As example, a couple weeks after the passage of the healthcare bill, a number of prominent companies reported large write-offs due to the increased costs the healthcare bill will impose on them. When Congressmen claimed this was false, because "everyone knows the healthcare bill will reduce costs and not increase them", Congress began an investigation.
That investigation was quietly and quickly shelved when corporate documents submitted in response to the investigation revealed that many companies had done analyses that showed they could save money by terminating their health benefits for employees, paying the penalties in the healthcare bill for doing so, and letting employees get government-provided health insurance.
Now we have immediate consequences from the recently passed legislation imposing new regulations on the financial services industry.
The new law makes credit rating firms, such as S&P and Moody's, liable for the quality of their ratings decisions. Previously, such ratings were considered opinions, and since the ratings are estimates of what may happen in the future, an opinion is what they are. But now, if investors lose money on a bond which was rated by a credit rating agency, the credit rating agency could be sued by investors and win damages. Since there are trillions of dollars in bonds issued each year, credit rating agencies could go bankrupt based on the vagaries of the economy and markets.
In response to this risk imposed by the new law, the credit rating agencies are prohibiting the use of their ratings in the offering materials given to potential investors for new bond issuances. But some bonds, particularly those related to consumer loans such as mortgages, auto loans, student loans, and credit card debt, are required by law to include such ratings in their offering documents.
The predictable result?
A number of bond offerings have been put on hold, as participants digest the implications of the new law. The firms are investigating if there are ways to get around the rules through the issuance of private bonds, at the price of lower liquidity for new investors and higher borrowing costs for issuers of debt.
This will reduce the capital available to expand the economy, increasing borrowing costs, impairing job creation, and reducing economic growth.
But it is good deal for trial lawyers, who must be salivating at the opportunity for new revenue streams from litigating future bond defaults.
You might think, in a world of thoughtful and honest government, such an important part of the financial services law was heavily debated, so its consequences were well understood. But if you thought that, you haven't been paying attention to government policy the past two years. This provision was added to bill on June 30, when the law passed.
Such is how our freedom is being eroded, in last minute deals to pay off favored constituents that impose dramatic costs to the economy.
Now we have immediate consequences from the recently passed legislation imposing new regulations on the financial services industry.
The new law makes credit rating firms, such as S&P and Moody's, liable for the quality of their ratings decisions. Previously, such ratings were considered opinions, and since the ratings are estimates of what may happen in the future, an opinion is what they are. But now, if investors lose money on a bond which was rated by a credit rating agency, the credit rating agency could be sued by investors and win damages. Since there are trillions of dollars in bonds issued each year, credit rating agencies could go bankrupt based on the vagaries of the economy and markets.
In response to this risk imposed by the new law, the credit rating agencies are prohibiting the use of their ratings in the offering materials given to potential investors for new bond issuances. But some bonds, particularly those related to consumer loans such as mortgages, auto loans, student loans, and credit card debt, are required by law to include such ratings in their offering documents.
The predictable result?
A number of bond offerings have been put on hold, as participants digest the implications of the new law. The firms are investigating if there are ways to get around the rules through the issuance of private bonds, at the price of lower liquidity for new investors and higher borrowing costs for issuers of debt.
This will reduce the capital available to expand the economy, increasing borrowing costs, impairing job creation, and reducing economic growth.
But it is good deal for trial lawyers, who must be salivating at the opportunity for new revenue streams from litigating future bond defaults.
You might think, in a world of thoughtful and honest government, such an important part of the financial services law was heavily debated, so its consequences were well understood. But if you thought that, you haven't been paying attention to government policy the past two years. This provision was added to bill on June 30, when the law passed.
Such is how our freedom is being eroded, in last minute deals to pay off favored constituents that impose dramatic costs to the economy.
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