Restoring American Financial Stability Act Of 2010 - A Day Trader's Horror Or A Brighter Future?

Online, May 25, 2010 (Newswire.com) - Starting in 2008, millions of Americans lost their jobs, homes, and savings while countless businesses have failed or downsized. Most of the so-called financial gurus can agree that lack of cash flow or insufficient liquidity caused our current economic crisis. With a devastating domino effect of collapsing investment banks and other institutions, this downturn is the worst financial crisis since the Great Depression.

The financial regulatory reform bill titled "Restoring American Financial Stability Act" was written in an attempt to create a sound economic foundation. The objective of this new legislation is to stimulate job growth, end the "too big to fail" theory, restrain or control Wall Street, protect consumers, and most importantly prevent a future financial crisis.

The bill summery delivers a serene and assuring feeling: "Create a Sound Economic Foundation to Grow Jobs, Protect Consumers, Rein in Wall Street, End Too Big to Fail, and Prevent Another Financial Crisis." The statement portrays a seemingly well-intended and much needed change.

Much Needed Change of Corporate Accountability and Shareholder Protection

The two most critically needed legislation additions contained within the bill are the prevention of "too big to fall" bailouts and shareholders ability to vote on executive compensation.

With the past bailouts of auto and financial industries, these large corporations were not held financially responsible for their actions. This promoted further incautious decisions and substantially higher risk taking with the expectation that taxpayers would catch the fall. The elimination of taxpayer funded "too big to fall" bailouts will restore accountability and lead to more responsible business management.

Another positive section of the bill is the requirement of procedures for annual shareholders to approve executive pay. This will enable shareholders of a corporation to cast a non-binding vote on executive compensation and other business affairs.

The Strongest Consumer Protections in History OR is the Government Overstepping its Bounds?

Political parties are in yet another heated debate over this bill. Arguably, highlights of the bill can be interpreted as Socialism. Socialist advocate ownership and control of production, capital, land, property by the community as a whole in the interests of all people.

Limiting of large, complex financial companies by discouraging excessive growth can be viewed as an anti-capitalist approach. Capitalism by definition is an economic system in which the means of production are privately owned; supply, demand, and price are set by market forces rather than economic planning.

The bill has strict rules for capital, leverage, liquidity, risk management and sets other requirements as companies grow in size and complexity. In addition, through the Volcker Rule, the bill prohibits banks from proprietary trading, investment in and sponsorship of hedge funds and private equity funds, and limits banks relationships with hedge funds and private equity funds. These restrictions could also be interpreted as Socialism.

A Day Trader's Horror or a Brighter Future?

As traders we pursue the American dream with the freedoms provided by our great nation. As a day trader, and tax professional, I spend countless hour's researching trader tax issues, self-directed retirement plans, and corporate/ LLC statutes. Interfacing with the various government agencies such as the IRS, Department of Labor, and Secretary of State I have experienced our government's bureaucratic red tape, lack of organization and slow results first hand.

The Restoring American Financial Stability Act of 2010 may be a good way to protect traders and investors from unscrupulous business and financial practices and it may also sustain our banking and financial industry. I worry though that additional government regulation may inhibit the trading of the people and firms that drive today's success in the markets.