Dems Repeat Their Failed Health Care Strategy and Preemptively Surrender on Plan to Protect Consumers

A "doom loop." That's what Andy Haldane, executive director of financial stability for the Bank of England, warned last fall would happen if serious financial reform wasn't enacted.

Well, we appear to be a step closer to that "doom loop" with the leak this weekend of Senate Banking Committee Chairman Chris Dodd's plan for a seriously watered-down consumer financial protection agency. [Update: The latest compromise proposal being floated by Senate Banking chairman Chris Dodd now has the agency being housed within the Federal Reserve. An earlier "compromise" would have placed it in the Treasury Department. The end result is the same: a toothless regulator lacking the authority to enforce the consumer protection rules it writes.]

Back in June, President Obama released a proposal calling for the creation of a Consumer Financial Protection Agency that would be "independent," with "broad authority" and the power to "combat the worst abuses in mortgage markets." The agency, Treasury Secretary Tim Geithner said, would "have an independent seat at the table in our financial regulatory system."

Well, that was before the banking lobby went into action. A couple of hundred million dollars later, and we're left with this punch-to-the-gut of reform, from the top-line summary of Dodd's plan: "the independent agency proposal would be dropped." Seven words dirtier than George Carlin ever uttered.

Instead, according to the Dodd plan, the agency would be housed within the Treasury Department and called the Bureau of Financial Protection. And that's not the only compromise. Here's how the eviscerated entity would work, as laid out by HuffPost's Ryan Grim:

Each time the agency wanted to write a rule, it would have to consult with bank regulators. The agency would then have to respond to the objections of each and every bank regulator in the Federal Register. If the bank regulator was still unsatisfied, it could appeal to the 'systemic regulator,' whose mission is to protect the safety and soundness of the banking industry.

Anytime a new rule is proposed, bank lobbyists argue that it will be burdensome and make the system less safe and sound. If the systemic regulator agreed with the banks -- as they often do -- then the consumer protection rule would be voided.

Notably, the consumer protection agency has no veto power over any rules issued by bank regulators, which demonstrates which regulator will be superior. The first concern is the banks.

So much for "independence" and "broad authority."

The proposal will no doubt be very popular with the banks that, as Sen. Dick Durbin put it, "own the place." But it's already been met with criticism from consumer groups.

"Effective reform is once again being blocked by opposition from the big banks that caused the current financial crisis, " said Heather Booth, director of Americans for Financial Reform. "The revised proposal does not provide what is needed to protect American families or the financial system as a whole."

This view was seconded by Nancy Zirkin of the Leadership Conference on Civil and Human Rights: "Big banks and abusive lenders fought responsible regulation before the crisis, and we are all paying the price. It is unacceptable for Congress to allow them to succeed again," she said.

But, then, we seem to be living in a time when the unacceptable is routinely accepted -- and written off as unavoidable.

On Saturday, Dodd told Bloomberg Television's Al Hunt that he prefers an independent agency, but said it might not be possible to reach the 60 votes needed to break the inevitable Republican filibuster.

Maybe so. But how about at least trying before waving the white flag? Instead, Dodd, in the hope of attracting Republican votes, appears to have preemptively surrendered. But there's no evidence that Dodd's concession has achieved anything other than kneecapping the bill. Democrats have mastered the art of negotiating against themselves.