Too Big To Fail, Derivatives, Financial Reform, What The ......Are They Talking About? By Steven J. Smith

An ABC News/Washington Post poll suggests that 65% of Americans support financial reforms that puts stricter regulations on financial institutions. When you consider that the global economy is in the worst economic downturn that any of us have seen in our lifetime we should all agree that something needs to be done. Seven million U.S. homes are in foreclosure, 8.5 million jobs have been lost, retirement incomes have gone down 20% and housing values have decreased by 30%.

The U.S. Congress is attempting to pass legislation that will place safeguards within the financial market and as usual partisan politics have Democrats and Republicans are squared off against other. Senate Banking Chairman Christopher Dodd-D-Conn. stated on Meet The Press, "Here we are 17 months after someone broke into our house, in effect, and robbed us; and we still haven't changed the locks on the doors, and we need to get it done."

Here are some of the proposal that attempt to change the locks on the doors so that we will not find ourselves in the same economic mess the next time a crisis occurs.

1.) Eliminate "Too Big To Fail". Congress is considering legislation that will eliminate the idea that a company is "Too Big To Fail", like AIG (American International Group), in the future. Economist argued that AIG had to be bailed out by the American taxpayers because a company that has over 100,000 employees in over 100 countries was "Too Big To Fail" and it would take the rest of the global economy over the cliff with it.

2.) Regulate "Derivatives". The exotic financial agreement between two parties that has a value determined by the future price of something else. Derivatives can be thought of as bets on the price of something.

3.) Establish a Consumer Protection Agency within the Federal Reserve.

4.) Give the government new power to oversee the dissolution of large failing institutions.

Currently the Republican Senators, "The Party of No", have vote against any financial reform. This position may be hard to maintain if they are seen as standing up for Wall Street. Most Americans feel that the excesses, greed and free wheeling of companies like AIG, Merrill Lynch, Goldman Sach and many others led to the collapse of the economy. Let us all stay tuned.