Democracy requires vigorous public debate in an open forum, conducted by leaders willing to take a public stand and face the consequences. Today's proposal on banking reform from Sen. Dodd is the product of backroom negotiation and holds nobody accountable. It allows Senators to dodge one of the most critical issues of the day: the financial safety of the American public.
Financial reform is complicated, but the principles behind it are simple. Here's one: Should the needs of the American consumer be given as much weight as those of big banks? The proposed bill Sen. Dodd unveiled today doesn't meet that test. It puts bankers first, giving consumers protection only when it doesn't make the Wall Street crowd too uncomfortable.
That's not acceptable. American should insist on an up-or-down vote for this simple question: Do American households deserve the strong protection of an independent agency, or should their fate remain in the hands of regulators who are more concerned with how well the big banks are doing?
That shouldn't require political courage. According to Harris polling, 82% of Americans believe Wall Street should be regulated more aggressively. 59% of the people polled think it's an essential part of the economy,but two-thirds of them believe bankers aren't "as honest and moral" as other people and "would be willing to break the law if they believed they could make a lot of money and get away with it."
Fighting Wall Street's abuses isn't just good policy; it's great politics, too.
The problem isn't popular support, of course; it's campaign contributions. Whatever its motivations, however, Sen. Dodd's proposal is an end-run around the democratic process. The Financial Times reports that Republicans are "warming" to the proposal, and it's no wonder why: Not only does it coddle the banks and leave consumers at risk, but Sen. Dodd has conveniently let them - and their conservative Democratic colleagues - off the hook. If Dodd gets to write this bill we'll never know which Senators stand with American families and which stand with the big banks.
Sen. Shelby, the ranking Republican on the committee, said that he and Dodd "conceptually agree on 85 or 90 per cent of a bill." That's worrisome. Shelby's been treating Wall Street like his personal campaign ATM, and was one of the Senators who received a fat contribution recently to "send a message" to Democrats about slowing down reform. Do the contented noise he's making about Dodd's proposal mean "message received"?
That purring sound from Alabama should be a warning signal about the bill's financial soundness. And if Sen. Dodd gets his way, Sen. Shelby will never have to vote against meaningful consumer protections in public where the voters can see him.
Here's the disagreement in a nutshell, as summarized in a New York Times article anticipating today's announcement:
A key Republican objection to the consumer agency is that a new body of regulators empowered to write and enforce consumer protection rules could interfere with existing regulators tasked with ensuring the "safety and soundness" of banks.
Isn't that exactly the kind of issue we should have a national debate about? Don't you want to know where your Senator stands on this question? The Consumer Financial Protection Agency will either be a stand-alone agency (as proposed by the President) or housed within the Federal Reserve, an agency that dropped the ball on our last crisis.
Placing the CFPA inside the Fed is - in Pete Davis's pithy summation - "like putting the district attorney in charge of public defenders." It means that whenever the CFPA wanted to make rules that protect consumers, its decisions would have to run a gauntlet of regulators who see their primary mission as keeping big banks profitable.
In a sense, that means that Dodd and other Washington insiders have explicitly accepted an assumption that's been implicit in the banking and regulatory worlds for some time: The financial stability of big banking institutions depends on the ability to routinely mistreat their clientele. Isn't that a proposition that should be debated before the American people?
In an uncomfortable replay of health reform, the White House has been silent on this question for too long. The President finally issued a statement today, in which he said " I will take every opportunity to work with Chairman Dodd and his colleagues to strengthen the bill and will fight against efforts to weaken it." Let's hope he means it, and that the "strengthening" includes a truly independent CFPA.
We've already said that the public deserves a series of "up or down votes" on financial reform. Simon Johnson made a similar point today when he said that "reasonable reform has almost no chance ... but a well-crafted debate ... could really help shift popular understanding of the issues." What's more, Senators are more likely to take a pro-consumer stand if they're forced to vote publicly.
The CFPA's a great place to start the national conversation about financial reform. The President has a gift for educating the public, and the issue of independent consumer protection would provide a great forum for explaining why financial consumers deserve better than they've been getting - from either their banks or their government.
Let's have that public vote on the CFPA ... and make it a roll-call vote, please.
