Lame Bill From a Lame Duck

If you think health care reform has been an
unsatisfying test of the government's ability to deal with our pressing
problems, brace yourself for bigger disappointment in its attempt to
bridle Wall Street. This is when the true heavies go to work, and, as
opposed to the medical industry lobby, the moneychangers fear not the
wrath of their clients or, as Scripture tells, any higher power.

Certainly not that of the Congress or the
president whose powers they have so confidently purchased. That is how
we got into this mess. The bankers wrote the rules of the road that
allowed them to exceed all reasonable limits when Democrat Bill Clinton
was in the White House. And when the crash came, it was the Republican
George W. Bush who made their problems go away. Having survived that
disaster of their own creation, they are not about to let anyone make
them change their ways.

It will definitely take more than the likes
of Connecticut's lame-duck Sen. Christopher Dodd, a likely candidate
for more lucrative employment in the financial sector that he has served
so faithfully. On Monday he made a big show of introducing legislation
to rein in Wall Street, having failed to elicit a single Republican vote
after months of caving in. He has abandoned his earlier proposal for a
truly independent regulatory agency that would challenge the Fed, which
got us into this jam. His bill rejects a public audit of the Fed, where
he would house what remains of the president's proposed consumer
protection agency.

There is only a nod in the direction of a return to the Glass-Steagall
Act's separation of investment and banking firms, a regulation that
Dodd, along with New York Democrat Charles Schumer, helped kill a decade
ago. As The New York Times reported on Oct. 23, 1999: "Dodd, whose
state is home to the nation's largest insurance companies, and Schumer,
with strong ties to Wall Street, have long sought legislation to repeal
the Glass-Steagall Act."

That's what legally made possible the
too-big-to-fail mergers of insurance giants like Travelers and AIG with
banking companies. As Peter Eavis pointed out in Monday's Wall Street
Journal, Dodd's current bill "still flunks the AIG test," in that "if
the Senate bill became law, it looks like the government could still
find itself making the sort of payments it made to AIG counterparties."
And that's before the lobbyists go to work.

The most glaring failure of his proposal is
to fully come to grips with the enduring threat of unregulated
derivatives. In this area the bill's text is an unparalleled exemplar of
the use of the run-on sentence in the pursuit of obfuscation. But what
is clear is that the out-of-control derivatives market, which Dodd
helped engineer 10 years ago when he supported the Commodity Futures
Modernization Act, will be at best tempered somewhat. Obviously aware
that his current bill provides no serious answer to this most pressing
of our financial industry problems, Dodd holds up the wan hope that
"Senator Jack Reed (D-RI) and Judd Gregg (R-NH) are working on a
substitute amendment to this title that may be offered in full
committee." Yes, we know what such bipartisan efforts bring, and it does
not bode well for getting a grip on a derivatives market that threatens
to do us all in.

Warren Buffett wasn't kidding when he called them "financial weapons of
mass destruction," and by now most Americans are aware that the
innocuous-sounding derivatives that he was referring to have done great
damage to our way of life. It extends from foreclosed homes in Florida
that are collected in collateralized debt obligations to credit default
swaps on Greek airport revenue, and, as The New York Times reported
Monday, massive corporate collateralized loan obligations that are "a
potential financial doomsday."

The dubious security bundles are as vast as
they are obscure and their notational value is staggering. As Dodd's
committee's fact sheet stated, "The over-the-counter derivatives market
has exploded-from $91 trillion in 1998 to $592 trillion in 2008." The
current figure is $605 trillion and still growing.

As Dodd's press release put it, "Because
the derivatives market was considered too big and too interconnected to
fail, taxpayers had to foot the bill for Wall Street's bad bets."

Now he tells us. But let's hope there's
more to this bill than meets my eye and that the lobbyists don't get to
gut it further. It's still a work in progress with some good points, the
House bill is better, and it is time that Congress hears much more from
the suffering public.