As the thunder rolls and threatening storm clouds hover over us, it is clear we are in the eye of the storm. Myriad people are losing their jobs as the market continues to search for the bottom. Filings for bankruptcy protection in 2008 have topped 1 million — a 33 percent increase since 2007. On March 5, 2009, the Dow dropped 4.09 percent to 6594.44, reaching its lowest level since the mini-crash of 1997, when the Asian markets collapsed. Wall Street giants AIG and Lehman Brothers have crumbled, 8,384 banks failed in 2008 alone, and still others are on the verge of bankruptcy.
Many parallels have been drawn between our current financial circumstances and past downturns, most notably the fourth quarter of 1929, when the market collapsed and the Dow Jones Industrial Average lost one-third of its value, thrusting us into the dismal era known as the Great Depression. It was during this period of 1933-34 that Congress took action to increase financial regulation in the hopes of preventing further damage, founding the Exchange Act of 1933, the Securities Exchange Act of 1934, and the Glass-Steagall Act (which has since been repealed).
Increased regulation today is inevitable, but the disastrous state of the capital markets and fiscal system failures have created a sense of urgency and made reform a priority. As the specifics unfold, changes could have a drastic impact on insurance agents, whether through an optional federal charter, commission disclosures, or a systematic risk regulator.
Like a heavy fog, the pressure to clean up the financial industry and establish balance in our nation’s economy hangs thick over Washington. The crushing economic downturn has President Obama and his team of advisors intently focused on extensive financial changes akin to that of health, energy, and education reforms. Shattered investor confidence and a lack of market rebounds that were highly anticipated after Obama’s inauguration are only part of the dilemma.
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Such corruption as the Bernard Madoff scandal and the AIG CEO’s lavish retreat a mere week after receiving an $85 billion bailout from the federal government has shed light on possible discrepancies in the way over which our system is presided.
The SEC, along with various other regulatory institutions, is under intense scrutiny and review, but to some extent, this is an issue of a deficiency of personal responsibility. The president and his team have ambitious goals to not only stop the economic decline, but to restore confidence, rejuvenate the markets, and have an overall positive effect on the world economy. It’s important to keep in mind that just as deregulation can be detrimental to society, over-regulation could have equally hazardous effects. While the methods used by previous presidents may have been less than ideal, the current administration’s belief that increased government control is the save-all solution to our problem could put us even further off course. We are taking steps, but are they in the right direction?
Increased transparency and consumer protection will be key goals. The Financial Planning Coalition, an alliance composed of principal national organizations dedicated to the improvement of the financial planning profession, is preparing legislation that could include a self-regulatory organization, implement a fiduciary standard, and impose a one-designation monopoly on the entire industry. This would certainly be devastating for financial planners who offer additional services.
The nationalization of advisor registration could be a welcome change, as it would simplify and combine the registration and renewal process, fees, and continued education requirements.