Over Three Years After Dodd-Frank, Reforms Happen Slowly

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On July 21, 2010, President Obama signed into law the Wall Street Reform and Consumer Protection Act, commonly known as the Dodd-Frank bill. Reporter Gary Rivlin says "the passage of Dodd-Frank was something of a miracle. Despite 3,000 lobbyists, that's six, nearly six lobbyists for every miracle of Congress, the bill passed, and it was actually a pretty strong bill." But to the chief lobbyist for the Financial Services Roundtable, a lobbying group that represents 100 of the country's largest financial institutions, it was just "halftime."

Rivlin is an investigative reporting fellow at The Nation Institute. In his article "How Wall Street Defanged Dodd-Frank," he tells the story of what he calls the fight that has taken place "in the back rooms of the bureaucracy.

....Goldman Sachs had 31 meetings in the first five months. Morgan Stanley had 20 meetings within the first five months. But then you look at the consumer advocacy groups, you know, you add them all up, they didn't have 10 meetings. And so again there's just this imbalance of power....there's an inequity in the process given the inequity in people on either side of the fight. He tells Fresh Air's Dave Davies,

"You've got regulatory lawyers and lobbyists doing hand-to-hand combat over every comma, every clause in the rule-making process. And then finally if a rule makes it, if in fact it's put into law, then you've got the legal challenge." Rivlin reports that the financial industry has spent more than $1 billion on hundreds of lobbyists who have been working to chip away at Dodd-Frank in the three years since its passage.

"....anyone's invited to write a comments letter. And, you know, it makes sense. OK, the federal bureaucracy is about to create a rule. Let's hear from people just in case they didn't consider some unintended consequences.
But ...it provides another opportunity for industry to really gum up the works. So [there are]one million pages of comments letters, just about derivatives reform, just about this one piece of Dodd-Frank....39,000 comments letters. Some of them run 300 pages.
And, you know, I asked, you know, well how many of these have you read? And he said, well, I've read a lot of them. And I said, well, are they making serious points? And he goes: Every once in a while. But for the most part, he feels like they are being written and published just to slow things down because there's federal laws that say that you can't just treat one of these letters like a comments box, let's empty it out every once in a while and throw it in the trash. You need to document every issue brought up and analyze who's saying what.

It's a long and arduous process that just adds months and months," Rivlin says, "and so even though we're nearly three years out from Dodd-Frank, of those 398 rules requiring action by a regulator, only about 148 of them ... have been finalized, in large part because we've created a process in Washington that has openness and fairness. But if you have mighty forces that have these battalions, they're able to really choke the process and slow it down."

...[But] there's plenty of progress. I mean, [the] agency has implemented 40 of the 60 rules that they were told to create. So there's been huge steps. As you say, the big banks are registering to sell derivatives. They're starting to share the pricing. But until they finish writing the rules, there's no market. There's no equivalent of a stock market to trade them on.
And so there's something of an all-or-nothing element to this, and they're well on their way, but the big worry that consumer advocates have, those who believe in derivatives reform have, is that there's the potential still for these huge loopholes to be written into Dodd-Frank. Just to choose one huge one, cross-border regulation. You know, what do you do with the foreign subsidiaries of a U.S.-based bank.

....And you know, it's too early to render a verdict, but you know, over two years into its existence, consumer advocates in Washington are very pleased with the Consumer Financial Protection Bureau. They've made some rulings that have made folks happy around credit cards and mortgages. They are starting to take actions, or at least they're indicating that they're going to take action on some other abusive products. So, so far so good.

[But], as Davies asks Rivlin, "Is the financial system any less vulnerable to a crash than it was in 2008?"
Rivlin's answer is "No."

KRUGMAN: Consumer Financial Protection Bureau

PAUL KRUGMAN NY TIMES

Like many advocates of financial reform, I was a bit disappointed in the bill that finally emerged. Dodd-Frank gave regulators the power to rein in many financial excesses; but it was and is less clear that future regulators will use that power. As history shows, the financial industry’s wealth and influence can all too easily turn those who are supposed to serve as watchdogs into lap dogs instead.

There was, however, one piece of the reform that was a shining example of how to do it right: the creation of a Consumer Financial Protection Bureau, a stand-alone agency with its own funding, charged with protecting consumers against financial fraud and abuse. And sure enough, Senate Republicans are going all out in an attempt to kill that bureau.

Why is consumer financial protection necessary? Because fraud and abuse happen.

Don’t say that educated and informed consumers can take care of themselves. For one thing, not all consumers are educated and informed. Edward Gramlich, the Federal Reserve official who warned in vain about the dangers of subprime, famously asked, “Why are the most risky loan products sold to the least sophisticated borrowers?” He went on, “The question answers itself — the least sophisticated borrowers are probably duped into taking these products.”

And even well-educated adults can have a hard time understanding the risks and payoffs associated with financial deals — a fact of which shady operators are all too aware. To take an area in which the bureau has already done excellent work, how many of us know what’s actually in our credit-card contracts?

Now, you might be tempted to say that while we need protection against financial fraud, there’s no need to create another bureaucracy. Why not leave it up to the regulators we already have? The answer is that existing regulatory agencies are basically concerned with bolstering the banks; as a practical, cultural matter they will always put consumer protection on the back burner — just as they did when they ignored Mr. Gramlich’s warnings about subprime.

So the consumer protection bureau serves a vital function. But as I said, Senate Republicans are trying to kill it.

How can they do that, when the reform is already law and Democrats hold a Senate majority? Here as elsewhere, they’re turning to extortion — threatening to filibuster the appointment of Richard Cordray, the bureau’s acting head, and thereby leave the bureau unable to function. Mr. Cordray, whose work has drawn praise even from the bankers, is clearly not the issue. Instead, it’s an open attempt to use raw obstructionism to overturn the law.

What Republicans are demanding, basically, is that the protection bureau lose its independence. They want its actions subjected to a veto by other, bank-centered financial regulators, ensuring that consumers will once again be neglected, and they also want to take away its guaranteed funding, opening it to interest-group pressure. These changes would make the agency more or less worthless — but that, of course, is the point.

How can the G.O.P. be so determined to make America safe for financial fraud, with the 2008 crisis still so fresh in our memory? In part it’s because Republicans are deep in denial about what actually happened to our financial system and economy. On the right, it’s now complete orthodoxy that do-gooder liberals, especially former Representative Barney Frank, somehow caused the financial disaster by forcing helpless bankers to lend to Those People.

In reality, this is a nonsense story that has been extensively refuted; I’ve always been struck in particular by the notion that a Congressional Democrat, holding office at a time when Republicans ruled the House with an iron fist, somehow had the mystical power to distort our whole banking system. But it’s a story conservatives much prefer to the awkward reality that their faith in the perfection of free markets was proved false.

 

And as always, you should follow the money. Historically, the financial sector has given a lot of money to both parties, with only a modest Republican lean. In the last election, however, it went all in for Republicans, giving them more than twice as much as it gave to Democrats (and favoring Mitt Romney over the president almost three to one). All this money wasn’t enough to buy an election — but it was, arguably, enough to buy a major political party.

Right now, all the media focus is on the obvious hot issues — immigration, guns, the sequester, and so on. But let’s try not to let this one fall through the cracks: just four years after runaway bankers brought the world economy to its knees, Senate Republicans are using every means at their disposal, violating all the usual norms of politics in the process, in an attempt to give the bankers a chance to do it all over again.