national economic importance.

Meanwhile, ABC News awakes from its slumber to report today that "Starting Jan. 1, 2012, Form 1099s will become a means of reporting to the Internal Revenue Service the purchases of all goods and services by small businesses and self-employed people that exceed $600 during a calendar year...."  This, of course, is an unprecedented burden on small businesses which will further impair job growth. The intent of the bill was to capture & record purchases of gold and silver, don't you know for more taxation.  The consequence of this, however, will be to further impair job growth by placing new, costly & burdensome regulations on small companies that are already stressed. 

There will be more unintended adverse consequences, and the severity will increase.

People shouldn't wonder why there is a crisis of confidence. We're all Bozo's on this bus, so the market drops another 100 points and the 10 year Treasury pushes 2.90%.

Update on Friday, July 23, 2010 at 11:46AM by hb

" Ford Motor Co.'s financing arm pulled plans to issue new debt, the first casualty of a bond market thrown into turmoil by the financial overhaul signed into law Wednesday...

The nation's dominant ratings firms have in recent days refused to allow their ratings to be used in bond registration statements. The firms, including Moody's Investors Service, Standard & Poor's and Fitch Ratings, fear they will be exposed to new liability created by the Dodd-Frank law... The law says that the ratings firms can be held legally liable for the quality of their ratings. In response, the firms yanked their consent to use the ratings, hoping for a reprieve from the Securities and Exchange Commission or Congress. The trouble is that asset-backed bonds are required by law to include ratings in official documents.

The result has been a shutdown of the market for asset-backed securities, a $1.4 trillion market that only recently clawed its way back to health after being nearly shuttered by the financial crisis.

"Issuers have stopped issuing bonds," said Paul Jablansky, senior ABS strategist at the Royal Bank of Scotland in Stamford, Conn." Source:  WSJ, Ford Scuttles Debt Deal 7/21/2010

Update on Wednesday, July 28, 2010 at 02:36PM by hb

Congress exempts SEC from disclosure

"Under a little-noticed provision of the recently passed financial-reform legislation, the Securities and Exchange Commission no longer has to comply with virtually all requests for information releases from the public, including those filed under the Freedom of Information Act.

The law, signed last week by President Obama, exempts the SEC from disclosing records or information derived from "surveillance, risk assessments, or other regulatory and oversight activities." Given that the SEC is a regulatory body, the provision covers almost every action by the agency, lawyers say. Congress and federal agencies can request information, but the public cannot."

This brings 'don't ask, don't tell' to a whole new level. There  is now no disclosure for perhaps the most important market & economic regulator in the democratic (?) world.