A win for the president is a loss for consumers

July 15 was a big day for President Obama. Not only did BP miraculously cap the oil spill — albeit temporarily — but Goldman Sachs settled with the SEC and Congress approved all 2,300 pages of a historic financial overhaul bill.

Unlike the health care reform bill, Americans have warmed to financial reform and see it as a way to rein in the fat cats on Wall Street. However, while financial reform was intended to protect consumers from another fiscal meltdown, the reality is that it fell way short of reform. Most notably, it failed to address the trillion-dollar ticking time bomb that got us into this mess — Fannie Mae and Freddie Mac.

Overall, the bill will increase the government’s control over Wall Street and put in place new regulatory systems designed to protect consumers. It will create new oversight councils designed to watch out for problems at large firms and within the financial system. The Federal Reserve will supervise big, interconnected companies that, if they fail, would threaten the entire financial system. The bill enhances the authority of the FDIC to take down large financial firms if they are participating in so-called “risky” behavior that could cause financial distress.

Perhaps the most significant component of the bill, and the arena in which it will have the biggest impact, will be new regulations on derivative trading. In an attempt to bring transparency to the derivative marketplace, the overhaul will force most derivatives to be bought and sold in clearinghouses and exchanges, thus shining a light on the complex derivative market and subjecting it to regulation.

The major problem with the proposed banking legislation is what it doesn’t cover. For example, the bill does nothing to halt “too big to fail” banking in this country. It continues the policy of directing assets only to larger banks, creating larger entities.

While the large banks continue to gain percentages of market share, the smaller banks are forced to band together and share investments, splitting them up among themselves in order to decrease risk.