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As Washington lay blanketed in more than two feet of snow last month, lawmakers in the Senate were still busy trying to crank out a compromise bill on financial services reform. Senate Banking Committee Chairman Chris Dodd (D-Connecticut) held two rounds of hearings in early February on the recent proposals by the Obama Administration to rein in Wall Street banks, and during those hearings sent an urgent call to action on the need for financial services reform. Dodd said February 5 that he has instructed his staff to begin drafting legislation to bring to the Senate Banking Committee in late February.
Meanwhile, President Obama renewed his push to get healthcare reform back on track via a televised bipartisan discussion of healthcare that was scheduled for February 25.
Noting the impasse that he and Senator Richard Shelby (R-Alabama), ranking GOP member on the committee, had encountered, Dodd was quoted in published reports in mid-February as saying he will now work with Senator Bob Corker (R-Tennessee), a member of the Senate Banking Committee, to hammer out a compromise bill on financial services reform. During the first hearing he held in February on financial services reform, Dodd said that the issues he and Shelby and other members of the committee, "are grappling with are difficult, they are complicated, and they are terribly important. But we have been debating them for months--in fact, some of these issues we've been debating for years in this institution." But nearly two years after the collapse of Bear Stearns, he continued, "we still have not updated the laws governing our financial sector, leaving our fragile economy with the same vulnerabilities that led to the economic crisis in the first place."
Elizabeth Warren, the Harvard law professor and current chair of the TARP Congressional Oversight Panel--who would head the Consumer Financial Protection Agency (CFPA), which is a major sticking point in the Senate's reform debate--came out with both arms swinging recently in defense of the CFPA. In a February 8 Wall Street Journal OpEd, Warren railed against the big banks' attempt to quash the CFPA, and said the "latest lie" being told by big bank CEOs is that the CFPA is "big government." The CEOs, Warren said in the Journal opinion piece, "all know that the current regulatory structure, which they support, is big government at its worst: bureaucratic, unaccountable and ineffective. The CFPA will con,solidate seven separate bureaucracies, cut down on paperwork, and promote understandable consumer products. In the process, it will stabilize the industry, rebuild confidence in the securitization market, and leave more money in the pockets of families. Complaining about short, readable contracts and efforts to slim down bureaucracy only further diminishes the banks' credibility."
Meanwhile, in the House . . .
In reaction to Warren's Journal article, House Financial Services Chairman Barney Frank (D-Massachusetts) said he welcomed her "making a strong case for increased consumer protection in the financial industry." Frank went on to say that "no one familiar with the track record of the bank regulatory agencies with respect to protecting consumers can deny the need for an independent agency if we are going to have effective consumer protection. Bank regulators have traditionally treated their responsibilities for consumer protection as a second priority." Those, Frank continued, "who cite safety and soundness as a major reason to oppose increased consumer protection have it exactly backwards. In fact, the inability to protect consumers from abuse was a major cause of the financial crisis from which we are just emerging. Professor Warren importantly notes the example of Citigroup's unsuccessful and unilateral attempt to bring fairness to credit card practices. This experience demonstrates that competitive pressures will obstruct reform unless it is done by thoughtful legislation and regulation that applies to all."
Despite reports that Dodd would settle for a watered-down CFPA, Frank said Dodd's intention is "to fight to preserve an independent consumer agency, as we were able to do against the opposition of the financial industry in the House." Frank said the national debate on the CFPA would continue in the coming weeks.
Warren continued her crusade for the CFPA at the National Institute on Retirement Security's policy conference in Washington February 2, in which she told attendees that the CFPA was "essential" in protecting American families, which are "the front end of our economic system." She said the CFPA "would build a floor," and set in place easier-to-understand financial parameters like "two-page credit card and two-page mortgage" agreements. Warren said it was of utmost importance to "strengthen the middle class," stating that "we are not getting ahead on the mortgage foreclosure problem."
She listed a number of troubling statistics: one in eight mortgages is in default; one in nine Americans cannot pay their minimum credit card payment; one in eight Americans are on food stamps; and 120,000 families are filing for bankruptcy each month. "More debt and less saving is a catastrophe for the economy and the country," Warren said.
Washington Bureau Chief Melanie Waddell can be reached at email@example.com.