President Obama has cracked the whip with Wall Street and succeeded in getting a set of major finance reforms through the US Senate by 60 votes to 39, following earlier approval by the House of Representatives.

The reforms say observers represent the largest overhaul in decades of the US finance regulatory framework. Their aim is to avert a financial crisis of the kind experienced in 2008 when the global banking system came close to a meltdown. Although undoubtedly of extreme significance, many observers believe that these finance reforms are a mere shadow of the proposals originally proposed by President Obama and come after months of intense politically haggling.

The US President said:
“Even before the financial crisis that led to this recession, I spoke on Wall Street about the need for common sense reforms to protect consumers and our economy as a whole.
“But the crisis came, and only underscored the need for the kind of reform that the Senate passed today. The kind of reform that will protect consumers when they take out a mortgage or sign up for a credit card, reform that will prevent the kind of shadowy deals that led to this crisis, reform that would never again put taxpayers on the hook for Wall Street’s mistakes.”

Ben Bernanke, Federal Reserve chairman, said:
“The financial reform legislation approved by the Congress today represents a welcome and far-reaching step toward preventing a replay of the recent financial crisis.”

The new finance rules are centred on legislation which creates a new federal agency which acts an as overseer of consumer lending and keeps its eye on complex financial instruments. But a key component of the forthcoming finance initiatives is the new Volcker rule – named after the man who proposed it, Paul Volcker, the Federal Reserve Chairman – which states that banks will no longer be able to take part in proprietary trading using their own money. Proprietary trading is when banks take bets on the outcome of financial markets over a given period of time.

Only time will tell if the new finance proposals will actually be able to avoid a 2008-type crisis.

Guest Article by Neil Camp