Financial Reform: Will It Be Chris Dodd’s Legacy?

We certainly need to use the waning financial crisis to enact reforms so we don’t end up again with “too big to fail,” gargantuan risks hidden behind complex financial products, predatory lending, and massive Ponzi schemes. The House passed a bill. Will the Senate? I’m not so sure. I’d like to be wrong, but I just don’t see 60 votes.

Last February’s stimulus bill and December’s health reform bill passed the Senate with three Republicans votes and zero Republican votes respectively after substantial efforts to reach compromises with Senate Republicans bore no fruit whatsoever. The majority party always has to take more responsibility for governing than the minority party, but shirking any responsibility to address such obvious market failures reminds me too much of Rome, as Cullen Murphy noted so well in his book, Are We Rome?, in May, 2007. He cited too much power concentrated in the capital, corruption, gotcha lawsuits, inability to control borders, privatization, disregard for allies, and over dependence upon mercenary armies. Does any of that sound familiar today? Our only consolation is that it took several hundred years for Rome’s infighting and corruption to bring it down.

I laughed recently when a very Washington savvy Wall Street client relayed market comments that Chris Dodd’s retirement would free him from lobbying pressure to ram home financial reform. I immediate responded, “Maybe, but any deal he cuts will be undermined by those still beholden to lobbyists.”

In my experience lame duck committee chairs lack power. Everyone below them is jockeying for power. Tim Johnson (D-SD) will probably succeed Dodd next year as Banking Committee Chair, and maybe Jack Reid (D-RI) will play a larger role just behind him. Johnson was one of five senators, and the only Democrat, to vote against last May’s credit card reform bill, H.R.627, because VISA is one of the largest employers in his state. See this Bloomberg News article. Although Dodd and Senate Banking’s top Republican Richard Shelby (R-AL) reached a bipartisan compromise on that bill, I doubt they can do so on financial reform unless Dodd agrees to jettison the House’s Consumer Financial Protection Agency. If that happens, I don’t see how Dodd would avoid losing many Democrats and any chance for 60 votes.

It’s been a long time since I’ve seen any Profiles in Courage in the Senate. We could sure use some now, but I don’t expect any this year. The political atmosphere is too poisoned, and it’s going to get worse as November’s election approaches.

About Pete Davis 99 Articles

Affiliation: Davis Capital Investment Ideas

Pete Davis advises Wall Street money managers on Washington policy developments that affect the financial markets. President of his own consulting firm since 1992, Davis Capital Investment Ideas, he draws on 11 years of experience as a Capitol Hill economist with the Joint Committee on Taxation (1974-1981), the Senate Budget Committee (1981-1983), and Senator Robert C. Byrd (1992). He worked in the House and Senate, and for Republicans and Democrats.

Davis brought the first computer policy model, the Treasury Individual Income Tax Model, to Capitol Hill in early 1974, when he became a revenue estimator on the Joint Committee on Taxation. He formulated the 1975 rebate, the earned income tax credit, the 1976 estate tax rates, the 1978 marginal tax rates, and the Roth-Kemp tax cut. He left Capitol Hill in 1983 for the Washington Research Office of Prudential-Bache Securities, where he advised investors for seven years.

Davis has long written a newsletter on the Washington-Wall Street connection for his clients; Capital Gains and Games is his first foray into the blogosphere.

Visit: Capital Gains and Games

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