Will Dodd Frank Survive the GOP?
Sunday, February 20, 2011
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Rep Frank and Sen Dodd |
In 2005, President Bush (and also Sen McCain) Wanted to Transfer Oversight of Fannie and Freddie to the HUD. After the accounting scandals that hit Enron, WorldCom and others, this seemed like a good idea. President Bush did not feel that Congress could do its job in overseeing Fannie and Freddie, who had issued over $1.5 trillion in outstanding debt. But Rep Barney Franks, the ranking Democrat in the Financial Services Committee, strongly opposed this bill. This turned out to be a big mistake, because reining in Fannie and Freddie could have significantly alleviated the housing crisis.
Financial giants such as Freddie Mac and Fannie Mae played in intricate role in the industry and its problems. The Bush administration felt that Fannie and Freddie were cooking their books so Treasury Secretary John Snow proposed placing the companies under the Treasury oversight with strict controls over risk and capital.
"These two entities—Fannie Mae and Freddie Mac—are not facing any kind of financial crisis," said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. "The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing." Rep Frank
Since 2008, both Fannie and Freddie were placed in conservatorship by the US government. Since then the Dodd-Frank Wall Street Reform act have been put into place in order to prevent market meltdowns again. However, the bill has left out Fannie and Freddie. Now with a GOP controlled Congress, the House are starting to debate how to reform these government sponsored enterprises. A House Financial Services Committee has called for weighing the "costs and benefits" of Dodd-Frank "to improve those parts that work well while changing those parts that do not." Meanwhile, Rep Michele Bachmann has introduced legislation to repeal the full bill.
Contrary to this argument is that government is in place to protect its citizens from corporations that are out solely for the purpose of making a profit.
Budget Deficit
Meanwhile because the US is over $1 trillion in the hole, the government needs to start making significant cuts. This bipartisan initiative means that the government will have less capital to implement Dodd-Franks.
America has certainly evolved from an era of sole industry giants, and government share holding. All persons most of the time are seeking what its in the best of their interest and regulations more often than not seek to prevent further abuse in such quest, often hurting opportunity and advantages one could have gained had it not been for such.
Lets looks at the facts of what has occurred since the The Dodd-Frank Wall Street Reform and Consumer Protection Act was proposed in late 2009, and shortly months afterwards was signed into law by President Obama. The Act in itself calls for a wave of sector regulations in the financial market, in hopes of identifying and prevent future market shocks as the ones created by the housing market but also calls for the creation of a new consumer agency that broadens the power of government and shifts responsibility from consumers to industry. In addition, the Obama administration will need to create a replacement for Fannie and Freddie. The creation of these bureaus are currently being scrutinized by the Senate.
It has been over six months since the Dodd-Franks bill was passed and very little progress has been made. In fact, the SEC, one of the most important players of Dodd-Frank has been just “squeaking by” because they are quickly running out of money. Meanwhile, House Republicans today unveiled a plan to cut $61 billion from fiscal 2010 levels set by the Obama administration. If these massive cuts are passed, not only would the government find it hard to fund Obama care, but also implement the vast majority of the measures in the Dodd-Franks bill.
Some of the highlights of the legislation calls for consumer protections with authority and independence. Housed at the Federal Reserve, it would provide consumers with information on financial products and market practices. Another intricate part of the bill interesting to the private sector is the end of so called government bailouts. This practice which had been seen in the late 2000's and in the midst of the financial crisis had outraged million of Americans while saving some of this nations largest corporations from imminent failure. The Act also called for an advance warning system to identify and address risks in any given sector before they affect the market as a whole. This is still a controversial topic and remains to be expanded as to how far of a reaching power it may have on the free markets. Other things include such things and calls for transparency and accountability for exotic instruments, interfering in executive compensation and corporate governance, protection for investors, and a call for regulation of current statues and laws already in the books.
This bill thus creates an independent Watchdog that is housed at the Federal Reserve with the authority to ensure that Americans get the accurate information they need on banks and other financial products. It calls for the government to have more involvement in hopes of avoiding future risks to our financial market. The Consumer Financial Protection bureau would be comprised of several pieces. These include: the necessity for a Financial Head with independent budget. They would also have an independent rule writing and examination and enforcement of these.
The government has also set up a new hotline that consumers can use to report abuses, much like a complaint hotline. However, the Republican controlled House is hoping to eliminate the funding for the consumer watchdog.
As you might expect government is a much needed part in a civilized society. Having taking a look at our nations past history and in times of financial boom and bust, one can agree that a government that works hand-in-hand with the private sector and in the interest of the people is one that works best. The idea that a single act or piece of legislation will root out all greed and self interest in the system is certainly a fallacy. In my opinion its up to each and every one of us to take personal responsibility for our actions, including those of investments, and at the same time try to share a common sense of personal responsibility in generations to come.
Most of Dodd-Frank’s provisions have a deadline of one year. That means we have past the half-way point, with the second half been all uphill. Although Republicans want to repeal the act, all they might be able to do is to trim around the edges. In light of significant costs to implement and massive budget cuts been proposed, perhaps the two parties should come to a consensus on what can be trimmed, so that the Bill can take effect in protecting consumers.
Now that the Republicans are in control of Congress, they want to roll back the bill by trimming the edges.
Contrary to what government has tried to convince the public of in the last past years, America was made great by private industry both by smalls businesses and giant corporations. Can America regain its competitive edge?
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