In today's New York Times, John Taylor, president and CEO of the National Community Reinvestment Coalition, blasts the latest iteration of a consumer-protection agency to emerge from the Senate banking committee's closed-door financial-reform negotiations—namely, a consumer agency housed within the Fed. A vocal critic of the Fed for its failure to police banks under its purview and for its utter lack of regard for protecting consumers, Taylor had this to say when asked where he'd rather see a consumer-protection agency housed:
I'd take the National Zoo over these guys. This is a place to bury it, or at least make it ineffective.
Larry Summers, the top economic aide and somewhat mercurial adviser to President Obama, told leading US business leaders in a speech in New York yesterday to accept the bitter pill of financial reform. "A strong government (that) responds to market failures, provides social protection regulates potential abuses and supports economic conditions is undeniably in the long-run interest of business, he told audience members.
Summers' speech comes as the Senate banking committee, led by Sen. Chris Dodd (D-Conn.), is trying to reach an agreement on a bipartisan financial-reform bill. The Obama administration has of late deployed some of its top financial officials—Treasury Assistant Secretary Michael Barr, even President Obama himself—to drum up support in the financial-services community for Congress' proposed crackdown on financial products, the housing markets, and mortgage lenders, while also bolstering consumer protections—a major sticking point for lawmakers in Washington.
Here's a few other highlights from Reuters' report on Summers' stump speech yesterday:
While Summers said he understood business antipathy, "history teaches us that active government is a necessary force," he added.
To make his point, Summers suggested that few, if any, major financial institutions would have survived without the emergency liquidity offered by the government.
It was just 18 months ago that leading companies were reduced to borrowing money overnight because they were unable to borrow for a week, he said. The nine financial institutions benefited by the U.S. bailout fund today have a combined market value approaching $1 trillion, he said.
On comprehensive financial reform, he said "On one level, it's mind numbingly complex. On another, it's not that hard."
Sen. Chris Dodd's leaked proposal to potentially house a consumer-protection agency within the Federal Reserve has been blasted by consumer advocates today. They say the Fed failed to protect consumers from predatory lending and hidden penalties in the run-up to the financial meltdown, and hardly deserves to have an agency tasked with building and enforcing safeguards for consumers under its auspices. "The Federal Reserve is the last place an agency designed to protect consumers should be housed," said John Taylor, the head of the National Community Reinvestment Coalition, in a statement today. "It will be more waste of taxpayers' money because we’ll have to pay for the appearance of protection without getting any." Taylor goes on to say:
As early as 1998 and 1999, we urged Chairman Greenspan and then later Chairman Bernanke to take action against lenders targeting high cost loans to blacks and Hispanics. We presented them hard, cold data backing up these practices, and they did nothing. They refused to send cases to the Justice Department. It took the Federal Reserve board fourteen years to issue rules related to unfair and deceptive lending practices. This was long after the power was granted to them in 1994, and long after we pleaded and cajoled them to do something and, more importantly, after the market collapsed.
Had the Fed exercised their authority and enforced consumer protections, they could have nipped the foreclosure crisis in the bud. Now to turn over consumer protections to the very people who allowed the abuses to happen in the first place is simply beyond belief.
Similarly, Travis Plunkett, legislative director at the Consumer Federation of America, decried yesterday the powerful sway of the financial services industry and their lobbyists on Capitol Hill. It's these forces, Plunkett told the New York Times, that were diluting financial reforms proposed in the Senate—like an independent consumer protection agency—and weakening reform of big banks, mortgage lenders, payday lenders, and so on. "The financial services lobby and particularly the big banks are driving the agenda right now," Plunkett told the Times. "They are the ones gaining ground. Their strategy is clear: death by a thousand cuts."
After saying last fall that the Federal Reserve had been "an abysmal failure" in its role protecting consumers, Sen. Chris Dodd (D-Conn.), in the latest twist in the Senate's financial-reform talks, now wants to put the well-being of consumers in the hands of the Federal Reserve, proposing to house a consumer-protection agency within the opaque Fed. The head of this hypothetical consumer agency would be appointed by the White House, according to the Washington Post, and while the agency would have rule-making powers, it would be up to existing regulators to enforce those consumer-oriented rules. It's unclear who'd win out in a power struggle between this Fed-housed consumer agency and other banking regulators, and whether the hypothetical consumer agency's jurisdiction would include certain non-banking institutions. But if there's one thing to take away from this latest leak from Senate's financial-reform negotiations, led by Dodd and Sen. Bob Corker (R-Tenn.), it's this: Dodd's not taking the high road, and appears willing to appease Republicans to almost any length if it helps him gets a bill passed.
This is the same Chris Dodd, you'll remember, who lambasted the Fed last year for its regulatory failures in the run-up to the crisis. In November, Dodd wanted to strip the Fed of practically all of its oversight power, creating a superregulator for financial institutions and leaving the Fed only to deal with monetary policy. And before that Dodd had generally opposed expanding the Fed's power at all, instead supporting the idea of an independent consumer protection agency. Meanwhile, Dodd's main Republican counterpart on the Senate banking committee, Sen. Richard Shelby (R-Ala.), has been an even more boisterous opponent of the Fed on numerous occasions: He's cited the Fed's "history of failure in supervision and regulation" and opposed the renomination of Fed chairman Ben Bernanke, who "fiddled while our markets burned," as Shelby put it.
Undoubtedly, the source of the Fed consumer-protection plan is Corker, the main Republican negotiator on financial reform since Shelby abandoned the talks in mid-February. But is the support of a single Republican senator enough to garner bipartisan backing for handing consumer protection off to the Fed? Or as one Senate aide familiar with the negotiations told Mother Jones recently, "Those who are arguing for real reform are arguing, 'Why even compromise if they're going to oppose it anyway? Why are you negotiating against yourself?'"
Rep. Barney Frank (D-Mass.), chair of the powerful House financial services committee, has issued a challenge to Senate Republicans: If GOPers want to kneecap an independent consumer protection agency, they should do it in public, not behind closed doors. "Procedurally, the Senate Republicans are killing this or watering it down," Frank told Mother Jones. "Senate Republicans should stand up publicly and oppose it. At the very least, they have to do that. And there's going to be public reaction against that."
Over the weekend, Sen. Chris Dodd (D-Conn.), the banking committee's chairman and leader on financial reform, circulated a plan to create a watered-down consumer-protection agency within the Treasury Department. Frank, who helped pass a financial-reform bil last year that included an independent Consumer Financial Protection Agency, called Dodd's proposal "weaker than I was hoping." Frank added that the draft's stipulation that certain rule-writing by the proposed consumer agency would require approval from a separate risk-management council "is a terrible idea." He also lamented that the consumer agency wouldn't have full authority over payday lenders and debt collection and settlement companies.
If a watered-down version of a consumer-protection agency does emerge in the Senate's final financial-reform bill, Frank said he will fight to make sure a consumer agency with independence and increased authority for consumer protection makes it onto the president's desk. "I'm gonna do everything I can" to make sure the House's Consumer Financial Protection Agency survives, Frank vowed. "I want [Republicans] to take a public vote at the very least."