Who Will Rescue Financial Reform?
In what passes for self-restraint these days, House Republicans have been insisting that they do not intend to repeal last year’s Dodd-Frank financial reform law.
Not in one fell swoop, anyway.
A direct assault on Dodd-Frank would be so blatantly biased toward banks that it would be sure to provoke a public backlash. So the Republican plan is to delay and disrupt reform. The effort is partly ideological — an insistence that regulation is unnecessary, no matter the evidence to the contrary. It is also a campaign fund-raising ploy, because Wall Street will reward the opponents of reform. Of course, Democrats are themselves not indifferent to Wall Street campaign cash, which raises the question of how effectively they will counter the Republicans’ aims. Here are areas to watch.
DERIVATIVES Budget cuts could cripple the Securities and Exchange Commission and the Commodity Futures Trading Commission — which share the vital task of regulating the multitrillion-dollar derivatives market. The budget impasse in Washington has already frozen the agencies’ budgets, even as their rule-writing duties have exploded. Worse, prevailing Republican rhetoric, adopted in part by Democrats, portends more budget cuts, which would leave the agencies unable to enforce current rules, let alone new ones. Settling for less than President Obama’s requested amounts for the agencies would be acquiescing in the derailment of Dodd-Frank.
CONSUMER PROTECTION The Consumer Financial Protection Bureau, arguably the most innovative of the reforms, has been under constant attack by banks — and Republicans. Most recently, a House hearing on the bureau that was billed as an oversight session was instead a hazing of Elizabeth Warren, the Harvard law professor and consumer advocate chosen by Mr. Obama to set up the agency. Republican objections boiled down to charges that the agency — and Ms. Warren — have too much power. Ms. Warren’s rebuttals were clear and persuasive. Mr. Obama could define the debate further — and demonstrate his professed support for the bureau — by going on the offensive and nominating Ms. Warren as its official director. Senate Republicans have said that they would object, but it is their own credibility that would be at risk in opposing so qualified a candidate.
REPEAL BY ANOTHER NAME House Republicans have unveiled several bills to undo Dodd-Frank piece by piece. One would rewrite the law so that the C.F.P.B would be run by a five-member bipartisan board, rather than one director, a recipe for delay and division. Another would exempt an array of derivatives users from the new rules, perpetuating the deregulated market.
Yet another bill would repeal a requirement for private equity firms to register with the S.E.C, in effect ignoring the systemic risks in leveraged pools of private capital. And one would repeal a requirement that publicly traded companies disclose the ratio of a chief executive’s pay to that of a typical employee, a move that would deprive analysts of data to detect bubbles that correlate to skewed pay. The list goes on.
Dodd-Frank is no cure-all, but properly implemented and enforced, it would close dangerous regulatory gaps. That won’t happen if Republicans get their way — and they will, unless the fight is engaged in no uncertain terms. Democrats in Congress need to unite behind the law and Obama officials should denounce the antireform effort for what it is: an attempt to weaken Dodd-Frank on behalf of those who brought us the financial crisis.