James Pethokoukis

Politics and policy from inside Washington

Inside Dodd’s financial reform bill

Mar 15, 2010 16:35 UTC

A few thought on the Dodd bill:

1) The key to the consumer finance piece is how much influence regulators have in rule creation. Giving some final veto power to the systemic risk council with a two-third vote is a joke. Would never happen.

2) Does the bill end TBTF? Only if you believe regulators would actually wind down a big firm — or multiple firms. This is why some want to make banks smaller preemptively.

3) Do Democrats even want a bill? Senate Banking Chairman Chris Dodd does, though some Ds would love to use a stalemate as a way of portraying Rs as pro-Wall Street and campaign on it for the November midterms.

4) And what about Fannie & Freddie, housing policy, Fed policy — all keys aspects of true reform which the Dodd bill and the whole “financial reform” process ignore.

The Dodd Effect: 2010 starts great for Wall Street

Jan 7, 2010 18:39 UTC

Washington just got a little more welcome for Wall Street. The retirement of Christopher Dodd, the Democrat from Connecticut, probably hands the chairmanship of the Senate Banking Committee to a friend of the industry in 2011. It also improves the odds of a weaker version of financial reform passing Congress in 2010 — if anything passes at all.

Of course, 2009 really wasn’t all that bad for Wall Street, politically speaking, given the outrage on Main Street. Washington didn’t use its new financial clout to sweep out many top executives. Forced pay limitations and restructuring of financial institutions was far more restrained than it could – and should – have been.

And none of that will happen this year either. By foregoing an almost certain reelection campaign defeat (Connecticut now leans heavily back to the Democrats and probably nominee Richard Blumenthal), Dodd can ditch the populist mantle he adopted to help Connecticut voters forget his links to the stricken insurer AIG. That temporary guise helped shape his initial version of financial reform.

The first Dodd plan called for creating a single financial regulator and a powerful consumer financial protection agency. But when it thudded, Dodd engaged with Republicans. He will in all likelihood redouble efforts to fashion a compromise to serve as his legacy. For instance, a consumer agency, if it can even survive GOP opposition, will be toothless.

Banks will be pleased with the senator in line to replace Dodd as chairman, Tim Johnson. His South Dakota is home to call centers for numerous banks and credit card companies. Moreover, Johnson was the only Democrat in the Senate to vote against President Obama’s credit card reform bill. He once spoke out against capping the interest rates military members pay for short-term loans, fearing such leniency would spread to other “sympathetic” groups. Even if Johnson were to be passed over, Jack Reed and Chuck Schumer would also be to Wall Street’s liking.

Oh, and despite a sudden flurry of “Dodd to Treasury” rumors, he will not be replacing Timothy Geithner. I mean, Geither could get the ax — news that he told AIG to withhold details about payment to banks doesn’t help him — but Dodd won’t be the person stepping in.

Then there’s Sen. Byron Dorgan’s retirement, an added bonus for financiers. His North Dakota seat is apt to be filled by a Republican, balancing out Dodd’s probable replacement by another Democrat. Dorgan’s exit means one less advocate on Capitol Hill for bringing back the separation of commercial and investment banking. The year is off to a good start for masters of the universe.

Can the GOP still take Connecticut?

Jan 6, 2010 19:27 UTC

A 30-point gap against a popular politician is a steep hill to climb. But my great pal Larry Kudlow makes the case:

Dick Blumenthal is just as liberal-left as Dodd.

If Linda McMahon runs a tea-party/free-market/populist/no-bailout/cut-taxes-and-spending/tough-on-terrorism/pro-Gitmo campaign she can win. She has the dough. Im having dinner with her tomorrow night.

Blumenthals a nice guy, but will be an ineffective campaigner. Hell be pro-Obama and Obamacare. Hes ripe for losing.

Rob Simmons could also do it, but hes not a tea-party guy and hes a weak campaigner.

The White House got Dodd out because he was a sure loser. Theyll make him an ambassador someplace.

New poll shows Blumenthal big favorite for Dodd seat in Connecticut

Jan 6, 2010 17:39 UTC

From Public Policy Polling:

Chris Dodd’s retirement has shifted one of the Democrats’ most vulnerable seats to one of their safest. A Public Policy Polling survey conducted Monday and Tuesday, before Dodd made his announcement, finds Attorney General Richard Blumenthal with leads of 30 points or greater against all three Republican candidates.

Blumenthal leads Rob Simmons 59-28, Linda McMahon 60-28, and Peter Schiff 63-23. That’s quite a contrast from Dodd’s numbers in the same poll, which found him trailing Simmons 44-40, tied with McMahon at 43, and leading Schiff 44-37. 59% of voters in the state have a favorable opinion of Blumenthal to just 19% who view him unfavorably. He’s liked by 71% of Democrats and 60% of independents, and even a slight plurality of Republicans by a 37/35 margin.

While Blumenthal now appears to be the likely Democratic nominee, the poll results also confirm that just about any Democrat other than Dodd would have been favored to hold onto the seat. Chris Murphy was also tested in the poll and found to lead Simmons and McMahon by 7 points and Schiff by 16. Dodd’s approval rating stands at 29%, with 57% of voters in the state disapproving of him. 45% of Democrats, 24% of independents, and 7% of Republicans express support for the job he was doing.

“The Blumenthal/Dodd swap should bring a huge sigh of relief to Democrats,” said Dean Debnam, President of Public Policy Polling. “Dodd was probably going to lose this fall, while Blumenthal starts out as an overwhelming favorite.”

The impact of Dodd’s Senate departure

Jan 6, 2010 15:17 UTC

Some talking points/analysis on the  Chris Dodd retirement

  1. Makes it more likely Ds keep CT Senate seat, but also a sign of voter discontent with incumbents. Welcome to the U.S. Senate Richard Blumenthal, who says he will run.

  2. Makes it more likely that financial reform will be bipartisan, Dodd wants this to be a legacy moment for him. But the GOP may stall.

  3. I predicted Dodd would retire when he announced his support for Bernanke. (Yes!) Opposing him would have been the smarter political move.

  4. His Banking committee replacement in 2011 is likely Tim Johnson, considered friendly to the financial services industry. Hard to see a Glass Steagall repeal getting through a committee run by him.  Byron Dorgan, by the way, was a G-S guy and he is leaving, too. Sweeping financial reform happens now or never.

Dodd financial reform bill underestimates populist anger

Nov 11, 2009 15:20 UTC

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.

COMMENT

Dodd needs to start packing his bags and updating his resume.

Posted by Jim Brown | Report as abusive

Dodd vs. the White House on financial reform

Sep 21, 2009 19:32 UTC

Well, this is going to  be fun. Chris Dodd is headed toward a tough reelection campaign. So he stays at the head of the Banking commitee instead of moving to Health since a) that is where the action will be in 2010 and b) it is a great place to raise tons of money. He wants a non-Fed superregulator while the WH wants the Fed in that role. And now the Blue Dogs are cooking up their own reform plan. The whole thing will be at the epicenter of a white-hot lobbying campaign. And then there are the personalities; Dodd, Frank, Bair, Bernanke, Geithner. The politics are every bit as treacherous  as those of healthcare.

Why Dodd should stay on the Banking Committee

Sep 2, 2009 21:32 UTC

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.

COMMENT

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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