By THOMAS G. DONLAN
The huge overhaul bill ignores most big problems and dodges the rest.
THERE IS SOMETHING in the financial-services bill for almost every interest, but the real winners are the cynics who think Congress can’t do anything right. The monster that crawled out of the conference committee on June 25 has about 2,300 pages, and one hostile Republican congressman said it probably has three unintended consequences per page.
It will keep the bureaucrats and lobbyists busy, that’s for sure: The Chamber of Commerce counted 355 potential new agency rule-makings, 47 studies and 74 reports required by the bill. The infamous Sarbanes-Oxley law of 2002 — the previous congressional exercise in futile corporate regulation — demanded only 16 rule-makings and six studies.
The general intent of the financial-reform bill was impossible. Sponsors wanted to reduce the risk in an inherently risky industry, and they wanted to do it without tightly regulating it or subjecting it to the discipline of a free market.
The big issues will remain untouchable.
What is to be done with Fannie Mae and Freddie Mac, the quasi-government agencies that have become the nation’s main source of new home mortgages? There’s no answer in this bill. Converting Fannie and Freddie to Feddie hasn’t stopped them from losing more tens of billions of dollars on bad loans, and it hasn’t brought order and good sense to the housing market.
What is to be done with highly leveraged corporations and hedge funds that play for their own accounts in the world’s riskiest markets, using smart computers and dumb money supplied by suckers who run pension funds and other clueless institutions? This bill cuts back on the game as played by commercial-bank casinos, but it lets the game go on in Wall Street’s back rooms.
What is to be done with the banks and corporate financial subsidiaries that are too big to fail, too big to succeed and too big to regulate? They must carry on like lemmings who haven’t yet reached the cliff. The Treasury will take charge of a new Financial Stability Oversight Council designed to prepare for the next disaster. (Oversight, for those not used to Washington lingo, is partly about watching and partly about talking, but never about doing.)
What is to be done with risky banks? Pretend they aren’t risky. Bank deposits are to be federally insured up to $250,000 per account, retroactively to Jan. 1, 2008. This is supposedly for the benefit of small depositors, but is actually for the benefit of rich people who played “hot money” games with certificates of deposit. As with all deposit insurance, premiums won’t be high enough to cover the real risk.
What is to be done with the Balkanized structure of banking and securities regulation and the even worse congressional oversight structure? Create more regulators, starting with the oversight council. Lawmakers have created new agencies after every financial crisis, seemingly to create more congressional subcommittees with oversight powers. All they do is fight forever with the other agencies created after past crises.
What, above all, is to be done with the Federal Reserve, which pilots monetary policy by the seat of the chairman’s pants and regulates the biggest commercial banks with the results seen so recently? According to this bill, all the Fed needs is just a little more power, especially more power to lend to any quivering corporation in the world.
If the bill becomes widely known as Dodd-Frank, then maybe Sen. Christopher Dodd, D., Conn., and Rep. Barney Frank, D., Mass., finally will acquire the reputations they so richly deserve. It happened to former Sen. Paul Sarbanes, D., Md., and former Rep. Michael Oxley, R., Ohio. Their Sarbanes-Oxley “reform” of corporate accounting and other issues has turned out to be an expensive failure, blighting their names for the history books. Dodd and Frank deserve the same, only more so.