Financial reform badly needed to prevent another crisis was passed last year in the form of the Dodd-Frank bill, thanks to Democratic majorities in both Houses of Congress. But now that Republicans have won the Lower House they are dragging their feet in implementing these reforms. It appears to a be a strategy by financial lobbyist to essentially kill this reform.
As seen in this graph, as time progresses more of the amendments in the bill are stalled by regulators extending public comment periods on the rules, and as Wall Street lobbyists work their people in Congress to resist the changes. The hope here is that if these changes are dragged out long enough they can be killed by what financial interests hope is a takeover of the Senate by GOP candidates in 2012 while retaining their majority in the House.
Some of what is being opposed by Wall Street is regulation of derivatives; those financial instruments that were at the heart of the Great Recession in 2008 when the housing market collapsed from predatory lending practices by banks and then bundled as derivatives to unregulated financial institutions, like AIG. Also being battled by wealthy interests is a requirement by banks to retain more of the risk in certain home loans. The failure of many banks to have adequate capital to cover loan defaults was a central feature in the way derivatives were bought and sold. Louise Story’s report on this in the NY Times Business section goes into great detail about this failure to get rule changes implemented.
Michael Greenberger, a law professor at the University of Maryland and a former official at the Commodity Futures Trading Commission, which is in charge of writing batches of the rules strongly feels that “There’s an attempt to kill this through delay. The difference between eight or nine months and 24 months could be cataclysmic here,” Greenberger says.
Felix Salmon with Reuters Business opines, “Will these rules ever be promulgated in the kind of form envisaged in Dodd-Frank? Or will Dodd-Frank turn out to be a Utopian dream? The best we can hope for is the former, with the rules being put into place before the next crisis hits. But I fear the latter’s more likely, at this point. The urgency which underpinned Dodd-Frank has dissipated, and it’s not going to return until it’s too late.
It doesn’t take a Rocket Scientist to see the writing on the wall here and that the “invisible hand” of Corporate America is having its ways with those laws they like least but which serve the needs of everyday citizens best.