`Mass Hysteria' Produced Flawed Financial-Reform Law, Bove Says: Tom Keene

Legislators who don’t understand the banking industry and a sense of “mass hysteria” led to the passage of a financial-reform law that will hurt U.S. consumers, said Richard Bove, an analyst at Rochdale Securities.

“We went into a period of mass hysteria,” Lutz, Florida- based Bove said in a radio interview today with Tom Keene on “Bloomberg Surveillance.” “Every American will discover over the next 12 months that every service that he receives from banks in the United States now will cost more and there will be fewer services available.”

President Barack Obama signed the legislation on July 21. It gives the government new authority to unwind failing financial firms that may threaten the entire system, imposes new rules on derivatives markets and creates a consumer-protection agency at the Federal Reserve to monitor everything from home loans to credit cards.

While “the banks did not act honorably in terms of doing an incredibly bad job in underwriting” mortgage securities, there also was “misrepresentation of what the actual problem was,” Bove said.

“Because we have a bunch of legislators who clearly don’t understand the banking system in the United States attempting to come up with solutions for how that system should be operated, we came up with solutions that are going to be harmful to the American public,” Bove said.

The lack of financial acumen in Congress means the law may not resolve issues it was intended to address, such as the impact of proprietary trading in the context of systemic risk management, he said.

“What the government has done is, it’s pushed prop trading out of the regulated companies and into the non-regulated companies,” Bove said. “To whatever degree they wanted to gain some control over prop trading, they eliminated it.”

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Tom Keene in New York at tkeene@bloomberg.net.

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