Friday, November 27, 2015

Pro: Dodd-Frank law must be preserved

Financial-sector interests trying to block the stricter rules needed to protect the public from their avarice likely danced a little jig at the news that their ace nemesis, Barney Frank, was retiring.

Pro: Dodd-Frank law must be preserved

Barney Frank
Barney Frank

Financial-sector interests trying to block the stricter rules needed to protect the public from their avarice likely danced a little jig at the news that their ace nemesis, Barney Frank, was retiring.

Without the Democratic representative from Massachusetts around, they believe it will be easier for them to repeal or dilute the law he coauthored to rein in the type of money-lending excesses that helped send the nation into recession. They must not succeed.

With only a fraction of the Dodd-Frank rules in effect, Wall Street firms are already reverting to their old ways. Witness the MF Global scandal, in which former New Jersey Gov. Jon S. Corzine is accused of acting like a rogue trader and sending the investment company into bankruptcy.

Former Democratic Sen. Christopher J. Dodd of Connecticut, Frank’s coauthor, says critics of the 2010 law are fudging the truth in attempting to scuttle it. They say it will “kill” small banks when, in fact, most of its rules apply only to a few dozen among the largest of the nation’s more than 6,000 banks.

Dodd-Frank requires banks to have enough capital to cover bad loans; sets up a process to close failed banks and prohibits the Federal Reserve from bailing them out; regulates and requires more transparency in the lucrative derivatives market; requires regulators to cooperate and share information; and establishes a consumer protection agency.

That last directive is a particular thorn in the paw of those who would prefer little or no change in the lax oversight that has allowed predatory lenders to suck the lifeblood out of families so desperate for loans that they agree to pay usurious interest rates.

While they were unable to block creation of the Consumer Financial Protection Bureau, its critics were successful in derailing President Obama’s appointment of former Yale professor Elizabeth Warren to head it, even though the agency was largely her idea.

Forty-four Republican senators have signed a letter saying they will also block the appointment of Obama’s second choice to head the CFPB, former Ohio Attorney General Richard Cordray, unless the agency’s powers are reduced and it reports to Congress.

The whole point is to make the new consumer agency independent of the rancorous partisan politics that have kept Congress from acting decisively on the economic issues facing the nation. It makes no sense to make the CFPB subservient to politicians who run to Wall Street for campaign money.

The CFPB isn’t meant to be the finger in the dike to prevent a repeat of the dangerous behavior that brought Wall Street to its knees. But if allowed to operate as intended, it can be an important tool in curbing the predatory approach to lending that infected not just fly-by-night paycheck-cashing outlets, but even the most staid of mortgage banking concerns.

This country is in desperate need of an attitude adjustment when it comes to its banking practices. But unfortunately, not even the past recession, from which the country still struggles to completely escape, has changed the thinking of some financial interests who think regulation is a bad word.

There are already enough rules on banks and investment firms, they argue. Government needs to enforce the laws on the books and stop adding new ones that will inhibit investment, they say. And to an extent, they are right: The lack of enforcement of existing rules helped paved the way to disaster.

But the effort that produced Dodd-Frank unveiled areas where the regulations were deficient. The law was passed last year to handle those deficiencies, but some banking interests like things just the way they are. Congress, without Dodd, and now Frank, must not reverse course.

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