Dodd's Push for Regulatory Reform Has Unintended Consequences

I doubt any Senator is more aligned with the financial industry than Christopher Dodd. So it is a testament to his 'country first' mentality that in spite of the limitless pool of campaign contributions that could spring forth from the industry lobby -- and that Dodd would find most helpful in what is shaping up to be a difficult re-election fight -- he is among the most aggressive in pushing financial reform.

Dodd is pushing forward efforts for a wholesale restructuring of Wall Street regulators, to combine the Federal Reserve, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Office of the Comptroller of the Currency into one agency. Chuck Schumer, another Senator with a strong constituency in the financial sector, is reported to be a supporter of this approach.

I am shocked to read that this bold step might actually have the unexpected effect of forestalling any meaningful regulation.

This from Bloomberg:

Senate Banking Committee Chairman Christopher Dodd’s plan for a single bank regulator may set up a fight with House colleague Barney Frank and the Obama administration and might slow the overhaul of financial rules.

It is incredible how something can backfire in such an unexpected way.

Comments

[Sean Ryan:]

I suspect Dodd's reinvention of himself as a tribune of the common man is less reflective of a "country first" mentality than a "reelection first" mentality. He is a known quantity in Connecticut and his problem isn't insufficient campaign resources, it is insufficient trust by a voting population that is strongly inclined to favor Dodd from a policy perspective. My sense is that the more dramatic reform proposal is of a piece with his speculation last winter about nationalizing solvent institutions - a somewhat desperate appeal to anti-financial populism for purely instrumental reasons.

Moreover, there isn't really any big principled divide between Dodd and Frank; rank and the administration have not wanted to expend the political capital that more dramatic reform may require - again, more a function of political exigencies than a clash of principles.

Sep 22 11:20 AM

[It Figures:]

Nothing unexpected about this. And it's not backfiring - it's proceeding as planned. Dodd gets to sound like a "people first " politician while actually protecting his financial industry donors from any meaningful change.

You don't get to stay in the Senate as long as he has by screwing your donors, or playing it straight with the voters.

Sep 23 10:02 AM

[chuck812:]

Seriously... how is giving virtually unlimited regulatory power to an unconstitutional central bank who won't even submit to a review of its structure and governance (that it was supposed to lead itself!) putting country first?

A more "country first" stance would be to hold current regulators responsible for their failures. (Hint: the Fed would be at the top of that list already...)

Sep 24 07:52 AM