RebelCapitalist: Financial Information for the Rest of Us

It’s Not Reform

Jul 16, 2010 | By: Mr_Blue | Tags: consumer protection, financial regulatory reform, obama, cfpb

Yesterday, Senate passed the conference committee’s report so now the Financial Regulatory Tweaks Bill (known as Dodd-Frank Financial Reform Bill) is making its way to the President’s desk. While some of the tweaks will make a difference in our lives. Overall, the Tweaks Bill failed to address the major issues of the financial crisis. The evolution of the Tweaks Bill, if anything, exemplifies how broken and corrupted our political system is.

First, this Tweaks Bill is better than nothing but it’s far from REFORM. We did win some battles but unfortunately Wall Street won the most. Particular after considering it was Wall Street’s greed and/or incompetence when assessing risk that brought our economy to its knees. Little changes for them.

The one win:

Consumer Financial Protection Bureau - this was a win but barely. Many good organizations, such the Center for Responsible Lending and Americans for Fairness in Lending, fought very hard (on our behalf) to create an agency. In the end, the financial sector when won some big concessions - mainly its not a agency but a ‘bureau’ within the Federal Reserve. Second, many special interest groups won exemptions from oversight by the new CFPB. Overall, it was win because at the very least such a regulatory tool that helps consumers was created. This is truly a step in the right direction.

The rest has potential but we won’t know until 50+ studies are completed and hundreds of regulatory rules are written. The major weakness of the Tweaks Bill is that it gives an overwhelming amount of discretion to the regulators who already failed in the run-up to the current crisis. We needed harder and specific rules or laws and we didn’t get them.

One test for me on the strength of the Tweaks Bill was measured by how much protesting, whining and public relations was performed by the financial industry. If the Tweaks Bill was strong we would have been hearing the public relations campaign in full force. It didn’t sound like the financial industry was protesting too much.

Here are some other points of view on the Tweaks Bill:

Fed Up with FinReg: Rooseveltians React

Financial Reform Roundup

Reinventing financial regulation - an interesting graphical representation of the Tweaks Bill

Consider this from the New York Times:

To get all that [Financial Regulatory Tweaks Bill], the bill had to withstand a lobbying juggernaut. Since January 2009, the financial sector has spent nearly $600 million to weaken reform, according to the Center for Responsive Politics. The lobbyists notched some victories, to be sure, mainly in the defeat of reforms that would have broken up large banks and done more to constrain risk-taking throughout the financial system.

But they also lost, especially on consumer protection. The new consumer financial protection bureau established in the bill is a milestone, not only for its intent and power to rectify lending abuses, but because it will institutionalize the insight that the safety and soundness of banks cannot — and should not — be measured by profitability alone, but by the impact that bank practices ultimately may have on consumers.

I think Wall Street got a pretty good return on that $600 million.

Good luck.