Through compromise and pragmatism, Senate leaders believe they have rounded up enough votes to pass financial reform legislation.
Arguments over financial reform have not focused closely on the details in the 2,300-page Dodd-Frank bill. It’s easier to debate the causes of the near-collapse of U.S. housing and credit markets. Was it a lack of oversight that enabled lenders and borrowers to become disastrously overextended? Or was it a “liberal” bias toward home ownership that pumped too much money into the mortgage market?
As the U.S. Senate approaches a vote on the reform package this week, it appears that such debates didn’t swing votes either way. Senators who were on the fence were concerned with the impact of particular regulations, and whether the bill as a whole would serve as an effective vaccine against future financial crises.
The planned Consumer Financial Protection Bureau, dedicated to ensuring borrowers are treated fairly, should certainly help. Lack of such oversight led to predatory lending practices that helped inflate the housing bubble, and put many borrowers on a path to bankruptcy.
A Financial Services Oversight Council is intended to protect our financial system from the ambitions and mistakes of large corporations. The bill also requires major banks to maintain financial reserves, as smaller banks already do. In an effort to limit speculative manipulation of credit markets, most financial derivatives would have to be traded on regulated exchanges.
Any law can bring unintended consequences, but Wall Street’s preliminary verdict, expressed in the stock prices of investment banks, seems to be that the reforms will not be onerous.
And Republican senators who are supporting the bill ”“ Susan Collins and Olympia Snowe of Maine and Scott Brown of Massachusetts ”“ have concluded that the bill has been sufficiently modified to address their concerns. Both Snowe and Collins, for instance, successfully argued that the Consumer Protection Bureau should not have oversight over small businesses (like furniture stores, dentists and auto dealers) that extend credit to their customers.
Democrats also abandoned a plan to raise $19 billion from investment banks to manage any future financial crisis. But the reform effort will not address a key concern noted by both Collins and Brown ”“ continued taxpayer support for mortgage lending by Fannie Mae and Freddie Mac.
Now assured of just enough votes to pass the bill, the Senate leadership has scheduled a vote for Thursday. In the end, Maine’s senators concluded that their votes were needed to prevent, in Collins’ words, “the kinds of risky Wall Street practices that triggered our nation’s most serious financial crisis in decades.”
— Questions? Comments? Contact Managing Editor Nick Cowenhoven at nickc@journaltribune.com.
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