Around the Web: Will the Dodd Abide?

The fight for financial reform enters a new stage this week when Sen. Chris Dodd launches his latest version of his proposal. The New York Times highlights the senator’s weak nods in the direction of granting shareholders more power: giving them “advisory” votes on executive pay and the ability to nominate board members.

Dodd’s earlier proposal was considered stronger than the House reform bill, which was strongly supported by consumer advocates and opposed by bankers and the Obama administration. Dodd is a long-time ally of financial and insurance industries who have backed him over the years. But those close ties were undermining him politically after the financial crisis, so he was attempting to forge the appropriate image of a tough politician. Then Dodd dropped out of his tough reelection bid and he began to back off from some of his positions, like support for a strong and independent Consumer Financial Protection Agency. His effort to negotiate a bipartisan bill broke down and now some are reporting that Dodd has returned to some of the tough positions he had advocated. Here’s Calculated Risk’s breakdown of the proposal Dodd is about to unveil. Though it’s hard to imagine the push for financial reform going any slower, that’s what Republicans want, the Washington Post reports.

At the same time, the American Bankers Association meets in Washington this week, Business Week reports. They are ready to battle any attempt at greater consumer financial protections. They’ll defeat it outright if they can, and fight to water it down if they can’t kill it.

Around the Web / Consumer Financial Protection Agency - 03/14/2010

Innovation Just Isn't What It Used To Be

When Wall Street wants to get out the big intellectual artillery in the argument against strong financial reform, they haul out innovation.

Regulation will strangle innovation, and we can’t have that, the financial titans contend. Innovation is the strength of America, without it we will lose our competitiveness, yadda yadda yadda.

But over the past several decades financial innovation has focused too much on mathematical models and not enough on a vision of improving the country and people’s lives.

Selling mortgages with exploding balloon payments doesn’t qualify as innovation; it’s a cruel trap.

The recent version of financial innovation, complex investments and gambling vehicles like derivatives and credit default swaps, no doubt made many bankers wildly rich, but these “weapons of mass of financial destruction,” as Warren Buffet labeled them back in 2003, also planted hidden, little-understood land mines of risk that helped create the financial crisis when they blew up.

It’s no longer just the pitchforks that are questioning the value of these innovations. Paul Volcker, the former Fed chief born again as the lone voice for meaningful financial reform in the Obama administration, recently said the only modern innovation that brought real benefit to people was the ATM card.

And the financing of innovation in the rest of the economy isn’t faring any better.

A couple of top economists, including a Nobel Prize winner, weighed in recently with a scathing view of the financial system in the Harvard Business Review.

Edmund S. Phelps (the 2006 economics Nobel winner) and Leo M. Tilman, both of Columbia University, wrote in the January issue [no link]: “The current financial system is choking off funds for innovation...Outdated accounting conventions and inadequate disclosures make it impossible to evaluate the business models and risks of financial firms. Excessive resources are allocated to proprietary trading, to lending to overleveraged consumers, to regulatory arbitrage and to low-value-added financial engineering. Financing the development of innovation takes a back seat.”

To finance opportunities in clean and nanotechnology that the current financial system is ill equipped to serve, the authors propose a government-sponsored bank of innovation.

The bank bailouts have no doubt soured people on the notion of the government in the banking business and rightly so.

But this hasn’t always been the case.

It’s worth remembering that the greatest financial innovation of the past 70 years was a government-sponsored program called the G.I. bill.

I heard about the G.I. bill growing up because it financed my dad’s education after he returned from World War II. Many others got help with home loans.

Ed Humes, an author and former Pulitzer Prize winning investigative newspaper reporter, has written a splendid account of the G.I. bill, “Over Here.” It captures how individual lives as well as the entire nation was shaped by the ambitious program.

The idea of a massive program to help veterans was first articulated by FDR, in part to prevent a reoccurrence of the bitter 1932 Bonus March, when angry World War I veterans and their families descended on Washington, D.C. to demand promised benefits. The government response was a fiasco – soldiers were ordered to fire on the persistent veterans. Nearly 10,000 were driven from the veterans’ encampment; two babies died. The resulting stink helped Roosevelt defeat the sitting president, Herbert Hoover.

I spoke with Humes about the history behind the G.I. bill.

The proposal faced stiff opposition from the financial industry and the education community.

“They argued that the average Joe returning from World War II was capable of being neither a college student nor a homeowner. The bill was basically rammed through over their objections, because of a combination of altruism and fear.”

It didn’t hurt that the bill was created by the American Legion, a conservative veterans’ group.

The G.I. bill was an overwhelming success, not only for the veterans but the college system, the building industry (it helped create the suburbs) the economy at large and the banking industry as well (it created the modern mortgage industry). “For every dollar spent,” Humes said, “seven was returned to the economy.”

Humes draws a direct connection from the G.I. bill to today’s bailouts. “They had a dead housing market, it had never recovered from the Depression. But did they throw money at the banks? No. They encouraged people to buy homes.”

The G.I. bill shows what’s possible when those who are governing possess large vision, heart, will, persistence – and fear. No mathematical model can come close.

Derivatives / Martin Column - 03/03/2010

Back to the Future of Reform with Sen. Chris Dodd

Dodd moves to scale back Consumer Financial Protection Agency plan

In an attempt to lure the Republican votes needed to get a sweeping overhaul through the Senate, the Banking Committee chief is circulating a plan for a less powerful Bureau of Financial Protection.

-- Los Angeles Times, March 2, 2010

Dodd Proposes Financial Protection Committee Housed in Treasury Department

In new attempt to lure the Republican and Democrat votes needed to get semi-sweeping overhaul through Senate, the Banking Committee chief is circulating a plan to create a Financial Protection Committee inside the U.S. Treasury.

-- Los Angeles Times, March 28, 2010

Dodd Proposes Professor of Financial Protection at University of Connecticut

In renewed attempt to lure the Republican and Democrat votes needed to get modest financial fixes through Senate, the Banking Committee chief is circulating a plan to give the University of Connecticut $150,000 to hire a professor to teach the public about financial protection.

-- Los Angeles Times, April 15, 2010

Dodd Proposes Dial 1-900-4Protection Line

In a leisurely attempt to lure the Republican and Democrat votes needed to get itsy-bitsy, not too scary reform bill through Senate, the Banking Committee chief is circulating a plan to set up a 900 number to be answered on weekends by volunteers from credit card customer service departments. Costs of the program will be defrayed by charge of 99 cents per call.

-- Los Angeles Times, May 20, 2010

Dodd Proposes Facebook Financial Protection Page

In further attempt to lure the Republican and Democrat votes needed to get any kind of friggin’ bill through Senate, the soon to retire to the financial industry Banking Committee chief is circulating a plan to create a Facebook page where consumers can share financial protection ideas with each other.

-- Los Angeles Times, June 15, 2010

Dodd Proposes Wall Street Protect Consumers

Fuhghettaboutit.

-- Los Angeles Times, July 4, 2010

Consumer Financial Protection Agency / Harvey Column / Uncategorized - 03/02/2010

Open Letters to Sens. Feinstein and Boxer

NO COMPROMISE TOP 10

As the debate over financial reform moves to the Senate I’ve written a couple of open letters to my senators. I’m not endorsing any particular legislative proposals but I do outline the items that shouldn’t be compromised.

Feel free to borrow my ideas for letters to your own senators, or to disagree. Whether you agree or disagree, I’d like to hear what you think.

What’s your bottom line on what financial reform should contain?

OPEN LETTER TO SEN. DIANNE FEINSTEIN

Dear Sen. Feinstein:

Throughout the economic crisis, you have continued to raise serious questions about whether the bailout was protecting the financial industry or the public. Now is the time to turn that skepticism into constructive action.

Sen. Feinstein, voters are counting on your continuing leadership to make sure Congress provides real financial reform to prevent future meltdowns and bailouts stemming from reckless practices and lack of government oversight.

Though you voted for the bailout, at the time, in September 2008, you compared the  preparations for the so-called financial rescue to the build-up to the war in Iraq. "There is a great deal of cynicism among those of us who have to live with having voted to go into Iraq based on misinformation and intelligence that later turned out not to be truthful," you said.

On March 23 of this year, you were among a group of senators who met with President Obama to express concern that his administration’s proposals didn’t go far enough, and that his economic advisers were many of the same people who oversaw the deregulatory fever that played such a key role in our financial crisis.

Unfortunately, Sen. Feinstein, your concerns have been borne out.

Financial reform as passed by the House of Representatives is filled with loopholes. Lobbyists from financial firms recently rescued from ruin by taxpayers have mounted a fierce campaign to maintain a system in which “too big to fail” institutions” can manipulate the regulatory system.

The good news is that Sen. Chris. Dodd has proposed much stronger legislation, the Restoring American Financial Stability Act of 2009.  By all accounts, his proposal faces a bruising battle as the financial industry gathers all its forces to protect its interests. Sen. Dodd has indicated that compromise is inevitable.

But Sen. Feinstein, the stakes are too high to compromise on the most important aspects of reform. Some of these are contained in Sen. Dodd’s proposal. Others are contained in other legislative proposals under consideration in the session about to begin.

Please help make sure that these key elements of reform are not the victims of compromise:

• Vote against the confirmation of Ben Bernanke to another term as Federal Reserve chair. He was at the center of the bubbles before the meltdown and also helped engineer a bailout that profited Wall Street while Main Street suffered.

•Reinstate a modern-day form of Glass-Steagal, as proposed by Sens. McCain and Cantwell.

•Audit the Federal Reserve, as proposed in legislation sponsored by Reps. Paul and Grayson, which would open up the operations of the institution to public scrutiny for the first time.

•Reconsider and approve judicial cram-downs, which would give bankruptcy judges the power to lower mortgage payments. This would put real teeth in the Obama Administration’s anti-foreclosure efforts.

In the Dodd bill:

• Support creation of a strong, independent Consumer Financial Protection Agency, with regulatory oversight of the Community Reinvestment Act (not provided in the House bill)

•Support creation of a an Agency for Financial Stability, responsible for identifying, monitoring and addressing systemic risks posed by large complex companies and their products, with the authority to break up firms if they pose a threat to the financial stability of the country

• Remove exemptions (contained in the House reform bill) for banks and credit unions with assets of less than $10 billion – about 98 percent of deposit-taking institutions in the country.

• Bar pre-emption (also allowed in the House bill), which would let states, if they choose, to pass tougher financial regulations for nationally chartered banks.

• Don’t exempt other consumer-financial businesses,  such as auto dealers from oversight by the Consumer Financial Protection Agency (as the House bill does.)

• Give two agencies, the Commodities Futures Trading Commission and the Securities and Exchange Commission broad authority to force derivatives markets onto exchanges where they pose less risk.

I’m urging you to put everything you’ve got behind this fight to protect consumers and homeowners. Voters put their trust and faith in you to see that their interests are protected, not compromised away. We’re relying on you to convince your colleagues to put the public’s interests ahead of the private profits and the power of the financial giants.

Sen. Feinstein, your skeptical instincts have been right since the Bush administration tried ramrod through a 3-page $700 bailout. Now everyone in the country can plainly see how that bailout benefited the large financial institutions but did little for small business, consumers and  homeowners. Thank you for your raising the right questions in the past. Thank you for helping us get back on the right track now.

Sincerely,

Martin Berg

Editor

WheresOurMoney.org

AN OPEN LETTER TO SEN. BARBARA BOXER

Dear Sen. Boxer:

Voters are counting on your continuing leadership to make sure the promise of real fundamental financial reform becomes a reality.

In 1989, you were one of a handful of senators to vote against repeal of the Glass-Steagall Act, the Depression-era law that had kept banks’ traditional business separate from their riskier speculative business.

Though you were in the small minority opposing the deregulatory fever sweeping Washington, your vote showed tremendous leadership, courage and prescience.

You withstood the pressures from financial industry lobbyists and contributors as well as the demands of your own party. As you know, then-President Clinton and his economic advisers, after initially opposing the repeal, eventually made a deal to sign off on the dismantling of Glass-Steagall.

We all know what happened over the last decade – record profits for financial institutions while the economic foundation for American families has gotten increasingly shaky. Voters have watched with dismay as the massive federal bailout has helped create even fewer financial institutions, with even greater wealth and wielding even more political power.

Neither the Obama administration’s proposals nor the bill passed by the House of Representatives offer sweeping reform, nor do they do anything to break up the power of the “too big to fail” institutions. They also don’t do enough to ease the threat these banks continue to pose to the rest of the economy.

Now Sen. Christopher Dodd has proposed much stronger legislation, the Restoring American Financial Stability.  By all accounts, his proposal faces a bruising battle as the financial industry gathers all its forces to protect its interests. Sen. Dodd has indicated that compromise is inevitable.

But Sen. Boxer, the stakes are too high to compromise on the most important aspects of reform. Some of these are contained in Sen. Dodd’s proposal. Others are contained in other legislative proposals under consideration in the session about to begin.

Please help make sure that these key elements of reform are not the victims of compromise:

• Vote against the confirmation of Ben Bernanke to another term as Federal Reserve chair. He was at the center of the bubbles before the meltdown, helped engineer a bailout that profited Wall Street while Main Street suffered, and has fought increased transparency in the financial system.

• Reinstate a modern-day form of Glass-Steagall, proposed by Sens. McCain and Cantwell.

• Audit the Federal Reserve, as suggested in the proposal by Reps. Paul and Grayson, which would open up the operations of the institution to public scrutiny for the first time.

• Reconsider and approve judicial cram-downs, which would give bankruptcy judges the power to lower mortgage payments. This would put real teeth in the Obama Administration’s anti-foreclosure efforts.

In the Dodd bill:

• Support creation of a strong, independent Consumer Financial Protection Agency, with regulatory oversight of the Community Reinvestment Act (not provided in the House bill).

• Support creation of a an Agency for Financial Stability, responsible for identifying, monitoring and addressing systemic risks posed by large complex companies and their products, with the authority to break up firms if they pose a threat to the financial stability of the country.

• Remove exemptions (contained in the House reform bill) for banks and credit unions with assets of less than $10 billion – about 98 percent of deposit-taking institutions in the country.

• Bar pre-emption (also allowed in the House bill), which would let states, if they choose, to pass tougher financial regulations for nationally chartered banks.

• Don’t exempt other consumer-financial businesses,  such as auto dealers from oversight by the Consumer Financial Protection Agency (as the House bill does).

• Give two agencies, the Commodities Futures Trading Commission and the Securities and Exchange Commission broad authority to force derivatives markets onto exchanges where they pose less risk.

I’m urging you to put everything you’ve got behind this fight to protect consumers and homeowners. Voters put their trust and faith in you to see that their interests are protected, not compromised away. We’re relying on you to convince your colleagues to put the public’s interests ahead of the private profits and the power of the financial giants.

Sen. Boxer, you were right in 1989 when you were in the minority. Now everyone in the country can plainly see the wreckage from the great deregulatory experiment you opposed. Thank you for your vision. Thank you for helping us get back on the right track now.

Sincerely,

Martin Berg

Editor

WheresOurMoney.org

Action / Consumer Financial Protection Agency / Glass-Steagel / Martin Column - 01/10/2010

Loopholes and Lumps of Coal

While the financial industry got a stocking stuffer, we got stiffed.

House Democrats passed something they called reform and handed  it over to the Senate.

But the bill is laden with loopholes, put there by Blue Dogs and New Democrats doing the bidding of the financial institutions.

Democratic leaders, from President Obama to Rep. Barney Frank have demonstrated that they are at best ineffectual in spearheading efforts to win real reform that puts consumers and taxpayers’ interests first. At worst, they're undermining those efforts.

The resilience shown by the financial industry in blunting efforts at sensible regulation has been nothing short of breathtaking.

Despite these setbacks, the battle may not be lost.

Glass-Steagel / Martin Column / President Barack Obama - 12/15/2009

From Watchdog to Pussycat

Though President Obama and the Democrats promise a fierce financial watchdog, what they’re delivering looks like a pretty tame pussycat.

There’s a disconnect between the Democrats’ tough rhetoric about the need for financial reform and the legislation that’s actually making its way through Congress.

Consumer Financial Protection Agency / Martin Column - 10/23/2009

Never-Ending Bailout is Not a Partisan Issue

It would be hard to find two congressmen more politically opposite than Brad Sherman and Jeb Hensarling.

Sherman is solid Democrat from the San Fernando Valley in southern California. Hensarling is a red-meat Texas conservative protege of former senator Phil Gramm.

Sherman and Hensarling may not agree about anything else.

But the two men have been outspoken in one shared view: that the bailout known as the Troubled Asset Relief Program, or TARP has lacked accountability or transparency from day one.

Martin Column / TARP - 10/14/2009