Will Dodd's bill do the job? Elizabeth Warren says "yes"

Connecticut Democratic Senator Chris Dodd reveiled an apparently all-encompassing financial regulatory reform bill today which sets out to prevent future Wall Street bailouts and to protect consumers and borrowers with a Consumer Financial Protection Bureau, based at the Federal Reserve. At a press conference, Senator Dodd, the chairman of the Senate Banking Committee, stressed the crucial importance of consumer protection, stating that the financial meltdown and resulting recession were caused by predatory lending (amoungst other things, such as credit default swaps, deregulation, legalizing greed etc). Dodd said that the "root cause of our economic crisis was a lack of consumer protection," and added that the contemporary regulatory structure now in place is "hopelessly inadequate".

The Consumer Protection Agency would have the power to conceive rules over all entities - including banks and other financial institutions - and the "authority to examine and enforce regulations for banks and credit unions with assets over $10 billion and all mortgage-related businesses," a summary of Dodd's bill stated.

President Obama offered praise by saying it has "a strong foundation to build a safer financial system" and the legislation gives the government "essential tools to respond in a financial crisis, so that we can wind down and liquidate a large, interconnected failing financial firm. It allows us to protect the economy and taxpayers so that we can end the belief that any firm is 'too big to fail'".

Consumer advocates have been fighting for an independent agency and have railed against the concept of establishing one under the Federal Reserve. However Elizabeth Warren, the Chair of the Congressional Oversight Committee, who has been advocating for a Consumer Protection agency for years now, endorsed Senator Dodd's legislation:

Despite the banks' ferocious lobbying for business as usual, Chairman Dodd took an important step today by advancing new laws to prevent the next crisis. "We're now heading toward a series of votes in which the choice will be clear: families or banks.

Dodd addressed concerns regarding the Consumer Protection Agency being located at the Federal Reserve by stressing that it came down to "rented space in the Fed," emphasizing that the Federal Reserve will have "not one iota of authority" (except for one vote on a nine-member council of systemic regulators with veto power over bureau rules).

People are talking about control by the Fed. There isn't any control by the Fed. But where else do you put it? I find there that you've got resources: you're going to be using Fed monies to support it. No assessments involved, no appropriations process.

Dodd explained that his proposal was the next best thing to an independent agency - even superior to a typical agency's assessment process, in which a regulator depends on those it regulates for funding, and also superior than a congressional appropriations process, where a regulator is subject to the whim of individual members of Congress who control various purse strings.

Let me tell you, it's a lot better to find resources through that mechanism than going through an assessment or an appropriations process. Look at the FTC [the Federal Trade Commission]. Look at Equal Employment Opportunity Office, what happens when you starve a budget. You can have all the wonderful laws on the books; if you don't have a budget that allows you to operate, you die. So the fact that it's at the Fed -- access to Fed monies -- in order to finance itself is far stronger than any other place it could possibly be, depending on an appropriations process or assessment process.

The Consumer Protection Agency would be financially supported with Federal Reserve funds, said Dodd, but the Reserve would not be able to deny financial support.

No Democrats on Dodd's committee have dropped any hints that they will oppose the legislation if the new agency is based at the Federal Reserve, with an aide confirming to the Huffington Post that there are no such intentions:

People will likely work to strengthen the bill but there is a sense that Republicans dragged this out far too long already.

Dodd's legislation proposes that the Consumer Protection Agency would have an independent director appointed by the president and confirmed by the Senate. Its budget would be provided by the Federal Reserve, and its regulatory powers would be reviewed by other regulators. According to the summary of Dodd's legislation, the agency "coordinates with other regulators when examining banks to prevent undue regulatory burden" and "consults with regulators before a proposal is issued and regulators could appeal regulations if they believe [sic] would put the safety and soundness of the banking system or the stability of the financial system at risk."

Dodd also dismissed alarms raised by Republicans and bank lobbyists that consumer protection conditions could initiate conflict with the regulators' mission to ensure the "safety and soundness" of banks.

However, unlike Elizabeth Warren, not every consumer advocate is fond of Dodd's bill, such as John Taylor, President of the National Community Reinvestment Coalition:

It's terribly disappointing. It's a marked retreat from the original bill he proposed. You can keep using the word 'independent' all you like, but if the agency's independence is dependent on approval from the agencies to make its rules --that doesn't make it independent. I think he really does need to have a piece of legislation that probably will be the single most civil rights bill since the Voting Rights Act that can be his legacy. The Republicans aren't supporting him, so why put out a bill that takes their considerations in mind? It's like negotiating against yourself.

Meanwhile the Center for Responsible Lending agreed with Elizabeth Warren, with CRL President Michael Calhoun saying he:

commends Chairman Dodd in crafting a financial reform bill that addresses the deceptive lending practices and regulatory failures that have caused millions of families to lose their homes, decreased access to credit for small business owners and cost state and local governments billions in lost revenue.

Dodd's legislation also provides an unprecedented legal manoeuvre to wind down failing massive and systemically-crucial financial institutions. It is a power or legal strength which regulators have constantly emphasized they lacked during the financial crisis (the reason for using hundreds of billions of taxpayer dollars to bail out banks and financial institutions). It would come in the form of a special panel in bankruptcy court to bring an end to such failing institutions. The panel would comprise three judges from the United States Bankruptcy Court in Delaware, who would be selected by the chief judge of that court. To hammer the final nail in such failing institutions, the Treasury Secretary would have to petition the panel. Once the failing institution files its response, the panel would have exaclty twenty-four hours to make its final decision. "Substantial evicence" would have to be provided to for any decision to kill a failing institution. But such a decision can be appealed twice, with the first appeal going to the United States Court of Appeals, and the second going to the Supreme Court.

Dodd's leglisation also proposes chaning the manner in which regional Federal banks select their presidents. For instance, the New York Fed president, who is currently selected by the banks, would instead be selected by Obama.

But Dodd appeared to minimize expectations for his legislation's impact by saying more than once that it is not enough to prevent another crisis:

This legislation will not stop the next crisis from coming. No legislation can.

Way to instill confidence there, senator. Prior to repealing the Glass-Steagall Act, no such financial meltdown occurred.

Michael Moore on Dodd's proposed legislation:



Elizabeth Warren: It's bank lobbyists versus American families in a fight for financial reform. "Banks and their lobbyists are hammering Congress and fighting against the interests of American families by blocking financial reform. The problems are obvious and the solutions are too, but for some reason, we can't seem to get the two together".