As the fight over financial reform gets serious in Congress, the atmosphere is thick with intriguing political theater, posturing, and competing proposals of mind-numbing complexity.
But the stakes for consumers and taxpayers have never been higher.
Will the bankers who won deregulation and then went on a risky spree that sank the economy now successfully torpedo efforts to bring back robust and reasonable regulation?
Will the same politicians who oversaw that irresponsible deregulation and did nothing to stem the growth of a toxic economic bubble be reborn as crusaders for financial reform? Will our president, who won election on a promise to throw the money-changers out of the halls of government, find the muscle to break the stranglehold the financial giants have on the political process?
Both legislators driving the legislative agenda, Sen. Chris Dodd, D-Conn. And Rep Barney Frank, D-Mass., are suspect as champions of real financial reform, being on the receiving end of millions of dollars of contributions from the industry they’re now vowing to clamp down on.
We’ll get some answers this week as the House Financial Services Committee starts to debate Frank’s proposal, which has the approval of the Obama administration.
The debate was supposed to start earlier this month, but the Congressional Black Caucus put a halt to it, demanding that Obama and the Democrats do more on unemployment before the group would support financial reform. Frank then included in his plan a provision to spend a small percentage ($3 billion) of the $700 billion Troubled Asset Relief Plan (a.k.a. the bailout) to help unemployed homeowners stay in their homes.
Advocates of stronger financial reform, including congressional bailout monitor Elizabeth Warren and consumer groups, such as Americans For Financial Reform, have backed Dodd’s plan, which is viewed as a more ambitious restructuring of the financial regulatory system, and is opposed by the Obama administration. Dodd’s plan would also reduce the role of the Federal Reserve. While both bills contain versions of the Consumer Financial Protection Agency backed by Obama, Frank’s bill exempts small banks from its oversight. Here’s an overview of the differences between the two plans.
Though Dodd has been a friend of the financial industry in the past and reaped the benefits of that friendship, he’s facing a tough reelection bid and appears to be trying to remake his image into a tough reformer.
Frank’s legislation has gone through the committee process so there have been many amendments attached to it, some that weaken it; some that strengthen it. The fiddling will continue as the committee continues to consider it, with votes on various amendments scheduled to begin Wednesday.
Dodd’s bill hasn’t been heard in Senate committees yet, but he has already indicated he would compromise on its provisions.
Consumer groups have launched a worthy effort to fight to keep Dodd’s bill strong, a formidable task in the face of the financial industry’s lobby might and knowledge of how to wrangle legislative fine print to its advantage.
The task is also made more difficult because the person who should be leading the charge for real reform, President Obama, has shown so far that he is only interested in something that he can call reform as long as it doesn’t stir opposition from the financial industry. That won’t be much reform.
Both Dodd and Frank left out one of the most important reforms needed. That’s the reinstatement of the Depression-era Glass-Steagall reform law, which kept the riskier aspects of the investment banking business separate from regular banking, creating a firewall to protect the economy against speculative bubbles. That law was repealed with the Clinton Administration’s assistance 10 years ago as a part of a deregulatory frenzy that spurred the frenzy that led to the current debacle.
But all is not lost. Five Democratic members of the House of Representatives have attached an amendment to Frank’s bill to implement a contemporary form of Glass-Steagall.
So by all means let’s fight to keep Dodd’s bill strong and make sure he lives up to his election-year populism. But let’s also let Barney Frank, the House of Representatives and Obama know that we don’t just want compromises, we want real fundamental reform that puts consumers and taxpayers first, in the form of updated Glass-Stegall protections.
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