Dodd financial reform bill underestimates populist anger
The instant analysis on Senator Christopher Dodd’s aggressive financial reform plan is that it’s more about getting him re-elected than getting a bill through the Senate.
And there’s some truth there. Dodd is in the fight of his political life to keep his U.S. Senate seat. A tough bill plays on populist outrage against Wall Street and mitigates the damaging public perception that he was AIG’s man in Washington.
The bill is also more ambitious than its counterpart in the House, at least in how it deals with systemic risk. (The Dodd version of a Consumer Financial Protection Agency may be slightly less powerful.)
Unlike the White House-blessed plan of House Financial Services Chairman Barney Frank, Dodd’s plan would create an Agency for Financial Stability to deal with too-big-too-fail firms. This new entity could write new regulations or subject such firms to enhanced supervision. Dodd would also combine existing financial regulators into a Financial Institutions Regulatory Administration.
Accomplishing this vast reorganization means clashing with myriad committee chairs and industry lobbyists. And the Richard Shelby-led Republicans on the Banking committee, while favoring limiting the Fed, have no use for the consumer piece or new limits on Sheila Bair’s FDIC.
So the politics are dicey. But an even tougher package might actually be more of a potential political winner by gaining grassroots support across America. Consider that the public seems to believe two big things about financial reform: The Fed should not be given more power, and too-big-to-fail is terrible policy.
The Dodd plan makes progress on the first but could go much stronger on the second. It could have, for instance, embraced Paul Volcker’s argument that banks should be prohibited from owning and trading risky securities (though not necessarily from underwriting stock and bond offerings).
Or Dodd could have incorporated the 225-word amendment of Senator Bernie Sanders, a self-described ‘democratic socialist’, which would require the actual break-up of too-big-to-fail institutions.
Spend a few minutes at a ‘tea party’ or listening to conservative talk radio and you’ll find plenty of appetite for Sanders’ so-called left-wing reforms. Today’s right has about as much use for Big Money as it does for Big Government.
As it is, financial reform is a 2010 issue. Plenty of time to makes its teeth even sharper.