James Pethokoukis

Politics and policy from inside Washington

Why Dodd should stay on the Banking Committee

September 2, 2009

It certainly looks as if Senator Chris Dodd, at least, isn’t too big too fail. The powerful Connecticut Democrat and chairman of the Banking Committee trails his likely 2010 Republican opponent by nearly 10 points in polls and can’t even crack the 40 percent level, an ominous sign for an incumbent.

While history hints that next year should be tough anyway for Democrats like Dodd — the president’s party has lost an average of four Senate seats during midterms since the 1940s — the five-term lawmaker has plenty of troubles of his own.

There are questions about the circumstances surrounding his purchase of a pricey “cottage” in Ireland. And Dodd was only recently cleared of accusations that his mortgages from Countrywide Financial broke Senate gift rules.  Indeed, a Quinnipiac poll found that just 35 percent of those surveyed believe Dodd to be honest and trustworthy.

But it’s Dodd’s role as Banking Committee chairman that may be his biggest problem. The position continues to link him to the financial meltdown, which has made virtually all incumbent politicians look feckless.  Not all incumbent politicians, however, have been the biggest recipient of campaign cash over the past two decades from Fannie Mae and Freddie Mac. Those would be the same failed mortgage giants whom Dodd called “fundamentally strong” just before their government bailout and takeover.

So it’s no surprise that Dodd is thought to be leaning toward giving up the chairmanship of the Banking Committee for that of the Health Committee, formerly run by the late Edward Kennedy.  Though being closely linked to that issue is hardly without risks — just ask all the Democrats who got the boot in the 1994 midterm elections — at least it’s something that average voters can easily relate to. Most Americans probably don’t dwell much on which government agency should monitor systemic risk.

But the departure of Dodd from Banking would be a real loss, if for no other reason than he is dubious about making the Federal Reserve the super-regulator of the American financial system. (His likely successor, Tim Johnson of South Dakota, is an unknown quantity.)  Earlier this summer, Dodd told Reuters that “those who are advocating the Fed’s role in all of this as a systemic risk regulator ought to be prepared to then concede a good chunk of independence of the Federal Reserve. I think that poses some serious issues.”

Indeed, it does. The more the Fed is involved in the regulatory process, the more it will be open to political scrutiny, since regulation creates winners and losers — both of whom probably have political action committees and Washington lobbyists.

As it is, the Fed has been in the congressional cross-hairs as never before because of its efforts to stabilize the credit markets and U.S. economy.  Witness, for instance, the hammering Fed Chairman Ben Bernanke took from a House panel concerning his role in the Bank of America-Merrill Lynch merger.  And then there’s the effort, one gaining momentum, to audit the Fed. That could open the central bank to far more intrusive congressional critiques of monetary policy.

It’s also worth mentioning that the Fed, despite its reputation as a regulator extraordinaire, has a poor track record at dealing with systemic risk, or even identifying it in a timely manner.  As noted Fed historian Allan Meltzer told a House panel in July, “I do not know of any clear examples in which the Federal Reserve acted in advance to head off a crisis or a series of banking or financial failures.”

Dodd, for now, appears to be cooking up his own approach, creating a U.S. version of the Financial Services Authority of Britain, that would actually strip the Fed of its regulatory portfolio.  Of course, a new regulator might not be any more prescient or proactive than the existing ones. But at least it wouldn’t compromise the independence of America’s central bank in the process.

Comments

Dod on the banking committee. Well he broke it so should he fix it. Dodd caused the subprime meltdown and caused most americans to lose half of their 401K’s. At the same time he got a sweat heart deal of a mortgage loan. so should he fix it cause he broke. he’s incompetant he will be out in 2010 and then he’ll need a government option because he won’t have healthcare when he’s unemployeed.

Posted by Nancy | Report as abusive
 

barac will rise to the occasion on healthcare I DOUBT IT:

1. He wants children to watch so he’s forcing them to watch by making it mandatory government takeover of television in school day. Look barac can teach his kids government dependence. Freedom loving american fathers will teach their own kids not to be dependent on government as barac was growing up.

2. I can say with certainty that a large number of democrat congress folks will be unemployeed in 2010 so go ahead and do something that is a communist act. embrace communism and vote for the government takeover of healthcare. The public option of state coop means that someone else pays for your health insurance. it’s a freebie. well that someone else is china at this time. soon china will come and say pay them back and you barac supports who are so lazy and government dependent will be force to pay china back. who taught you that money grows on trees – man do you have a brain or not.

Yes, Dodd already wrecked the train so he’ll jump off at the unemployment station in 2010.

Also, bush had the highest stock market in history. people had the greatest 401K value under bush. bush had to go to war because clinton didn’t let the fbi cia communicate even though they had the home address of the 911 terrorist. so 911 happened bush went to avenge the death of 3000 hard working americans and barac, holder and that gange want to go after the cia that keep us safe. they soon forget the past. yes, bush spent a trillion fighting the terrorist while barac rocks their baby bed. barac has already spent more than all of the prior presidents combined and the US is broke. He’s like a sex addict in a nevada brothel with a credit care.

Posted by rachel | Report as abusive
 

Oh, by all means. Dodd is just too darn “important” not to have on the committee. And now that a partisan Senate panel has whitewashed his behavior (like congress will soon do with Rangel, Murtha, and others), there’s a legal pretext for allowing him to continue to serve. I pray the voters will send this dog home…to write his memoirs or maybe to invest in a pizza franchise or something.

Posted by JohnR | Report as abusive
 

It’s time for Dodd to find a new drinking buddy and get out of Congress. We in Connecticut have had enough of Dodd, and the next election will prove it.

Posted by Nancy | Report as abusive
 

Yes so he can get more sweetheart deals for himself. no closing costs cheap loans for his home here and abroad. he should be out. what will it take for the press to be shocked by these people and not worship him

Posted by urmil dhanda | Report as abusive
 

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