On the last Friday of June, legislators unveiled a new bill designed to reign in risk-taking by financial institutions; provide consumers with protection from dicey financial products; and prevent a recurrence of the crises brought about when super-large, interconnected banks required government intervention to prevent a national economic meltdown. The bill - known as the Dodd-Frank bill after the respective heads of the Senate Banking and House Financial Services committees - is a huge document containing a myriad of reforms plus checks and balances. It will take some time for financial analysts and banking experts to review and understand all the details.
This gargantuan task has given us a bill that includes credit cards, private equity funds and hedge funds (to name just a few) in its scope. We haven't seen this scale of far-reaching financial reform for many years. When President Obama signs the bill into law, it will send a clear message that the nation's gatekeepers do not intend to repeat the mistakes of the recent past.
There are straightforward measures included to reassure individual investors. Banks have had their wings clipped in an effort to prevent proprietary dealings stemming from their size and huge asset bases. Furthermore, consumers now have their own autonomous protection agency. Among the bill's many pages are measures such as these:
There's good news on the dividend front, too. Companies are issuing dividends again, and some industry leaders are raising dividend payments. Pros suggest you avoid looking across the board at the bond market (financial stocks have yet to show sustained recovery), and identify the corporations that are paying dividends. Analysts are leery of using the past to predict the future - recovering bond markets have been known to precipitate a similar recovery in stock prices - but they do concede that many companies paying out dividends are seeing an upswing in their stock prices, too. Although the bond market will probably need some significant time to recoup the losses sustained in 2009, this trend suggests renewed confidence in the economy and the markets.
The above is intended for general review only. Specific decisions about investment strategies should be made only after consultation with professional tax and finance consultants.