Financial structure as well as the economy.

To prevent the miming of another dangerous financial mayhem, Obama government together with the Congress have fashioned a new law that runs into thousand pages. It deals with every noon and corner of the banking sector.

There was one basic fundamental cause to the meltdown of the financial system – the reason being known by all. Too many persons and business houses as well as the government took on an overload of debt for nearly three decades. This led to the crisis that unfolded over time to threaten the financial structure as well as the economy.

But the much touted bill on reform fails to remove the troubled loans. For instance there are mortgages running into millions that have gone underwater with the worth having dropped below the loan due amount.
There are now apprehensions that the new restrictions placed on banks could make lenders more shy about lending and reluctant to advance money who could otherwise have used it productively. This could result in the economy being saddled with problems relating to two debts – overload of bad credit and not sufficient good credit to make production wheels move.

Without wasting a moment the American Bankers Association attacked the bill and forecasted pain for Main Street. Edward Yingling of the banker’s association said that the big and small clauses in the law “will have a very negative impact on traditional banks, on consumers and the broader economy. Loans are going to be harder to get and more expensive.” He commented that now the banks would have to handle a surge of stepped up regulations requiring detailed reporting on lending made to small business concerns and clamp down on fees.

It might be analyzed that initially the bankers are overreacting but in the long run their concerns are not without reason. Any sweeping changes will inevitable lead to consequences that have not been intended – it is just that the degree of the fall out varies.

The consumer groups lauded the bill from all corners. They think that the financial health of the system would be restored by the reining in of speculative activities – the icon being sub-prime mortgages and the subsequent debacle.
Basically the power of the banks to use deposits that were federally insured for risky trading in securities has been curtailed. In this respect few safety measures that were in force prior to 1999 (when the Glass-Steagall Act of the Depression age, was done away with) has been restored.

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