HR 4173, Financial Reform, Out of the House

(Cross Posted at New Deal 2.0, where I’ll be posting this week.)

As you may have heard, HR 4173, The Wall Street Reform and Consumer Protection Act of 2009, passed the House on Friday. It passed still containing a Consumer Financial Protection Agency, after a last minute amendment to replace the agency with a series of regulators failed. The Lynch Amendment (which we discussed here) passed. So a lot got done, especially when earlier this year it looked like Congress and the President were going to let is disappear from the agenda. So why am I depressed?

No Bipartisan Support. Call me naive, but I am shocked that not a single Republican voted for this bill. Not a single Republican. This is an area where recent events have shown us that new regulation is needed. Listening to the GOP leadership attack the bill in the House they seemed concerned with issues like, in the words of Rep. Neugebauer (R-Tx), a new “credit czar” at the CFPA. They were not protesting that the bill wasn’t going far enough. There are baseline regulations needed, from getting derivatives to clear, to having regulators with the ability to have special bankruptcy powers for certain types of financial institutions, that are explicitly supported by industry, an industry this this bill is supposed to regulate. That the GOP would be comfortable going into 2010 without these minor fixes in the pipeline for regulatory reform is shameful, and almost certainly means they’ll be completely unsupportive in the Senate as well.

Watered Down There are OTC exchange exemptions both at the user end and in the definition of the exchange that will let a significant portion of the market through. There’s no size limits on institutions. So much of the regulation will be done in house at financial companies – the living will won’t be put together by regulators, but by the institution, giving us a permanent regime of the uncontested “stress test” numbers from the Spring. Regulators will move Too Big To Fail firms across multiple categories of riskiness. Though I assume they won’t name those categories “AAA”, “AA”, etc., it’s a permanent regime of ratings methodology. There is a large amount of regulator discretion in how to monitor Too Big To Fail firms, which is almost always a bad thing. There’s little to prevent more speculation in short-term repo markets. This isn’t strong enough reform, and it leaves the door wide open for another repeat of the events we’ve just had.

Blue Dogs Dismantling The Blue Dogs dismantled the Consumer Financial Protection Agency – removing vanilla loans, flooring their authority below $80bn, allowing for pre-emption of increased state regulation and scrutiny in the name of smoothly running national banks. And even then it still barely passed an amendment attached that would dismantle it, with a vote of 208-223, with 33-democrats against. That’s nothing like a 60% margin that’ll be needed in the Senate. A simple measure to allow bankruptcy judges to ‘cramdown’ the value of a mortage in bankruptcy, a small measure in the scheme of things, was also voted down.

It’s ironic that for all the cooling that goes on there, Dodd’s bill in the Senate is significantly stronger. Tighter regulation, less loopholes and a better understanding of how the regulatory agencies need to adopt. Now that the Frank Bill made it out the door, it is likely that the Dodd bill will be made significantly weaker and/or take a back seat to HR 4173.

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7 Responses to HR 4173, Financial Reform, Out of the House

  1. gabe says:

    Blue Dogs- with friends like these…..

    Isn’t the real problem that voters that should care about CFPA are all much more gungho about “audit the Fed”, “stop destroying the dollar” and other fluff? I guess I still have a naive hope that populists can one day accept more wonkery, but that day isn’t here yet. Until then, vested interests win.

  2. Ted K says:

    Hey Mike, you’re a hero and positive force in society, per usual. Two sentences: Mike Konczal, the common American working man loves you. Melissa Bean and big “Financial Services Roundtable” go fuck yourselves with a broken muffler pipe.

  3. Ted K says:

    HEY PRESIDENT OBAMA–we still believe in you, many Americans have a lot of emotion and faith invested in you. Even you have a large amount of reserves, I said RESERVES (pun intended) in the American heart. A large amount of reserves in our heart for our new big cheese—–you can make some mistakes—don’t fail us ok??? That means playing hard ball with the banks, but at the same time fiscal responsibility. Does France or Italy have a black President?? NO. That is Americans GREAT GREAT pride. There’s a song titled “Come Rain or Shine”. That’s our feeling to you President Obama. We just ask that we sense you are doing your BEST

  4. Ted K says:

    We love you PRESIDENT OBAMA. Don’t get a big head OK????

  5. Ted K says:

    When did I stop wanting to be President??? When did I want stop wanting to be President???? “of getting one’s paws into a shitty slush fund, and we wallow in corruption like contented alligators.

  6. Pingback: links for 2009-12-15 « Nicholas Andersen

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