BLOG VIEW: I am not entirely certain what was the literary inspiration for Sen. Chris Dodd's latest epic – a 1,336-page revised version of the long-gestating financial reform legislation. However, I suspect that the Senate Banking Committee chairman may have been inspired by the classic musical comedy ‘A Funny Thing Happened on the Way to the Forum,’ particularly the lyrics to the show's opening song: ‘Something familiar, something peculiar, something for everyone: a comedy tonight!’
The comedy, of course, is watching the one-time Friend of Angelo go through a skein of radically different personas while trying to bring coherence to the issue of federal regulatory oversight of the nation's financial services industry. Dodd began 2010 as the tough-talking self-appointed champion of change. But in mid-January, word began leaking out that Dodd was ready to jettison the center point of the Democrats' financial reform efforts – the creation of the Consumer Financial Protection Agency (CFPA) – in order to sway the obstinate Republican senators who were opposed to everything and anything that the other side of the aisle had to offer.
Then, Dodd did an abrupt 180 and turned into the uber-conciliator with attempts to build partisan bridges through compromise-heavy legislation. Perhaps Dodd's bridge-building efforts had a little too much gusto – earlier this month, The New York Times reported that Dodd was willing to fiddle with his legislation at the behest of Sen. Bob Corker, R-Tenn., in order to better accommodate the payday lending industry. This was problematic on two levels: The payday lending industry is a major financial contributor to Corker's political campaigns, and the finagling on their behalf meant that sector would be receiving far less regulatory oversight than other financial services sectors, including mortgage banking.
Last week, yet another Dodd emerged. This version combined the worst elements of all three previous incarnations: heavy on the bluster, but light on the solid strategies. The resulting legislative proposal was – in the words of the old show tune – something for everyone. But, of course, anybody who tries to please everyone ultimately pleases no one.
Typical of the Dodd mishmash is the fate of the CFPA. Instead of creating a new umbrella bureaucracy, the proposed agency is now shrunken into a bureau within the Federal Reserve, albeit one that has an unusual amount of sovereignty. For those who bemoan the level of bureaucracy in Washington, Dodd recommends eliminating one of the better-run agencies in Washington, the Office of Thrift Supervision – perhaps Dodd hasn't changed his calendar since 1989?
Yet Dodd wants to take the oversight of banks with assets under $50 billion away from the Fed and give it to other federal agencies. Has Dodd's right hand been introduced to his left hand?
The financial services industry has already X-rayed the legislation and diagnosed problem spots. The Independent Community Bankers Association and the National Association of Federal Credit Unions made public reminders that the nation's smaller depositories are being forced to shoulder too much of the responsibility for the chaos created by the too-big-to-fail failures and the regulators who allowed those behemoths to collapse. The Mortgage Bankers Association (MBA) raised alarms that the Dodd endeavor would create havoc in the too-weak commercial mortgage-backed securities market in regard to retaining risk.Â
‘Because mortgages secured by commercial real estate involve business-to-business transactions with sophisticated borrowers, not individual consumers, an attempt to impose such a uniform approach to risk retention in this arena can create unintended consequences and stymie further efforts toward economic recovery,’ said Robert E. Story Jr., chairman of the MBA, who tartly noted Dodd's go-it-alone approach by adding, ‘MBA supports workable, effective reform of regulatory oversight of the financial services industry, and we stand willing to work with all parties to craft bipartisan solutions to some of the problems that caused the financial crisis.’Â Â Â
As comedies go, however, Dodd's bumbling and stumbling isn't very funny; if anything, he has taken a bad situation and made it worse. I hope that those of us in the industry who are serious about stabilizing the federal regulatory system will be vocal in leading the chorus of boos to this new effort while working to build real change that can ensure the proper recovery of the industry and the wider economy.
– Phil Hall, editor, [b][i]Secondary Marketing Executive[/i][/b]
[i] (Please address all comments regarding this opinion column to hallp@sme-online.com.)[/i]
