Senate Passes Faux Financial "Reform" Bill → Washingtons Blog
Senate Passes Faux Financial "Reform" Bill - Washingtons Blog

Thursday, May 20, 2010

Senate Passes Faux Financial "Reform" Bill

The Senate passed a financial "reform" bill today by a 59-39 vote which won't fix any of the core problems in the financial system, and won't prevent the next financial crisis.

The bill doesn't include the Volcker Rule (it wasn't even debated), doesn't break up or even substantially rein in the too big to fails, doesn't stop prop trading, and doesn't force transparency in the derivatives market.

Senator Feingold said:

The bill does not eliminate the risk to our economy posed by "too big to fail" financial firms, nor does it restore the proven safeguards established after the Great Depression, which separated Main Street banks from big Wall Street firms and are essential to preventing another economic meltdown. The recent financial crisis triggered the nation's worst recession since the Great Depression. The bill should have included reforms to prevent another such crisis. Regrettably, it did not.

Senator Cantwell agreed, saying:

While this bill takes much needed steps to help prevent a crisis of this magnitude from ever happening again, it fails to close the very same loopholes in derivatives trading that led to the biggest economic implosion since the Great Depression.... Throughout this debate I have fought hard against efforts to weaken this legislation as well as to pass language to strengthen it further. But the fact of the matter is, without key reforms in derivatives trading, this bill does not safeguard America's economy from a repeat of this crisis.

It sets up a process for responding the next time we have a financial crisis, but it doesn't prevent this kind of thing from ever happening again. We have to stop these kinds of dangerous activities. We need stronger bans on banks gambling with depositors' money. We need bright lines - like Glass-Steagall - that separate risky activities from the traditional banking system. We need to refocus our financial system away from synthetic bets and get more capital into the hands of job creators and Main Street businesses. There are good, strong provisions in this bill, and I'm proud of the work we did to get them in there, but I fear that without closing the loopholes primarily responsible for this economic meltdown, we are missing the entire heart of the matter.
Nouriel Roubini said the bill is "cosmetic", and won't stop the next crisis.

And as I pointed out last month:
In a letter to Senate majority leader Harry Reid and minority leader Mitch McConnell, luminaries including former SEC Chief Accountant Lynn Turner, former Labor Secretary Robert Reich, hedge fund owner Jim Chanos, former Lehman Brothers Vice Chair Peter Solomon, former S&L investigator Bill Black, former Senate Banking Committee Chief Economist Rob Johnson, economists Dean Baker, Barry Eichengreen and others pointed out that Dodd's proposed financial reform legislation wouldn't have prevented the current crisis ... and won't prevent the next crisis.

Dodd himself has admitted that his bill "will not stop the next crisis from coming".

In fact, the bill is wholly ineffective, failing to address the core things which need to be done to stabilize the economy. See this, this and this.

As I wrote last month:

Senator Dodd is trying to push through a financial "reform" which bill won't do anything to break up the too big to fails, or do much of anything at all ...

For example, Dodd's bill:

As Senator Ted Kaufman points out:

What walls will this bill erect? None.


Just this week, a Moody’s report stated: “…the proposed regulatory framework doesn't appear to be significantly different from what exists today."


In sum, little in these reforms is really new and nothing in these reforms will change the size of these mega-banks.

Moreover - as Simon Johnson notes - the bill intentionally doesn't have much in the way of specifics, but just pushes off on regulators the ability to crack down on Wall Street in the future. As Johnson notes, this is a recipe for continued failure to rein in Wall Street:

If legislation can only empower regulators then, given regulators are only as strong a newly elected president wants them to be, the approach in the Dodd bill simply will not work.

Indeed, Democratic Congressman Brad Sherman - a senior member of the House Financial Services Committee and a certified public accountant - said recently:

The Dodd bill has unlimited executive bailout authority. That’s something Wall Street desperately wants but doesn’t dare ask for. The bill contains permanent, unlimited bailout authority.

And as Arthur Delaney points out, the bill is riddled with carve-outs purchased by lobbyists:

"Obtaining a carve-out isn't rocket science," said a Republican financial services lobbyist. "Just give Chairman Dodd [D-Conn.] and Chuck Schumer [D-N.Y.] a shitload of money."

On MSNBC Tuesday morning, Sen. Bob Corker (R-Tenn.), a Banking Committee member who worked closely with Dodd, said there was "no question" that Dodd's draft contained loopholes. Corker mentioned a few hits from the carve-out list: "Private equity firms are left out," he said. "Hedge funds are left out."

The bill is all holes and no cheese.


  1. Did the Fed seize total control of the economy through this bill? I know they were shooting for that, and if they accomplished it then portraying the bill as simply superfluous could be a huge mistake. What's the word, Gdub?

  2. Anyone care to look at my article on this?

  3. Sad that our Democracy has ended this way, rendered useless and helpless by cowardly and corrupt Congress. Congress members are nothing more then mere vassals of World Bankers, Big Oil and their quest for the Totalitarian New World Order.
    The utter collapse and failure of the 111th Congress to preserve Democracy portents the end of the Democrat and Republican Parties.
    I suggest that no one vote in the next election as protest. It is pointless; our Democracy is dead. The President and Democrat Senators who played their role in blocking the full audit of the Federal Reserve (if the Republicans were in the majority, they would have voted the same way with the Democrats opposing) made sure that Democracy is dead.

  4. Lawyers never say in ten words what they can say in 100....especially when they are charging by the word. Another bit of BS from this faux government. They have time to waste on hot air, when they could be creating jobs for the AMERICAN PEOPLE....NOT THE ILLEGALS.

    The government can create jobs simply by re-instating the Investment Tax Credit to Corporations. This is the incentive to expand and hire while writing off the retrofitting expense. The ITC was removed by Reagan in his Tax Reform. Then he allowed mergers, acquisitions and downsizing to make it up to the corporations. What did the people get? Unemployment!!! And age discrimination when applying for another job. If we have no money to spend, down comes the high inflation. The middle class pays the price in every instance NOT THE RICH OR THE POOR. And, so you thought Reagan was great! Guess again. Every president is in bed with the billionaires who really run the country behind the scenes. This mess we are in: RECESSION AND POOR ECONOMY was created by the billionaires to accomplish their agenda. They all invested heavily in "green" companies and since we now know that it is a hoax, they have to recoup their investment somehow. Lies, Lies and more lies. Get with the program and stop being so naieve. Fire the billionaires. Ban them from doing business in this country and send them into exile to a remote island somewhere cold and desolate to pay the price for hurting many Americans. Then, confiscate their billions to pay down the huge debt that they incurred. Then, this country can get back to being a great nation UNDER GOD with abortion banned along with the disgraced evil doers.

  5. This feeble attempt at 'reform' - smokescreen, really - is proof enough to know that it ain't going to happen within the current system. And with "unlimited executive bailout authority", it's worse than useless: it's a further foot in the door. Both sides of the political aisle are going for the 'unitary executive', to undercut congressional power, and turn the country into a centralized, collectivist beast, ruling over the people, no longer of, by and for. And the same perps are behind the whole shebang, whether out in front it's socialism or fascism. Just as the Power Elite financed both Hitler and Lenin, to serve their ultimate end.

    It's time to clean the Augean stables, from top to bottom. And that includes the Federal Reserve, and its enabling 16th Amendment, which now needs to be identified as having never been legally ratified anyway.
    So: Obama goes (he's not legal anyway); Congress goes, for fresh elections within 6 months; and the monetary system as is goes, for a version more compatible with our time and place. For which there are a number of excellent ideas. Behind all of which is the same motivation: It's time.


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