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

As adults, never mind children, try to work out how many billions make a trillion, there is a growing clamour in schools, especially those across the pond, to start teaching personal finance as part of the curriculum.

And this is a trend which is set to hop across the water. Kids could suddenly find that religious education is out of the window, and personal finance lessons are in.

The reasoning behind such moves in the States, and here, is compelling of course. The argument goes that the near collapse of the U.K. sector was not only due to the amount of toxic assets floating around, but also due to the fact that the banks were giving tonnes of money to people who just couldn’t be trusted.

Now, this argument doesn’t play that well in the media of course, because the majority of the population do not want to blame themselves for the mess they now find themselves in. No, best to blame the financial institutions who were stupid enough to hand over the dosh in the first place.

But, nonetheless, the theory goes that if everyone was trained in school how to balance the cheque book, calculate the APR on a personal loan, or how to pick the correct credit card, then maybe the crisis wouldn’t have happened at all.

Right. Now, that all sounds great in theory, but that would suggest that we as children never had a biology lesson and never learnt that smoking, drinking and lack of exercise was all bad for us.

Now, back to the facts. Unlike the U.K., the U.S already does teach quite a lot of financial education in their schools. And some 28 states of the union legally require that a degree of financial education is taught. Which, again, somewhat weakens the argument for dropping double woodwork and taking up calculator operation instead. The U.S. has copped it worse than most, so it’s possible that the financial savvy population maybe wasn’t that savvy after all.

And research has found the financial education lessons in the U.S. hasn’t really helped. It was discovered that some retention of information was held for a short while after the classes, but that long term, there was little benefit.

The simple problem appears to be that the financial products sector is so sophisticated and complex, that comparatively few people have the ability, or indeed the inclination, to bother to learn enough to make a noticeable difference.

And the research outlined the fact that only a limited number of people, when it comes to a personal loan say, can calculate the total interest due, given the loan amount, number of monthly payments and the duration of the loan.

So, in many respects, educating the younger generation in the basics of personal finance might not seem such a good idea.

Yet there is of course a counter opinion and in the U.S. there is an organisation called the Personal Finance Education Group (pfeg) which strongly advocates that children must learn some personal finance basics whilst at school. They warn that if no attempt is made to properly educate school leavers on how to conduct their finances, then they will continue to make the kind of mistakes seen over the last decade, when personal debt levels have got out of control.

And this is the view being extolled in the U.K. schools at the moment, although many think this will be a flash in the pan and once the financial crisis eases, then it will be forgotten along with a number of other well meaning ideas that never get off the ground.

Guest Article by Neil Camp