Bank Reform May Be Short The Votes It Needs

The healthcare reform package, the centerpiece of the Obama presidency, never made it though Congress, at least not in the form the President would have liked. It will still struggle to be passed in any form. The legislation is now hung up in the House and the House and Senate bills are quite different from one another. Those differences could still scuttle the entire process.

Senator Dodd spoke about his massive financial reform package as it were already law. His plan sets up a consumer protection agency and castrates the banks to keep them from proprietary trading in some cases. That would change the financial services industry enough to ruin the most profitable businesses of  many investment firms.

But, the odds against Dodd’s dream are fairly high. It was only a few weeks ago that obstreperous Tennessee Senator Jim Bunning held up the jobs bill for days. There will be members of Congress who are passionate about what they perceive as problems with the bank reform program and that will make it hard to get the legislation through both chambers with ease.

Dodd’s plan assumes a greater role in financial system and consumer protection oversight by the Treasury and Federal Reserve. Some lawmakers will object to this and the resistance may be spear-headed by Congressman Ron Paul who would like to see the Fed dismantled and its power distributed among other agencies.

The Fed and Treasury are still viewed by many members of Congress, and many voters, as causes and not solutions to the credit crisis of 2008. The case that the Treasury Secretary and head of the Fed saved the US and perhaps much of the rest of the world from a financial meltdown is not universally accepted. Some members of Congress want to know where the Fed and Treasury were when investment banks began to create, trade, and sell complex derivative instruments. The new report on Lehman Brothers raises the issue of how such a large institution could “hide” assets in a way that probably accelerate the firm’s collapse.

Dodd has adopted a plan that puts the power of regulating an immensely complicated system into a few hands. There is a school of thought, which will have vocal advocates, that regulation should be spread among more agencies which have greater expertise in aspects of the financial world. The SEC and FDIC would certainly be on the list.

Dodd’s mammoth ambitions may repel other members of Congress and that may be his undoing.

Douglas A. McIntyre