Blank on bank reforms

Blank on bank reforms

The Age

Tuesday December 15, 2009

A weakened bill and a reluctant White House have put the brake on US financial services reforms, writes John Nichols. THE US House of Representatives has voted in favour of legislation that is described as "financial services reform". But most of the "reforms" are so mild that the savviest of the nation's big bankers will be breathing sighs of relief, rather than worrying about being regulated into good behaviour.That's not to say the bill is meaningless. It proposes some valuable shifts, including the creation of a Consumer Financial Protection Agency that could �� if infused with proper authority and backed by a White House and a Congress that want to tip the regulatory balance in favour of the great mass of Americans �� give bankers and speculators some headaches. Unfortunately, that's a vague promise.Congressman Barney Frank, the Massachusetts Democrat who crafted the measure passed on Friday, said: "We have a set of rules in place that will allow the most productive parts of the free-market economy, and particularly the financial system, to play the role they should play, but with much less chance of abuse."Up to a point, this is true. The legislation, which passed on a 223-202 vote (with all Republicans and 27 Democrats opposing) does sketch the outlines for real reform.The problem is, the details are so sketchy that bank and insurance company lobbyists have plenty of openings to play the system in their favour. And they could get even more, as the Senate considers the reforms, then what will probably be very different measures are reconciled in a review by both chambers and then sent to the desk of a President whose Administration has already expressed discomfort with pieces of the House bill.In other words, while there were those who claim that the House has enacted "the biggest change in oversight of Wall Street since the Great Depression" and that "this bill puts the referees back on the field", the big banks aren't going to get sidelined �� let alone broken up �� any time soon.That weakness caused some of the House's most serious backers of banking reform �� including Ohio Democrats Marcy Kaptur and Dennis Kucinich �� to oppose what they saw as an insufficient initiative."Although I am supportive of the Consumer Financial Protection Agency as well as other provisions in the bill," Kucinich explained, "ultimately I do not think this bill adequately addresses the causes of the financial crisis, and I do not believe the reforms are sufficient to prevent another financial crisis."Many other Democrats who knew the bill was flawed swallowed hard and voted for it because they saw it as opposing a framework for constraining at least some abuses by bankers and speculators.The House legislation fails to dismantle even the biggest of "too big to fail" companies that could still bring down the US economy. It also fails to even tackle the most serious abuses of the world's $US600 trillion ($A658 trillion) derivatives market.Why is this bill so disappointing? Of course, Republican opposition was a factor. But the biggest frustration was the Democratic bloc that tried, at every turn, to defend the big banks and speculators.Although he had plenty of competition from the likes of Illinois Democrat Melissa Bean (who sought at one point to roll back existing protections for consumers), the worst playerwas Idaho Democrat Walter Minnick.Minnick tried to gut consumer protections in the legislation by blocking creation of the potentially powerful Consumer Financial Protection Agency, which would have the authority to regulate everything from mortgages to credit card rates.Specifically, Minnick proposed an amendment to replace real regulation with a maintain-the-status-quo "council of regulators". (The Idaho Democrat was spectacularly wrong, as Consumers Union president Jim Guest explained: "Consumers have paid a very steep price for years of weak federal oversight of unscrupulous banking and lending practices. It's time for Congress to put an end to do-nothing financial industry oversight and make sure that consumers have a real watchdog looking out for their interests.")The key vote on financial services reform in the House was on the Minnick amendment, which was easily one of the most anti-consumer measures ever proposed by a Democratic member of the House.One hundred and seventy-five Republicans voted for the Minnick amendment, while none opposed it. No surprise there from what has become a mere "party of no".But joining the Republican backers of the move to gut the consumer protections were 33 Democrats. Most were southern and western "Blue Dogs" whose philosophy might best be described as: "Even a little reform is too much if it makes the bankers unhappy."They needn't worry too much. While the House has acted, America is still a long way from even a little reform.