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 Guardian, Men's Journal, the American Prospect, and TomDispatch.com, where he's an associate editor. Email him at akroll (at) motherjones (dot) com. He tweets at @AndyKroll.

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Dissecting Dodd's Wall Street Plan

| Mon Mar. 15, 2010 3:11 PM EDT

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.

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GOP to Meet Dodd "Half Way"

| Mon Mar. 15, 2010 11:00 AM EDT

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.

Dodd Bill = GOP Wall St. Bill?

| Fri Mar. 12, 2010 12:34 PM EST

Mike Konczal makes an intriguing—and troubling—point about how much Sen. Chris Dodd's potential financial reform bill could end up resembling the House GOP's little known financial bill from last year. Case in point: a new consumer protection agency.

The House GOP's bill envisioned a watered-down Office of Consumer Protection placed within a new consolidated regulator called the Financial Institutions Regulator. The OCP would have to jump through a number of hoops to pass new consumer-related rules, would create a new consumer protection hotline, and would report to Congress on consumer-related issues. And in a sign of the OCP's insignificance, its leader would be handpicked by the heads of existing regulators, like John Dugan of the Office of the Comptroller of the Currency and Sheila Bair of the FDIC. The likenesses between the GOP's consumer plan and Dodd's—which would put a regulator within the Fed or Treasury—are striking, Mike says:

Someone in the basement of a more senior regulator, who will need the permission of the banking regulators to do anything, and whose actions will entirely be subject to their review. Actually I’m not sure if the Senate bill will be this strong—nobody has mentioned having a dedicated hotline in the Senate bill.

Now, to be fair, Dodd says he's going to push hard for an "independent" consumer agency—one that might be housed in the Fed or Treasury but would have a presidentially appointed leader, independent budget, and rulewriting and enforcement power. If that's the case, then that's a significant difference between Dodd and the House GOP.

Mike adds that the bankruptcy code changes suggested by the GOP sound an awful lot like those leaked out of the Senate's talks, as does the (lack of) derivatives reforms. Ultimately, we have to wait until Monday to see how much Dodd's bill looks like the House GOP's. But if, come next week, it does, we're in for a war if and when the Senate and House, who passed a relatively tough bill in December, try to merge their two financial reform bills later this year.

The Foreclosure Shadow Market Grows

| Fri Mar. 12, 2010 11:26 AM EST

It's called the housing industry's "shadow market": those houses where the owner has defaulted on their mortgage but is in mortgage limbo because foreclosure proceedings have yet to begin. Right now, that shadow market looms large. More homeowners are falling behind on their payments but banks, lenders, and servicers are so backlogged and buried in paperwork that essentially they can't foreclose on people fast enough. As the Washington Post points out today, 5 to 7 million are eligible for foreclosure but haven't been taken back by lenders yet. The takeaway here? Despite what you've heard to the contrary, new waves of foreclosures are on the horizon, and the housing industry's quagmire—yes, it's still a quagmire—has a long way to go before getting back to even keel.

Clearing out that shadowy backlog, economists say, could take almost three years. So, on the ground, what you're left with is millions of homeowners living for free in their homes—they're not paying their mortgage because they lost their job or had their hours scaled way back, but they're not being foreclosed on, either. Soon to join that army of homeowners are the record-setting 11 million more people who are "underwater," i.e., they owe more than their home is worth. These people are at risk of falling behind on their payments, too. And if they default, that shadow market will only grow, prolonging the housing mess.

From a economic standpoint, as Dean Baker says, the Post's article is kind of a no-brainer. Think basic economics: The housing bubble inflated demand for building new houses, all those house-in-a-box subdivisions started popping up, then when the market collapsed what's left is a huge oversupply of houses. At this point, home prices are still dropping, and one factor pushing those prices down is new bursts of foreclosures. It also means that talks of the housing market "turning the corner" are most likely unfounded. In reality, the light at the tunnel's end is a long way off.

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