In June, President Obama called for the creation of an agency that would be "independent," with "broad authority" and the power to "combat the worst abuses in mortgage markets." The agency would "have an independent seat at the table in our financial regulatory system." Well, that was before the banking lobby went into action.
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.
In June, President Barack Obama released a proposal calling for the creation of an 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 one version of 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 Huffington Post'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."
Now Dodd has proposed the agency be housed within the Federal Reserve. The end result is the same: a toothless regulator lacking the authority to enforce the consumer protection rules it writes.
So much for "independence" and "broad authority."