Dodd Unveils Financial Regulation Bill
RENEE MONTAGNE, host:
And the government is pressing on with efforts to revamp financial regulation. Christopher Dodd, the Connecticut Democrat who chairs the Senate Banking Committee, offered a new financial reform bill yesterday. Its more than 1,000 pages long and its very different from proposals offered by the president and Barney Frank, who is Senator Dodds counterpart in the House.
To find out more, we turn to David Wessel. Hes economics editor of the Wall Street Journal and joins us from time to time. Hes here with us this morning. Good morning.
Mr. DAVID WESSEL (Wall Street Journal): Good morning, Renee.
MONTAGNE: Now, Senator Dodd would take away much of the Federal Reserves power to oversee banks. He would give that power to a new agency. So whats his argument in doing that?
Mr. WESSEL: Basically he says that the Federal Reserve failed in its job of watching over the banking system - thats why we had such a big crisis - and that the Fed would be better off focusing on one mission, moving interest rates to keep the economy growing and prevent inflation, and instead we should have one agency thats responsible for banks - its accountable - and another agency thats responsible for monitoring consumers. Its a model that some other countries have tried with very mixed results.
MONTAGNE: And why is it that President Obama and Barney Frank, over in the House, why is it that theyre taking a different approach?
Mr. WESSEL: I think there are really two basic reasons. One is, they dont think its a good idea to separate bank regulation from the business of making monetary policy and moving interest rates. The British tried that and they had a huge problem with coordination and ended up with an even worse banking crisis than we did.
And the second thing is that Mr. Obama and Mr. Frank want to get something done and they understand that in Washington its hard to make radical change. So theyre trying to make big changes but kind of stick with the existing structure, and Mr. Dodd is choosing otherwise.
MONTAGNE: And the Fed itself - not too thrilled with this idea?
Mr. WESSEL: Oh, thats interesting. So the Fed hates this Chris Dodd proposal, but theyre being very quiet about it. Both Alan Greenspan, the former Fed chairman, and Ben Bernanke, the current Fed chairman, have argued for years that the Fed cannot do its job unless it really has its hands on and its eyes and ears in the banking system. And they look at this recent crisis as evidence of that.
It wasnt a problem of inflation or unemployment that started this thing. It was a collapse of the banking system. And they say that if the Fed werent intimately involved with that, it couldnt do its main job.
MONTAGNE: And David, beyond the pros and cons of these two different approaches, what in the case of Senator Dodds proposal are the politics?
Mr. WESSEL: Thats also a good question, Renee. So the Fed is very unpopular on Capitol Hill now and in a lot of the country. And Senator Dodd is taking advantage of that, I think, to show that hes not captured by the Washington/Wall Street establishment. Hes making a big point that he has something different, far-reaching, challenging the Fed. And I think that serves his political interests.
Senator Dodd from Connecticut is up for reelection. He has a very hard fight. He got a bit of controversy for some mortgage loans he took from Countrywide Financial. And so hes using this as an opportunity to show his independence and to stand up for something that he knows that the Fed, the Treasury, and maybe even Barney Frank dont like. The problem is that it may make it very, very hard to get anything done.
It seems to me the bill is unlikely to end up looking like Senator Dodds. Its more likely that this will lead to a long period of gridlock and that nothing will happen until some time next year.
MONTAGNE: Well, its certainly true that the Fed exercised extraordinary power in this crisis that weve been in. You wrote about that in your new book on Fed Chair Ben Bernanke. How would Senator Dodd change that?
Mr. WESSEL: He would change that it in a lot of different ways. I think the most significant is he would greatly limit the Feds ability to make these emergency loans to firms like Bear Stearns, AIG. He would put some of that in the hands of a new council of regulators and greatly circumscribe their ability to do that in an emergency.
MONTAGNE: David, thanks very much.
Mr. WESSEL: Youre welcome.
MONTAGNE: David Wessel is economics editor of the Wall Street Journal.
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