SmartInMoney

 

The Wall Street Reform and Consumer Protection Act of 2010, also known as Dodd-Frank Act (after its sponsors Rep. Barney Frank and Christopher Dodd) is only beginning to take effect. Big portions of the financial reform law are set to go into effect this year 2012.

Passed as a response to the 2007-2000s great recessions, the Dodd-Frank act is a United States federal law that places regulation of the financial industry in the hands of the government. The legislation, enacted in July 2010, aims to prevent another significant financial crisis by creating new financial regulatory processes that enforce transparency and accountability while implementing rules for consumer protection.

The act brought the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression, a severe worldwide economic depression in the 20th century preceding World War II.

Below is Dodd-Frank simplified guide presented in a graph.

 
Credit: Bloomberg Businessweek

 

Ratings agency Standard & Poor (S&P) downgraded the government debt of France, Austria, Italy and Spain on Friday, while keeping Germany's at the coveted AAA level. The downgrades deal a blow to the euro zone’s ability to fight off a worsening debt crisis.

The action may have more symbolic than fundamental financial impact but served as a reminder that Europe’s economic woes were far from over. But the downgrades may also be a blow to the euro zone’s ability to fight off a worsening debt crisis.

S&P ended France and Austria's AAA status by lowering their long-term rating by one notch, while downgrading Italy's and Spain's credit rating by two notches, Italy to BBB+ and Spain to A. The rating agency also cut ratings on Malta, Slovakia and Slovenia by one notch and Portugal and Cyprus by two notches.

The France's downgrade to AA+ lowers it to the level of U.S. long-term debt, which S&P downgraded last summer. France is the second-largest contributor behind Germany to Europe's financial rescue fund. The fund still has a rating of AAA, which means that it can borrow on the bond market at low rates.

After Friday, the only euro zone nations retaining their top AAA ratings are Germany, the Netherlands, Finland and Luxembourg.

As shown on the map of countries affected by the S&P's ratings downgrade below, the downgraded ratings range from AA+ for France & Austria to BB for Portugal.



In December S& P warned that it might downgrade many of the 17 nations that share the euro, largely because it said European politicians were moving too slowly to strengthen the monetary union and because the euro zone’s problems were propelling Europe toward its second recession in three years.

The downgrades could drive up the cost of European government debt as some commercial banks that are required to hold only the highest-rated government securities will have to replace French bonds with other assets, like bonds of Germany. Investors would also demand more compensation for holding bonds deemed to be riskier than they had been. Higher borrowing costs would put more financial pressure on countries already contending with heavy debt burdens.

In August, when S.& P. cut the United States a notch from its top-rank AAA rating, markets briefly plunged. But bond investors have continued to flock to the debt of the United States, which as the world’s largest economy has retained the perception of a financial safe haven. That has kept the United States government’s interest rates at very low levels. But none of the countries downgraded on Friday can necessarily count on such a reaction.

The euro hit its lowest level in more than a year and borrowing costs for European nations rose in earlier Friday.

Stocks fell Friday as downgrade rumors reached the trading floors of Europe and the United States. But the declines were nothing like the wrenching swings of last summer and fall, when the debt crisis threw the markets into turmoil.

The U.S. Dow Jones industrial average index was down 0.5 percent. Stocks fell 0.6 percent in Germany, 0.5 percent in Britain and 0.1 in France, but each of those markets closed before French Finance Minister, Francois Baroin, made his announcement on French television.

 

Under provisions of the Emergency Economic Stabilization Act of 2008, the U.S. Treasury has issued new regulations that will require investment companies and brokers/dealers to begin reporting to the IRS the cost basis of securities you acquire in 2011 or later and subsequently sell or transfer.

The new rules phase in from January 1, 2011, through January 1, 2013, depending on the security’s type. Securities acquired before their class’s specified starting date are considered “uncovered” securities and brokers aren’t required to track cost basis for these securities. Securities acquired on or after their class’s specified date are “covered” securities and their basis and holding period must be tracked and reported.


The important regulatory changes have arrived this year (2012) for mutual fund investors. The new regulations require investment companies or broker/dealers to report cost basis information for sales in taxable (nonretirement) accounts to the IRS as well as to you as an investor for mutual fund and most exchange-traded fund (ETF) shares that were acquired on or after January 1, 2012, and then sold after that date. Investment companies report this information to you and the IRS on your Form 1099-B. Previously investment company reported this information only to you. Read more "Regulatory changes for mutual fund investors"

 

The U.S. stock market just ended the year almost precisely unchanged. Wall Street closed its last trading day of the year pretty much where it started, while stock markets in Europe and Asia finished steeply lower. Concern over Europe’s debt crisis overshadowed optimism that the U.S. economy will expand in 2012.

On the final trading day, Friday, Dec. 30, 2011, the Standard & Poor’s 500-stock index closed at 1,257.60 with a 0.4 percent loss for the day. The S&P 500, a benchmark index for the U.S. broad equity market, statistically unchanged for the year, from 1,257.64 on Dec. 31, 2010 to 1,257.60 on Dec. 30, 2011, which is just 4 ticks difference or  a decline of 0.003% for the year.

Meanwhile the Dow Jones industrial average fell 0.6 percent on the final day and was up 5.5 percent for the year, closing at 12,217.56.




The S&P 500 capped its smallest annual change since 1947. The index started the year with a rally, rising as much as 8.4 percent to a three-year high by the end of April and extending its rebound from a March 2009 bear-market low to 102 percent. Read more "S&P 500 Practically Unchanged for the Year"
 

CBOE Market Volatility Index ($VIX.X)
 

 

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Bull & Bear S&P bear arrived