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Why Every Aspect of Dems' Handling of Wall St. Overhaul Seems Headed for Disaster

It's not just Dodd's collapse on the Consumer Protection Agency -- it's the whole financial reform enchilada.

For Senate Banking Committee Chairman Christopher Dodd, D-Conn., retirement probably can't come soon enough. After the latest round of compromises, capitulations and castrations of the Senate financial reform bill, it's looking increasingly clear that Dodd is simply no longer willing to fight for real reform, assuming he ever was to begin with.

Dodd's latest effort at creating a new Consumer Financial Protection Agency would render the regulator utterly powerless, but it's not the only issue Democrats appear willing to sacrifice to Wall Street campaign contributions. Right now, just about every other major element of the so-called Wall Street overhaul seems headed for disaster.


The drama currently swirling around the creation of a new Consumer Financial Protection Agency has captured the most public attention. With passionate support from progressives and widespread approval among the general public, the establishment of some kind of new consumer agency has been certain since President Barack Obama proposed it in June 2009. But the bank lobby and Republicans are fiercely opposed to creating a new agency that goes to bat for consumers, not bankers. Since June, we've been waiting to see whether Democrats had the spine to make sure the final agency would actually do something, or quietly gut reform with a barrage of loopholes.


What we need is a prominent, independent agency with its own budget and the ability to both write and enforce strong rules. In essence, Congress needs to take every consumer protection power the Federal Reserve currently wields, and give it to a new agency that won't ignore abuses in the name of bank profits. Sadly, in a misguided effort at bipartisan hand-holding, Dodd appears to have abandoned this vision.


Dodd actually offered two separate proposals in the past few days. Last week he suggested housing the new consumer agency—dubbed the Bureau of Financial Protection in Dodd's language—within the Treasury Department, where it would have to consult with other bank regulators before issuing rules. Treasury? The place that shoved trillions of dollars into Wall Street's rapacious mouth after it nearly over-leveraged itself into oblivion? We already know where Treasury stands in conflicts between bank balance sheets and the public.


But on Monday, Dodd managed to make his proposal even more ludicrous. Instead of Treasury, Dodd now wants to house the new consumer regulator at the Fed. That's right, the same Fed that refused to regulate subprime mortgages, credit card abuses, reckless commercial real estate speculation and just about every kind of arcane, non-transparent and speculative banking activity, that has wreaked havoc on the American economy over the past decade. We'd almost be better off with some rotating committee that pays rent to convene at the various different banks' headquarters.

If we're going to go the route of finding a home inside a home, at least go for the Department of Justice so fraud indictments can be made easier. But Dodd obviously is no longer interested in justice, at least where Wall Street is concerned. He'd even bar the new consumer agency from enforcing the rules it writes, allowing the same regulators who dropped the ball for 30 years to keep dropping it. The strongest rule in the world doesn't mean a thing if nobody will enforce it.

If Dodd moves ahead with a CFPA that can't enforce rules, he's given up on consumer-oriented reforms at the committee level, without even forcing Republicans to vote for a real bill on the Senate floor. There is simply no excuse for that. But the bungling of Wall Street reform goes far beyond CFPA. After the most expensive bailout in history, protecting our economy from reckless banking—consumer-related or otherwise—shouldn't be a partisan issue. Anybody who doesn't want to see trillions of taxpayer dollars dumped into the banking system again should be on board.