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Yesterday was a singularly unimpressive day at the Wall Street reform conference committee, with concessions and industry giveaways galore.
It was not completely devoid of success. Despite being housed inside the Federal Reserve rather than as an independent agency, the Consumer Financial Protection Bureau retained its independent budget and somewhat independent rulemaking authority (the Office of the Comptroller of the Currency can pre-empt state consumer protection laws, and other regulators could still pre-empt some CFPB regulations if they find them to threaten “financial stability,”). It even picked up a couple extra areas of oversight; in particular, the CFPB will get to regulate payday lenders and “reverse mortgages,” which are often used by older Americans to get equity out of their homes (they are often abusive and predatory). Several other decent provisions on mortgage brokers, including banning yield spread premiums (steering customers into more expensive loans for a commission) and “liar loans” (no-documentation mortages), survived. As an anti-predatory lending bill, this is a pretty good one.
But the CFPB will not be allowed to oversee auto dealers. Despite supposed strong opposition from the White House, the House inserted their auto dealer exemption into the legislation and the Senate failed to take it out. Luis Gutierrez (D-IL) tried to at least get the FTC as the main regulator of auto dealers (which is I believe currently the case), with the CFPB as a backup regulator, but that effort failed 10-9, with Democrats Dennis Moore (KS), Gary Peters (MI) and Mary Jo Kilroy (OH) voting with the Republicans to keep the loophole. The Senate tried to insert the FTC authority as well as subjecting auto dealers to the Truth In Lending Act, but the final outcome has not yet been decided.
Tom Harkin’s ominously bad annuities amendment, setting the precedent of exempting insurance industry products from oversight (not like AIG ever did anything to cause a financial collapse), passed despite not being in the House or Senate bills.
Chris Dodd personally killed a House offer that mortgage lenders carry 5% risk from mortgage-backed securities they package and send away, putting skin into the game of securitization.
Tim Johnson took the legs out from the “fiduciary duty” measure.
The amendment, offered by Sen. Tim Johnson (D-S.D.), undercuts a move to compel brokers — middlemen between buyers and sellers of securities — to act in the best interests of their clients, in accordance with what is known as their fiduciary duty.
Investment advisers are bound by this legal obligation, yet brokers who perform the same function in the employ of big Wall Street firms like Goldman Sachs are not. Forcing broker-dealers to act in the best interests of retail investors would not only protect them from Wall Street’s worst impulses; it would level the playing field [...]
But Johnson’s amendment, passed on a voice vote, goes beyond the original simple study the Senate called for last month.
Instead, his provision mandates that the SEC can only extend this protection to average investors if its study finds that previously-identified “gaps, shortcomings, or overlap [in the legal or regulatory standards in the protection of retail customers] cannot be addressed through disclosure, anti-fraud, conflicts of interest, or other standards of conduct for brokers, dealers, investment advisers, persons associated with brokers or dealers, and persons associated with investment advisers that may be promulgated by the [SEC] or adopted by national securities associations.”
Put another way, the SEC’s study has to conclude that essentially every other imaginable method cannot protect investors before it can mandate that Wall Street broker-dealers act in their clients’ best interests.
So far, the amendment regulating debit-card interchange fees is intact, but Chuck Schumer, who I think is only on the conference committee to deal with this single issue, keeps trying to get Republicans to offer an amendment weakening it and give him a hands-free way to gut the reform.
On other major issues still awaiting resolution, the trends are all bad, except for the fact that Gary Ackerman’s ridiculous “New York Democrats, form a human shield around the bankers” initiative looks doomed. The Volcker rule will probably face scrutiny today, and while Chris Dodd claims to be working to “stiffen” it, but it’s likely that the rule will end up giving an exemption to banks’ asset-management arms to make investments in private equity and hedge funds, in a nod to Scott Brown (R-MA). The Lincoln derivatives title and Section 716 remain up in the air, probably to be decided Thursday. And Susan Collins’ capital requirements amendment may get in the bill just to keep her aboard for cloture, but Dodd wants to phase it in over five years. Phase-ins and studies have been the means to delay and divert anything substantive in the bill.
For some unexplained reason, the conference committee has to finish this week. All the better to weaken dozens of proposals in the blink of an eye.
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About FDL News Desk
I’m shocked, shocked I say!
Who could ever have predicted?
Memo to the American House of Lords:
While you’re helping your friends disable the alarm system
and steal the jewelry, the house is burning down.
New Home Sales collapse to Record Low in May
and this
The financial reform is an oxymoron with this Congress and this Administration. This has always been about business as usual, and that is what we are seeing. Dumping the CFPB at the Fed is one way of stifling it. The preemption clauses, Melissa Bean’s work, are another. They allow the CFPB to be used to actually weaken consumer protections. So I would say that the CFPB has been thoroughly emasculated.
The Harking amendment just shows what a charade the reconciliation process is. We are told that good stuff can’t be inserted into the bill because it wasn’t in either the House or Senate versions, but noxious stuff? no problem.
The Volcker rule is far less important because traders can do end runs around it so easily.
As for 716, it is worthwhile only if the derivative trading desks are truly spun off into separate, independent entities. If they are allowed to be subsidiaries of the parent holding company, then this is only a change on paper.
People don’t like to admit it but our government has been thoroughly corrupted. As a result, we are unable to meet the challenges that face us as a nation. Here is how to turn the country around!
1. Fair Elections Now Act (S. 752 and H.R. 1826) – public funding of federal elections.
2. The Bipartisan Tax Fairness and Simplification Act of 2010 – (Change the top tax bracket to 50% instead of 35% to pay down the deficit).
3. Financial Regulation – end Too Big To Fail, go back to Glass-Steagall, reign in the derivatives market.
4. End Both Wars – Reduce deficit by $1 trillion over 10 years by shrinking defense budget.
5. Reduce The Deficit – SERIOUSLY means test Medicare and Social Security.
6. Education Reform – fully fund Race To The Top
7. National Infrastructure Bank – to create jobs now and increase productivity later. Run by engineers, not politicians. Sell bonds to finance.
8. Bold Energy & Climate Change Legislation – put a heavy price on carbon and initiate Pickens Plan to create jobs now.
9. Immigration Reform – create path to citizenship for illegal aliens.
10. Health Care Reform – add the public option. Allow Medicare to purchase drugs. Allow drug re-importation.
11. A Healthy Society – federal government mandate the removal of ALL food and drinks of high caloric content in any school receiving federal aid.
new york has an unemployment rate of 8.3%. nearly 2 million new yorkers are out of work.
As atrios said yesterday, linking here congress needs to learn how to read a poll.
Despite some people’s rosey predictions, if the unemployed are left behind, there will be hell to pay.
Apologies if this is common knowledge around here but I just read this today:
“The White House is intervening at the last minute to come to the defense of multinational corporations in the unfolding conference committee negotiations over Wall Street reform.
A measure that had been generally agreed to by both the House and Senate, which would have affirmed the SEC’s authority to allow investors to have proxy access to the corporate decision-making process, was stripped by the Senate in conference committee votes on Wednesday and Thursday. Five sources with knowledge of the situation said the White House pushed for the measure to be stripped at the behest of the Business Roundtable. The sources — congressional aides as well as outside advocates — requested anonymity for fear of White House reprisal.”
http://www.huffingtonpost.com/2010/06/17/white-house-guts-reform-t_n_615952.html
Obama is corporate – not left leaning – just pretended to be on the left so as to get past that center left Hillary who dared to be NOT TOTALLY anti-corporate via a DLC membership – Obama is so much further right than the DLC he should have run as GOP.
Meanwhile the Senate Banking Committee’s new – if Democratic controlled – chairman will be none other than Tim Johnson, the fellow that gutted the idea of duty to investors for brokers.
Deficit reduction via making seniors welfare takers – ending Social Security as a paid for by prior taxes entitlement?
No No No No No
Social Security is already progressive via its benefit formula – your idea is a GOP wet dream – we must kill the “Means Test Seniors” idea for deficit reduction.
Oh, and let us not forget Chris Dodd’s yeoman’s work in enabling corporate execs to steal all the money, since ‘shareholders’ will have less power to seek answers about corporate policies, priorities, management structures, and compensation.
If Congress were deliberately setting out to gut capitalism at the behest of GS and other interests, I don’t see how they could have done a finer job, given the ‘tea leaves’ that I’ve been able to spot on my Innertoobz forays.
The oligarchs have won this round.
But can the system sustain them?
Short term greedy is long term stupid.
I am getting my pitchfork before they are sold out. Oh! Wait! There is no hurry because most of the people are consuming the shit that comes out of the family propaganda box.
In short, we are fucked.