Financial Reform Already Takes A Hit
The Obama Administration has begun the agonizing process of scaling back their financial regulatory reform package to please bankers. This one's going to be so ugly I'll have trouble looking at how the sausage is made.
In a step toward overhauling the nation’s financial regulation, a senior Democrat on Wednesday announced a plan that preserved the core of the White House’s proposal for a new consumer financial protection agency, while jettisoning a smaller though symbolically significant provision that had posed political obstacles [...]
An Obama proposal that Mr. Frank rejected would have required banks and other financial services companies to offer so-called plain vanilla products, like 30-year fixed mortgages and low-interest, low-fee credit cards.
That proposal set off criticism by Democrats and Republicans, some with close ties to the banking industry, that it was the first step toward having government bureaucrats approve and disapprove an array of products.
At a hearing on Wednesday before the financial services committee, Treasury Secretary Timothy F. Geithner said: “There has been a lot of concern that if you invest the government with the ability to decide what’s appropriate here and there, that will lead to less competition and choice. The chairman’s proposals, which I’ve had a chance to read quickly, provide a better balance of choice and protection.”
Consumer groups are hanging their hats on the fact that the Consumer Financial Protection Agency hasn't been eliminated completely... yet. But Frank would exempt merchants, retailers, accountants, real estate brokers and IRA providers from any of its laws, and I would expect that list to grow. Banksters remain unconvinced that the CFPA needs to exist, and I'm fairly confident that they'll continue to advocate aggressively against it.
"We are pleased that a number of the issues we raised have been addressed," said Edward L. Yingling, president of the American Bankers Association. "At the same time, there are some very significant issues that still need to be addressed."
Among those issues, Yingling said, is that under the current proposal, states could go beyond the federal guidelines for consumer protection set by the new agency, an approach that financial firms say could lead to burdensome and conflicting regulation. A separate agency for consumer protection "still will have conflicts with the safety and soundness regulators," Yingling said. He and others also argue that the new regulator would be too powerful. "The agency still will have very, very broad, legislative-like powers. It can basically do anything it wants," he said. "We think that's a problem."
Also Tuesday, at an event outlining the chamber's objections to the CFPA, David Hirschmann, head of the organization's Center for Capital Markets, described the proposed new agency as an "overly broad, overly sweeping, big government solution."
It's good news that Frank pushed back hard against an alternate proposal floated by the Blue Dogs, but I fear we're seeing a slow walk toward something right in the wheelhouse of that alternative.
...Felix Salmon calls it the beginning of the end of meaningful reform:
There’s no good reason for this capitulation, except for the financial lobby has so effectively captured Congress that no reform would be able to get through with such a common-sense provision in place. This has nothing to do with the government “approving and disapproving a wide array of financial products”, it just says that anybody who wants to call themselves a bank should provide simple, basic banking products which aren’t prone to hidden fees and lucrative opacity. I fear that by the time Congress is done, the Consumer Financial Protection Agency won’t be able to protect consumers at all — and that’s assuming it’ll even exist.