Update: The Consumer Financial Protection Agency continues to be a moving target for opponents of financial reform. The latest cave in compromise proposal being floated by Senate Banking chairman Chris Dodd now has the agency being housed within the Federal Reserve. An earlier "compromise" would have placed it in the Treasury Department. The end result is the same: a toothless regulator lacking the authority to enforce the consumer protection rules it writes.
Original Post:
A "doom loop." That's what Andy Haldane, executive director of financial stability for the Bank of England, warned last fall would happen if serious financial reform wasn't enacted.
Well, we appear to be a step closer to that "doom loop" with the leak this weekend of Senate Banking Committee Chairman Chris Dodd's plan for a seriously watered-down consumer financial protection agency.
Back in June, President Obama released a proposal calling for the creation of a Consumer Financial Protection Agency that would be "independent," with "broad authority" and the power to "combat the worst abuses in mortgage markets." The agency, Treasury Secretary Tim Geithner said, would "have an independent seat at the table in our financial regulatory system."
Well, that was before the banking lobby went into action. A couple of hundred million dollars later, and we're left with this punch-to-the-gut of reform, from the top-line summary of Dodd's plan: "the independent agency proposal would be dropped." Seven words dirtier than George Carlin ever uttered.
Instead, according to the Dodd plan, the agency would be housed within the Treasury Department and called the Bureau of Financial Protection. And that's not the only compromise. Here's how the eviscerated entity would work, as laid out by HuffPost's Ryan Grim:
Each time the agency wanted to write a rule, it would have to consult with bank regulators. The agency would then have to respond to the objections of each and every bank regulator in the Federal Register. If the bank regulator was still unsatisfied, it could appeal to the 'systemic regulator,' whose mission is to protect the safety and soundness of the banking industry.
Anytime a new rule is proposed, bank lobbyists argue that it will be burdensome and make the system less safe and sound. If the systemic regulator agreed with the banks -- as they often do -- then the consumer protection rule would be voided.Notably, the consumer protection agency has no veto power over any rules issued by bank regulators, which demonstrates which regulator will be superior. The first concern is the banks.
So much for "independence" and "broad authority."
The proposal will no doubt be very popular with the banks that, as Sen. Dick Durbin put it, "own the place." But it's already been met with criticism from consumer groups.
"Effective reform is once again being blocked by opposition from the big banks that caused the current financial crisis, " said Heather Booth, director of Americans for Financial Reform. "The revised proposal does not provide what is needed to protect American families or the financial system as a whole."
This view was seconded by Nancy Zirkin of the Leadership Conference on Civil and Human Rights: "Big banks and abusive lenders fought responsible regulation before the crisis, and we are all paying the price. It is unacceptable for Congress to allow them to succeed again," she said.
But, then, we seem to be living in a time when the unacceptable is routinely accepted -- and written off as unavoidable.
On Saturday, Dodd told Bloomberg Television's Al Hunt that he prefers an independent agency, but said it might not be possible to reach the 60 votes needed to break the inevitable Republican filibuster.
Maybe so. But how about at least trying before waving the white flag? Instead, Dodd, in the hope of attracting Republican votes, appears to have preemptively surrendered. But there's no evidence that Dodd's concession has achieved anything other than kneecapping the bill. Democrats have mastered the art of negotiating against themselves.
It's hard to believe that even the messaging-challenged Democrats could fail to frame to their advantage a bill that would prevent banks from abusing the public and engaging in the same practices that brought on the financial catastrophe taxpayers have paid so high a price for. Instead, the attitude seems to be, why even try?
That's assuming, of course, that a powerful consumer protection agency is something Democrats -- including those in the White House -- think is important enough to fight for.
"Here lies the crux of the problem," write Simon Johnson and Peter Boone. "The Obama administration lacks an inner core of smart, well-informed advisers who are deeply skeptical of big banks and eager to do whatever it takes to break a cycle that points to financial and fiscal doom."
So how likely is another ride on the doom loop of financial crises? Johnson and Boone lay out some sobering statistics: Fifteen years ago, the combined assets of our six biggest banks totaled 17 percent of our GDP. By 2006, that number was 55 percent. Right now, it stands at 63 percent.
In the Bloomberg interview, Dodd claimed to still support the so-called Volcker Rules banning proprietary trading and capping the size of banks, as does, we're told, Obama. But Johnson and Boone argue that even the Volcker Rules wouldn't make much of a difference -- and that something much bolder is needed.
"It is still possible that the White House could go all-in against the distorted incentives at large banks and the corrupted regulatory structures that have created our 'doom loop,' and make this the central campaign issue for November," they write. "Branding opponents as supporters of too big to fail could get traction, at least if led by an articulate and impassioned president."
Well, we know he'll be articulate, but his passion for reining in the banks remains to be proven.
The Senate Banking Committee is expected to take up Dodd's proposal this week. Some strong leadership from an "impassioned" Obama could shoot down this deflated trial balloon and ensure that what the committee sends to the full Senate to vote on is actually closer to what Obama called for last year -- and, indeed, closer to the stronger package, including a stand-alone consumer financial protection agency, that passed the House in December.
During last week's health care summit, President Obama very cogently explained why piecemeal health reform won't work -- connecting the dots between the need to prevent insurers from denying coverage for those with pre-existing conditions and the need for universal coverage.
How about doing the same for an issue that is even more sellable to the public? Of course, reforming our broken health care system would have been sellable, too -- if the White House had not ceded the messaging playing field to the Republicans for most of the last year.
The good news is, there's still plenty of time to do for financial reform what Obama should have done for health care -- go out and sell a clear and specific package. And he needs to make the point that, much like health care, doing it incrementally won't work. Leaving too-big-to-fail banks to continue doing business as they have been is like operating on a cancer patient and taking out only half the tumor -- the disease is guaranteed to come back. And eventually prove fatal.
The president can take a page from the How to Win Bipartisan Support By Playing Hardball With Your Opponents playbook used so effectively by FDR, LBJ, and Ronald Reagan. Or he can go along with the preemptive surrender strategy favored by Senate Democrats: negotiate against yourself, water down what you know is right, earn your bipartisanship merit badge... and get absolutely nothing in return.
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Huff TV: Arianna On 'Situation Room': Don't Bother To Pass Weak Financial Reform (VIDEO)
Arianna appeared on "The Situation Room" Wednesday evening along with CNN Senior Political Analyst David Gergen to discuss financial reform. She said that the Senate...
The mob needs to learn how to lobby congress because these bankers are lining every pocket in Washington. How do you stay out of jail after wrecking or financial system and now as it turn out Goldman was hiding debt and Jimmy Hoffa under the Acropolis put there by Hank Paulson.
So in order to not lose any more 401k, pension, investment and property value, Americans have surrender and accepted the lame alibi that it was the fault of the blacks and Hispanics that talk graduating class of Harvard Business School into complex mortgages.
If you believe that then 300 Spartan holding off 500,000 soldier, then it not to hard to believe that 7.5 million stupid people just happen to mosey into lenders across this vast land of our without anybody persuading then to the higher yielding subprime mortgages. Don't you get it that you are next, because most of the minorities now have nothing left.
Right now they think we are expendable they got the message wrong. It is them that is expendable and there is no better way to send that message than to vote them out. Famous last words "you're fired".
How many times do we have to see the same con before it becomes evident? The democrats have no will to do more than the bare minimum when it comes to defying their corporate sponsors. And, the Republicans don’t intend to change anything, except to get themselves back in to power before something good for the people happens.
My view is that the pathetic performance from the party in power is part of the culture that says: go with what got you here or you'll be going home - to stay. CORPORATE $$$
And until that changes, the 'doom loop' will prevail.
There are just too damned many people hurting for any conscionable person not to make campaign finance reform their top priority -and how many congress persons, or pundits, are doing that? We should set aside everything else and gang up on that one until it is done.
Until then, when the Dems are in power we can expect to see symbolic, ineffectual attempts to do what is right from time to time. And when it's the Republicans? Think of the last 8 years. Nice country we've made for ourselves! Want it back?...publicly financed elections are the ONLY way, period.
Disagree with me? Then please indicate what the Dems have done to make any significant difference going forward or tell me how their weak fecklessness can be overcome.
In the ensuing years, the Democratic party has taken a page from the Republican election strategy and switched from the working class to corporate sponsorship: "Hey, we can only you help you poor people by getting elected and since you guys don't have any money, we have to go where the money is." Thanks to the Willy Sutton approach to campaigning, the Democrats have sold their souls to any and every corporate sponsor they can line up. Big surprise that they basically act like Republicans.
Increase the detail and level of reporting required by law, and enforce the current reporting regulations and enforcement.
Utilize XBRL -- an XML based financial reporting language, that is already replacing print for financial filings and reporting.
Increase the frequency that businesses must make the numbers visible. Replace the Quarter with the Month...maybe even the Week...and eventually Real Time.
A business that does not comply with reporting, automatically becomes a target for scrutiny, not just by the Feds, but also by the stock holding public. Ultimately, the buyer is the judge, but unless there is perfect information, or if information is hidden from him, he cannot rationally play in the Free Market.
However, these type A personality politicians need handlers to keep them out of trouble with the busybody masses. Off duty, I could careless what he does and I say shame on the media for shoving it down my families throat.
Can we get him on the job even with with this on his all to public record; I would hope so..... But I bet not.
The problem is we didn't get enough good Democrats elected. If we had we'd have consumer financial protection agency.
Exactly which Party would you predict would have faired better going up against Republican blockheads?
Eliot Spitzer should be put in charge of a federal squad of Untouchables to perform hard nosed audits and investigations of Wall Street and Washington which will ascertain what roll criminal activity has had and is having in the destructive behavior which has decimated individual wealth, political fairness, and the United States Treasury.
Maybe paying ransom to those who have hijacked our political systems will allow us to retrieve our country back.
The bad guys control the systems we formerly looked to for justice.
Using a carrot and stick, by offering amnesty for cooperation or pursuing prosecutions for lawbreakers who try to hide, would save tons of money and years of time investigating, which did what, and how they did it, while creating the financial crisis.
For everyone who confesses everything, embarrassment could be the limit of punishment, let them keep their ill gotten gains if we could quickly get our country back.
For those who don’t confess, all discovered misdeeds should be prosecuted and offenders should be subjected to the punishments provided for under the law.
Nelson Mandela in an August 17, 1992 speech said “Furthermore, integral to an amnesty is full revelation of past crimes and who committed them. This is not for the purpose of revenge, but to ensure that we do not carry such festering sores with us into the future.
Even if Democrats don't think they can get a Consumer Financial Protection Agency (with real teeth) to pass Congress, can't they score some political points by forcing Republicans to block it? Or are Democrats too beholden to their corporate masters to risk offending them?
The Republicans will support that and Obama is achieve bi-partisanship.
Until we have real public funding of political campaign this will continue.