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  • Senator Dodd and Financial Regulation: New Plan, Old Problems

    There’s more going on in Washington this week than health care reform. Giving up on efforts to get a bipartisan deal on financial regulation, Senate Financial Services Committee chair Chris Dodd today released his own plan – sans GOP support – for “fixing” the financial system. The goal, according to the plan, is to create a financial system that will not only prevent another financial crisis, but one that “works for and protects” Americans. It’s a fine sentiment, but there’s one problem: the new regulations being proposed will make the financial system worse, not better. And while claiming to make financial bailouts a thing of the past, it would actually make them more likely, in effect creating a permanent TARP program.

    Among the key provisions of Dodd’s plan:

    1. A new Consumer Financial Protection Bureau, to be located within the Federal Reserve Board bureaucracy. While not technically independent, the new agency would be largely autonomous, virtually guaranteeing conflict with other regulators focused on the safety and soundness of financial markets. Moreover, the new agency would do little to actually help consumers, instead limiting their options and increasing their costs.

    2. A new $50 billion fund that is to be used in “emergencies” to settle the affairs of failing financial institutions. This fund is virtually certain to be used for bailing out politically significant financial institutions, and is nothing less than a permanent TARP program. And, although Dodd argues that this fund will be financed by fees on financial firms, not taxpayers, the real cost will doubtless be passed on to American consumers.

    3. A powerful Financial Stability Oversight Council, made up of nine existing agencies, with power to “draft” financial institutions into a regulatory structure, and then to order any financial institution to break itself up, stop selling certain products, or even to go out of business. The bill would give the new regulator almost unlimited power, and is likely to stifle innovations and increase costs for consumers.

    This is the wrong approach to fixing our financial markets. Bigger government and pre-funded bailouts will not fix the system. Instead, the focus should be on establishing an effective bankruptcy system for large financial firms to allow failures to be addressed in the same way failure is addressed in other industries. Congress should go back to the drawing board to get this right.

    Co-authored by David John.

    Posted in Economics [slideshow_deploy]

    19 Responses to Senator Dodd and Financial Regulation: New Plan, Old Problems

    1. stirling, Pennsylvan says:

      I guess the same people who "broke" the system in the first place think that they can "fix" the problem this time. unfortuanately it's just perverting the captialist system to try to control something that can not be controlled. This has always been governments problem in the past. When the system works as it should people take risks, some win, some loose, and the system is unbiased in determining the outcome (when everyone plays by the same rules which government doesn't).

    2. Tenn Slim Tennessee says:

      Opine

      My Senator has cooperated extensively on this effort. Sen Dodd's last approach apparently hit the Conservative Wall.

      bt

      Heritage Foundation needs to publish more data on this. The SEC definetly needs adequate and forcefull oversight, w/o killing the goose.

      How to do it? We will have this problem as long as traders get commissions.

      end

      Semper Fi

    3. Linda, Dallas, Pa says:

      Our big government needs to shrink itself, shrink it's pay and benefits, and step aside, move out of the way and allow the free market solve this lands problems. Legislation of big business bankruptsy is a good start with the banking sector

    4. James L. Campbell (T says:

      The Senate Bill, read that Senator Dodd's bill, does not look at the fundamental problem with the financial system the lack of a check and balance wherein investment banking and commercial banking remained separate and apart as was mandated the legislation created in the depression era.

      A fundamental problem is not addressed; the fact that both commercial and investment bankers jump on bandwagons and ride them out to certain failure and then pull in their horns to further lengthen the economic damage that their own excesses have caused.

      A new TARP is not the answer, and new burocracies are certainly not the answer. More precise and objective regulation is a partial answer, logical guards against the excesses of bandwagin thinking would help but are hard to define and a process of establishing a plan for the orderly liquidation of institutions that are failing financially together with the protection of individual and commercial depositors as we have now are not a bad ideas, but bankers have to learn to beware or your institution will fail to exist,

      jlc

    5. Ron, Afton, OK says:

      Knowing Mr Dodd's background, you have to wonder what lobbying firm help draft this bill. I wonder what sweetheart deal he gets before he retires with all his real estate and his cash

    6. Drew Page, IL says:

      Why in the name of all things sane would anyone take advice on financial matter from a guy who oversaw the ruin of Fannie Mae and Freddie Mac? Why would we trust the integrity of someone who used his office to secure sweetheart loans from Countryside Financial and who also denied including bonus payments to AIG in the Stimulus bill, only to confess to it a couple of days after his original denial, claiming "the Treasury made me do it".

      Did you happen to notice there was no one standing beside him when he held his press conference to unveil his proposed legislation? If you are wondering why, reread the first paragraph above.

    7. Tim AZ says:

      They are simply building one more piece of the govt. network needed to successfully transition from a republic to socialist state. Once the capitalist system has been collapsed the people will give up everything for the smallest bit of false security. Why is it that people refuse to accept what is staring them directly in the eyes?

    8. Ben C. Ann Arbor, MI says:

      Drew, Once again I completely agree with your comments. My view is that government is the cause of most of our problems with "unintended consequences" of legistaltion. Business people are not stupid and will figure out ways to circumvent and the profit from rules, legislation and regulatory changes. Products are created such as "swap derivatives" and the like to make money. The Cap and Trade industry will be a gold mine and my guess is that investment bankers have already figured out ways to "work the system." But then the process is also job security in the minds of Congress – they grandstand with more legislation to fix their previous screwups.

    9. Richard Fletcher, Sa says:

      Sen. Dodge has seriously gone awry!

    10. Joseph Gerant, Boyne says:

      The National Socialists and the Communists all knew that control of the banking system is necessary to control a country. Chairman Mao and Marx both knew this is imperative to make their particular type of systems work.

    11. Bob Kip, Owego, New says:

      Another 1,500 page "law."

      Another agency.

      Another set rules and guidelines.

      Another group of experts and regulators.

      Another group of inspectors.

      Another budget.

      Another bank account.

      Another group of insiders.

      Don't they ever get tired of themselves?

    12. DM,Texas says:

      It is obvious the terrorists are in the White House and Congress to take us down financially. I long to hear the boots on the ground of a well armed military marching toward DC.

    13. Steve G says:

      The time has come for Americans to put down the remote or Xbox controller and get involved. If the Left will go to these lengths to ignore the will of those Americans who are informed and engaged, then they need to removed from office.

      I haven't found a better commentary on this entire health care debate than right here: http://rjmoeller.com/2010/03/battered-citizen-syn

    14. steve Cariati Slinge says:

      The Dems know thery have only 'til Nov 2010 to shove down the throats of the informed and un-informed American public all their "Government knows best" policies.

      First they reverse many of the Environmental policies via fiat-no public discussion, next they propose cap and trade and put out feelers and back off, now The Healthcare reform debaclewith all the lies being told again by Obama and his Dem cohorts, next this Dodd bill he proposes as his legacy before he retires and next Amnesty for 12million illegals so Obama can maybe get re-elcted in 2012.

      Wake up America. Next time you vote for Hope and Change better know what the" Change" is. And mainstream media-you did one heck of a job digging into Obamas background to find out his Communist friends, downplaying the good Reverend" G__D__m America", not dealing with his buddy the Bomber Bill Ayers and letting Mrs Obama get away with how mean America was to her while she had a couchy $300Kyear job at a Chicago Hospital.

      So now we have in charge of this country the furthest left Idealogues ever to sit in Government who hate America, consider our Military as Imperialists who kill civilians, prefer not to mention God in schools but put up with pregnant teens walking the halls, droopy drawers, filthy language directed at everyone including the Union teachers, all matter of scant dress for the young teen girls, highest pregnancy rates in history , but how dare you say a prayer or mention God or I'll get the 9th Circuit court of appeals after you. This group will tell us all that they know best, never mind what the people want.

      Well maybe those of us asleep are no longer going to just yawn. Maybe you have had enough and become more active politically in your town halls and cities and vot the Dems out this Nov. If not blame yourselves-or decide to take back America for the 50% of taxpayers in this nation that pay 97% of all taxes while the other half pay nothing-IRS figures not mine

    15. Kevin, North Carolin says:

      Why are Democrats so economically illiterate? If you look at their proposals over the course of decades, one common thread seems to be this idea that they can somehow selectively target the profit margin of businesses. You see it here with Dodd saying this program will be paid for by fees levied on the financial industry, and back when fuel costs spiked a few summers ago you heard this same lot demanding a "windfall tax" on the oil companies. Do they not understand one of the most basic axioms of business, that all costs to the business are paid by the consumers? I'm not surprised at this sort of thing from Democrat politicians, but I am always astounded by the number of people who fall for these claims. I guess we've gotten to the point where so much of the population is just accustomed to being net takers that they can't even conceptualize what it means to pay for things when these flowery words become law.

    16. Bonnie Jones, Bismar says:

      Looks like Dodd is setting up Obama's next campaign finance.

    17. CY,VENICE FLORIDA says:

      Please count the participants in this administration and congress who have

      had a real private business experience.

      They have been in power too long and its time to consider term limits for

      all in congress. I don't think our founders ever thought most of congress would

      live out their days for 40 – 50 year as career politicians. Maybe their pay is too

      high and their benefits should fit the national average. That would make them

      consider shorter terms themselves.

    18. CY,VENICE FLORIDA says:

      I THINK MOST POLITICIANS DO NOT HAVE PRIVATE INDUSTRY EXPERIENCE. ONLY ATTORNEYS FLOOD THE HALLS OF CONGRESS.

      WE SHOULD CONSIDER TERM LIMITS FOR CONGRESS OR MAKE THEIR

      WAGE AND BENEFITS THE NATIONAL NORM. THAT WOULD KEEP MOST

      OF THEM FROM CAREERING IN CONGRESS WITH ABSOLUTELY NO

      EXPERIENCE OUTSIDE THE BELTWAY. PAID OFF TO KEEP IN POWER WAS NEVER INTENDED FOR CONGRESS.

    19. Dick, Cincinnati, OH says:

      It is obvious that taxpayers, business owners and employees do not understand what motivates politicians. Simply, it is their perceptions of their own greatness. We build things, make widgets, grow businesses. So do politicians – but they build piles of bills, networks, relationships. However, they NEVER have to make payroll or a budget & they do it with your money!

      These articles demonstrate that it is their opportunity for greatness:

      1) The Washington Post article "How Obama revived his health-care bill" by Connolly, March 21, 2010

      2) http://en.wikipedia.org/wiki/Dennis_Kucinich – this guy ran for the Presidency!

      The control that we have is really the money that we enable them to control. So, take that away. Demand less government.

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