Will consumers be protected?

By Felix Salmon
March 16, 2010

Color me happily surprised by the consumer-protection rhetoric yesterday of both Chris Dodd and Barack Obama. HuffPo has the best single overview of the bill, along with Dodd’s reasonably compelling explanation of why housing the agency in the Fed doesn’t mean it isn’t independent — and in fact helps to insulate it from the kind of regulatory capture which is endemic to regulators who are funded by those they regulate.

As for the egregious carve-outs for the like of auto lenders, Obama did the right thing and stepped up to the plate yesterday, releasing this statement:

“I will not accept attempts to undermine the independence of the consumer protection agency, or to exclude from its purview banks, credit card companies or non-bank firms such as debt collectors, credit bureaus, payday lenders or auto dealers.”

As I understand it, Dodd’s consumer protection agency can make rules for just about anybody; the constraints are on the entities where it’s allowed to enforce those rules. That’s a reasonably good start; if it gets beefed up in reconciliation, we could yet emerge from this process with a genuinely useful new agency. Assuming, of course, that the Republicans allow anything to get through the Senate at all. We’ll probably find out this week how likely that’s going to be.

On the other hand, Mike Konczal asks an excellent question about why the Democrats aren’t making full use of the timing here, with the Dodd bill being released right in the wake of the Lehman report:

One thing that I’m finding surprising is that the President and the Treasury Secretary aren’t out there beating the hell out of this story. As a financial reformer, this report should be like a “Get 2 Free Financial Reforms” monopoly-style card falling out of the sky. They should be thumping the hell out of this story.

He also answers that question: the Treasury Secretary, Tim Geithner, ran the New York Fed at the time, and was a central part of the government apparatus which gave Lehman all the nods and winks that it needed to get away with its shenanigans. Sometimes the real reasons for what does and doesn’t happen in politics are the very worst ones.

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