Financial Industry Overhaul

July 30, 2010 • Volume 20, Issue 27
Will the new law avert another crisis?
By Marcia Clemmitt


Risky housing loans lead to millions of foreclosures (AFP/Getty Images/Paul J. Richards)
The financial system overhaul passed by Congress on July 15 is designed to prevent the kinds of risky housing loans that led to millions of foreclosures and global economic chaos. (AFP/Getty Images/Paul J. Richards)

On July 15, three Republican senators crossed the aisle to help pass the most sweeping financial-regulation overhaul since the Great Depression. Supporters of the 2,300-page legislation say the new rules will rein in investment risk-taking by big financial firms that otherwise might endanger the economic system again. Trading in complex investments known as derivatives will also get closer scrutiny. But some critics say that the law's effectiveness depends on the same federal regulators who missed the signs of the last impending crisis. Other critics say the new law is nowhere nearly as tough as it needed to be. They point out, for example, that the law doesn't prevent banks from growing to enormous size, which many analysts say makes financial institutions unmanageable and leads to conflicts of interest.

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