Progressive Senators Fight for Real Reform

Headlines blared that Senate
Banking Chair Chris Dodd was done with dithering and ready to move
ahead with a financial reform package without Republican support.
Financial reform groups should be celebrating this as a positive move
that would roll back some of the worst elements of the bill inserted
during recent bipartisan negotiations, including the nutty effort to
put the Consumer Financial Protection Agency into the Federal Reserve -- an institution about as popular as the IRS.

Hold the champagne. Reading between the lines, it seems that
negotiations are continuing behind the scenes and ranking Republican
Senator Richard Shelby (R-AL) says
"an agreement is still very possible." The little spat between Dodd and
the Republicans has been beneficial, though, because it flushed out
more details about the points of agreement and contention.

You can hear the bankers cheering because there appears to be agreement to shrink and defang the best part of the bill, the Consumer Financial Protection Agency.
It seems destined for the basement of a failed regulatory body such as
the Fed or the Treasury Department. The consumer protection agency was
originally intended to be a stand-alone agency with broad authority
over banks and nonbanks to crackdown on predatory mortgages, credit
card fees, payday lenders and others whose abusive practices capture
consumers in an unshakable debt cycle. Not only do the Republicans and
the big banks want to put CFPA under the thumb of the bank-friendly
Fed, an institution which completely failed to protect consumers from
predatory lending in the run up to the financial crisis, they want to
strip it of its enforcement authority and shoot it full of exemptions.
No agency would be preferable than this type of toothless tiger.

Negotiators have failed to break up the too big to fail banks or
effectively cap their size. Worse, the draft continues to exempt the
most complex derivatives - including foreign currency swaps and
credit-default swaps - from the requirement that they be regulated and
traded on an open exchange. You remember credit default swaps. They
allow parties with no insurable interest in an underlying asset (i.e.,
your house) take out insurance on whether or not your house will burn
down. This of course gives them an incentive to torch the place. These
"financial weapons of mass destruction" played a key role in the
collapse of AIG and the global economy and are now being used by big
American banks to torch Greece.

Janet Tavakoli, a respected financial analyst, recently called upon Congress
"to act immediately to abolish credit default swaps on the United
States, because these derivatives will foment distortions in global
currencies and gold," a situation that could wreak further havoc on the
U.S. economy. If Congress does not close the loopholes in the bill on
the derivatives front, the next crisis is assured.

Fortunately, a few brave men are willing to put the kaibosh on
toothless reform. "I won't vote for a bill if the banks have control of
it," Sen. Sherrod Brown, (D-OH), told CNN. In remarks on the Senate floor, Sen. Ted Kaufman
(D-DE) warned he won't support "compromise measures that give only the
illusion of change and a false sense of accomplishment." And
Independent Senator Bernie Sanders
told CNN he would vote no unless the bill includes an independent
consumer regulator and tough new restrictions on banks. Sens. Jeff Merkley (D-OR), Carl Levin
(D-MI) and others are fighting hard for a real "Volcker Rule" that
would reinstate some of the protection for Main Street banks against
reckless Wall Street gambling.

Dodd has said that he will unveil his new bill on Monday. Take your
time Senator. Get it right this time. It is not an exaggeration to say
that the future of the world may depend on it.

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