When President Obama signs financial reform, it will be his own Pottery Barn moment, a "you break it, you own it" moment where he can't blame George W. Bush, or Andrew Mellon, or Andrew Jackson. Because this bill could hurt bank lending and make credit more expensive due to its unintended consequences.


About three-quarters of the US economy is the services industry, a big chunk of that is financial services, and what DC does here will have a heavy impact on US GDP growth rates.


Don't listen to the media pundits who say the Republicans are blocking reform. That's not what is happening.


The Democrats are ignoring the Republicans' financial reformfixes that would include rehabilitating Fannie Maeand Freddie Mac, two government off-balance sheet hedge funds whose reckless practices gave the US economy a national nervous breakdown.


The Republicans want to stop too big to fail and bailoutpolicies, as the reform bill still lets the FDIC guarantee company debts, and the bill doesn't stop the Federal Reserve's ad hoc use of the emergency, "exigent circumstances" clause in section 13(3) of the Reserve act of 1913.


One unintended consequence of the reform bill: It allows more lawsuits against credit ratings agencies, who will end up not rating anything, who will charge more and make ratings very expensive.


Yet the US government will still require these ratings in securities deals, so the banks who need these ratings will pass off their higher charges onto the loans taken out by the working people of America.


I'm waiting for 2012 midterm elections, for gridlock, glorious gridlock, to stop these massive government programs and reforms.


Yes, it's greedy until proven guilty on Wall Street, as one analyst says, and economist Edward Yardeni diagnosed the problem correctly when he says a big part of what caused the crisis was credit insurance fraud, whereby firms sold insurance products for securities, or credit default swaps, without any capital reserves whatsoever, rendering them, well, not insurance, really, just naked casino bets.


Still, credit default swaps are much better predictors of the value of securities than the government-sanctioned credit rating agencies, whose tissue-thin imprimatur on any deal is required by government market regulators.


And now we have federal prosecutors in Manhattan launching a criminal probe to determine whether Goldman Sachsand its employees committed securities fraud in their mortgage securities businesses.


Unclear is whether the probe is focusing on the firm potentially misleading investors about the rotten potatoes it allegedly buried in baskets of asset-backed securities, rubberstamped Triple-A, that it then sold to investors, targeting the buy-and-hold crowd.


Criminal cases of this sort are always tough to prove to a jury, as even an embarrassing string of emails from hedge fund managers at Bear Stearnsdidn't supply enough ammo for a fraud case lost by prosecutors in the Brooklyn office of the U.S. Attorney last year.


Yes, Goldmanfor years has driven right up against conflicts of interest.


But debate now is that Goldmansold these securities deals to consenting adults, caveat emptor.


And maybe investors in the German bank IKB might want to know why its executives were mindlessly betting that US home prices would rise in perpetuity-sort of like betting Columbia University will always win its football games. An impenetrably foolish bet all of Wall Streetand the US government made for years.


What's most unfortunate is that the subprimeand credit crisis came during an election year, 2008, never let a good crisis go to waste, White House official Rahm Emanueladvised, a mindset which then launched all sorts of taxpayer-paid for gimmees for people to continue to default with ease on loans they didn't deserve to get in the first place.


Unemploymentnow is no higher than 1982 (even when you factor in the long term unemployed, which ratchets the rate towards 20%). Back then the Reagan Administration, with the help of then Federal Reservechairman Paul Volcker, set forth policies that created a massive recovery via interest ratehikes, tax cuts, and some spending reform.


But now we have an Administration and a US Congress that want reckless people to drive, but want to do everything to stop them from going off the road. We have elected officials who would have failed a Series 7 exam crafting financial reformthat will affect your families for years on out.


These elected officials used the crisis of ‘08 to make it socially acceptable to default on any loan, and now the US taxpayer is being asked to help overcome both the disease and their cures.


We had three massive speculative bubbles inflating at the same time, (first the dotcom, then the housing and credit bubbles) that the government either was derelict in not stopping or is responsible for letting balloon.


The broad zoom problem is US housing policy which put the markets on a speculative bender and created an economic crisis, a policy nursed by a political structure utterly lacking in adult supervision, a policy which treats homeownership as a right, and a policy that corrupted real estateloans and the ever-attendant assets in waiting, securities Wall Streetrecklessly and negligently built on the backs of these loans.


Canada has no Fannie Maeor Freddie Mac, it has no mortgage interest deduction, it has high down payment requirements, it has no Community Reinvestment act, and it still has a higher homeownership rate, if not an equal rate, to the US, according to estimates and as well as analysis from American Enterprise Institute's Peter Wallison. Even government officials in China are demanding banks only give loans with a maximum 30% down payment.


But Fannie Maejust now passed a policy change that lets borrowers who default get another loan in just two years. Specifically, Fannie told lenders that borrowers who give them a deed-in-lieu of foreclosure can in return get shorter minimum wait times to be eligible for a new Fannie (taxpayer)-backed mortgage, slicing that waiting period to two years from four; the borrower must pay 20% down on these loans.


The Federal Reserve has been adding its own starch to prop up this artificial, government manipulated market by buying more than $1.5 trillion in mortgage-backed securities and Fannie and Freddie debt, part of its massive intervention into fiscal policy.


Please stop calling Fannie and Freddie government-sponsored enterprises. They are not.


Since their government takeover in the early fall of 2008, the US taxpayer owns politically hostage, massive hedge funds who sit off the balance sheet of the US budget, but whose combined balance sheet and off-balance sheet assets equal half the size of the US economy and twice the size of France, with more than half of the on-balance sheet stuff low quality subprimeand Alt-A loans, says Wallison.


Remember these quotes:


"I do think I do not want the same kind of focus on safety and soundness that we have in OCC (Office of the Comptroller of the Currency) and OTS (Office of Thrift Supervision). I want to roll the dice a little bit more in this situation towards subsidized housing ...."--Rep. Barney Frank, Sept. 25, 2003


"I just briefly will say, Mr. Chairman, obviously, like most of us here, this is one of the great success stories of all time .. . ." on Fannie and Freddie--Sen. Chris Dodd, Feb. 24, 2004


Even bailoutand bank watchdog Elizabeth Warren says the Democrats' financial reformbill doesn't do enough to address the problems of Fannie and Freddie, slick campaign donors who have plied the pockets of elected officials just as much as Wall Streethas.


Keep the change.