Larry Lindsey on Financial Regulation
Resolution Authority is not the only potential problem with the Dodd bill.
5:02 PM, Apr 19, 2010 • By MATTHEW CONTINETTI
The debate over financial reform has devolved with record speed. As the two parties argue over which is more pro-Wall Street, the actual substance of the Senate legislation, aka the Dodd bill, has remained in the background. Maybe this isn't surprising, since the issue is so complex and no one really knows what's going on. Correction, Larry Lindsey knows what's going on, and he's written an analysis of the Dodd bill you ought to read.
As the debate has unfurled, Republicans have trained their fire on the $50 billion fund to pay off the creditors of insolvent financial institutions during the "resolution process." The White House is signaling that the fund is negotiable, so it may end up on the cutting room floor. But Lindsey points out the various other aspects of the Dodd bill that deserve your immediate and full attention. They include:
1. The derivatives language is all encompassing: "It is important to note that some over the counter derivatives transactions, like corporate bond transactions, can be cleared safely while others are appropriately done bilaterally."
2. There's no congressional review of the process by which the Volcker Rule might be imposed.
3. "The 1408 pages also contain lots of one-off benefits to politically powerful groups. Labor gets “Proxy Access” to bring its agenda items before shareholders as well as annual “say on pay” for executives. Consumer activists get a brand new agency funded directly out of the seignorage the Fed earns. No oversight by the Federal Reserve Board or by the Congress on how the money is spent. This is the first known Congressional raid on Fed cash flow to fund projects without oversight."
Say what you will about TARP, at least Congress had to take an up-or-down vote on it. The Dodd bill, on the other hand, transfers authority away from Congress and gives it to unelected regulatory agencies, financial councils, and the Federal Reserve. None of which has a sterling record when it comes to anticipating and preventing financial crises.