Andy Kroll

Andy Kroll

Senior Reporter

Andy Kroll is Mother Jones' Dark Money reporter. He is based in the DC bureau. His work has also appeared at the Wall Street Journal, the Detroit News, the Guardian, the American Prospect, and TomDispatch.com, where he's an associate editor. Email him at akroll (at) motherjones (dot) com. He tweets at @AndrewKroll.

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Former FDIC Chair Blasts Dodd

| Mon Mar. 15, 2010 2:12 PM PDT

Who better to turn to for perspective on Sen. Chris Dodd's new Wall Street overhaul than a top former regulator? That's what CNBC did this afternoon, inviting Bill Isaac, a former chairman of FDIC during the 1980s, to discuss Dodd's comprehensive new bill and its ramifications on our financial markets, consumer protections, and the like. What Isaac had to say was a blunt reality check on Dodd's new bill.

The former regulator, now the head of an international consulting firm, said flatly that there is "no significant financial reform in this bill." The root causes of our regulatory failures, Isaac said, reside in lackluster watchdogs like the Treasury Department, Federal Reserve, and the Securities and Exchange Commission. By expanding the Treasury and Fed's power and "ignoring" the SEC, Dodd's bill merely glosses over the institutional problems in need of serious repair, Isaac said. "This is not a serious financial reform proposal," he said. "Senator Dodd himself back in November put forward a much more sweeping reform of our regulatory system. Our regulatory system is broken. It needs a sweeping overhaul."

More Delay on Derivatives

| Mon Mar. 15, 2010 1:45 PM PDT

The big omission in Sen. Chris Dodd's long-awaited financial reform bill today is any substantive update on new regulation of derivatives, those tricky, opaque financial products that have caused such immense headaches. Derivatives, in a nutshell, are contracts whose value goes up or down based the price of an underlying entity, like a stock, bond, certain form of currency, or commodity (corn, oil, etc.). Right now, most derivatives are traded "over-the-counter," which means the trade takes place between a customer and a broker-dealer, and there's little to no information published about trading, so hundreds of billions of dollars in derivatives trades essentially take place in the dark.

What lawmakers and reforms want to do is move most of those trades onto a clearinghouse or exchange like the New York Stock Exchange. That would shed some light on who's trading with whom, how much the buyer bought, and how much the buyer paid. Sounds fair, right? The House's financial reform bill called for moving OTC derivatives trading onto exchanges, and Dodd's initial framework for financial reform released in November called for the same. However, negotiations between Sens. Jack Reed (D-RI) and Judd Gregg (R-NH), the two lawmakers tasked with crafting the Senate banking committee's derivatives overhaul, have yet to result in any new breakthrough, and the derivatives language in Dodd's plan announced today offers no new updates on where those negotiations might be headed.

Going forward, the key aspect of derivatives reform to watch is whether some senator throws in what's called an end-user loophole. End users are the companies—airline companies, utilities—who use derivatives for legitimate purposes, like hedging the price of oil so that if oil costs go up or down, those companies can plan on a consistent price level. It's basic risk management. Some lawmakers want to exempt these endusers because they're not using derivatives for speculative, gambling purposes. The problem is, an enduser loophole would ultimately exempt two-thirds of OTC derivatives trades—and a number of those exempted would trades by gambling banks, letting the people who need to be regulated slip by. It would be the exception that ate the rule, and it's a crucial part of the bill. How Sens. Reed and Gregg deal with it will be a telling sign of how serious they are about reining in these troublesome trades.

Dissecting Dodd's Wall Street Plan

| Mon Mar. 15, 2010 1:11 PM PDT

To much fanfare, Sen. Chris Dodd (D-Conn.) rolled out his new framework for a comprehensive bill to crack down on Wall Street and plug the holes in our patchwork of financial regulation. The bill, titled the Restoring American Financial Stability Act, would create, as anticipated, an independent Consumer Financial Protection Bureau housed in the Federal Reserve. It would also introduce a council of regulators to spot system-wide financial risk and tackle those problems and shine some light on the shadowy markets for financial products like derivatives, which draw their value from the price of commodities like corn and oil and are mostly unregulated. A breakdown of three main parts of the bill—consumer protection, a council of regulators, and unwinding failed big banks—is below. (There'll be more analysis of the bill the more we dig into it.)

In the press conference today, Dodd made his case for the need to overhaul the regulation of banks, mortgage lenders, broker-dealers, and everyone in between. "As I stand before you today, our regulatory structure, which was constructed in a piecemeal fashion over many decades, remains hopelessly inadequate," Dodd said. "There hasn’t been financial reform on the scale that I'm proposing this aftenoon since the 1930s." He added, "We are still vulnerable to another crisis...It is certainly time to act."

One of the most contentious parts of Dodd's bill, a new consumer protection agency, didn't look much different from descriptions that were leaked over the weekend. While housed in the Fed, Dodd's proposed consumer agency would have a director appointed by the president and confirmed by the Senate, and a budget paid for by the Federal Reserve Board but not controlled by the Fed. The consumer agency would be able to write, supervise, and enforce its own rules for banks, credit unions, and other institutions with more than $10 billion in assets. The agency would also create a new consumer hotline and an "Office of Financial Literacy" to educate consumers on financial issues.

The council of regulators Dodd has proposed, dubbed the Financial Stability Oversight Council, would bring together the heads of nine existing  regulators. The council would identify systemic risk when it occurs, and recommend that risky non-bank companies (read: subprime mortgage lenders) be supervised by the Fed. With a 2/3 vote, the council could make a too-big-to-fail bank divest some of its holdings to pose less of a threat to the financial markets should it fail, a la Lehman Brothers.

On the too-big-to-fail front, the Financial Stability Oversight Council would not only react to bloated and dangerous banks but would help to prevent banks from getting so big. The council would require regulators to enforce a "Volcker Rule," preventing federally insured banks from engaging in risky trading for their own benefit. This rule would also limit the kinds of relationships between insured banks and riskier hedge funds and private equity funds. Notable as well is the bill's plan to make the largest banks pay into a bailout fund that would grow to $50 billion in size; that fund would be used to liquidate failed banks, instead of asking taxpayers to bail them out.

GOP to Meet Dodd "Half Way"

| Mon Mar. 15, 2010 9:00 AM PDT

Sen. Chris Dodd (D-Conn.) may be flying solo today when he releases his own bill to rein in Wall Street, but a top GOP senator says he's willing to meet Dodd "at least half way" on a bipartisan financial reform bill. Sen. Richard Shelby (R-Ala.), the banking committee's ranking member, told CNBC a bipartisan deal could still be brokered between Dodd and Senate Republicans. Shelby, however, has also issued a warning to Dodd, the banking committee's chairman, against rushing the legislation through Congress. In a letter from Senate GOPers sent to Dodd on Friday, Republicans wrote that "proposed timetable will not allow members sufficient time to fully understand the details of [the] legislative proposal." Shelby similarly told CNBC that "we don't believe you can rush [a financial reform bill] through."

Shelby's olive branch marks the latest offer in a months-long power struggle between Dodd and Senate Republicans. Dodd had initially begun his negotiations earlier this year with Shelby as his main partner. Those talks soon hit an "impasse," and Dodd bumped Shelby for Sen. Bob Corker (R-Tenn.) as his new GOP dance partner. Last week, however, Dodd abruptly abandoned those talks—so near agreement were Dodd and Corker that the Tennessee senator said they were "at the five-yard line"—and announced he would be releasing his own version of financial reform today. Dodd's much-awaited press conference is at 2 pm today, and we'll have all the details of and reactions to Dodd's new bill here.

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