Citing the urgent need to repair the nation’s ailing financial system, Sen. Chris Dodd (D-Conn.) unveiled his own financial regulatory reform plan on Monday.

Dodd, who presides over the powerful Senate Banking Committee, said although a package he had been working on with fellow committee members Richard Shelby (R-Ala.) and Bob Corker (R-Tenn.) was close to being finished, he decided he could no longer wait for them to help put forth legislation.

“Nearly seven million have lost their homes to foreclosure over the last several years. Millions more have lost their retirement funds or their small businesses…Americans are frustrated…and they wonder if anyone is looking out for them…It is certainly time to act.”

In an attempt to prevent future collapses of both the housing and credit markets, Dodd’s plan would do four main things: First, it would abolish the belief that certain banks and financial institutions are “too large to fail,” ensuring that taxpayers would not again be asked to help bail out firms that fall into trouble. Next, it would create a new independent consumer protection agency (CFPA) to serve as a watchdog over various financial products, and would also establish a council tasked with identifying threats to the nation’s economic stability. Finally, it would increase the transparency by which complex financial tools such as hedge funds and derivatives are regulated.

“The legislation I’m offering is comprehensive in its scope because the crisis it aims to solve is comprehensive in its scope,” Dodd said.

While the plan has bipartisan agreement on several of its provisions, Dodd acknowledged that it currently lacks bipartisan support. Additionally, Dodd hesitated to say that the plan would even receive the blessing of every Democrat on the committee.

There are a few reasons for this. First, lawmakers and outside experts are skeptical over whether housing the CFPA inside the Federal Reserve (Fed) is a good idea. Those skeptics argue that the Fed contributed largely to the economic decline, and thus should not be given increased authority. During his press conference however, Dodd insisted that the CFPA would be an independent body, under no command of the Fed.

Another area of concern for some is that smaller-to-medium-sized banks would be needlessly subjected to tightened regulation under the legislation. But Dodd assured that firms with assets valued at under $10 billion would be excluded from increased oversight.

“We must restore confidence and optimism in our economy, accountability in our markets and stability to our middle class,” he said.

The hardest part for Dodd will now, of course, be getting the votes necessary to pass his plan. With the debate over health reform having renewed an atmosphere of partisanship in Washington, Dodd’s legislation will probably be viewed as too politically risky by moderates and conservatives who face re-election this year. Yet on Monday, Dodd — who has announced he will not be running for another term in office — viewed the prospects of passage with an almost defiant sense of confidence.

“We will have financial reform adopted this year in the Congress of the United States.”

Anne Vorce, director of the New America Foundation’s Fiscal Roadmap Project, says she thinks that the financial reform plan proposed by Sen. Chris Dodd (D-Conn.) “goes too far.” (0:38)

 

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By Meagan Wiseley – University of New Mexico/Talk Radio News Service

Chairman of the House Financial Services Committee Barney Frank (D-Mass.) said Friday that on the economic front, America received good news and bad news today following the Labor Department’s announcement of a 10.2% unemployment rate.

“Although 190,000 more American’s lost their jobs…that is substantially less than the pace at which they were losing jobs until fairly recently,” Frank said during remarks at a conference sponsored by NoLimits.org, a progressive on-line organization founded by Frank’s sister.

Frank said the American Recovery and Reinvestment Act, or the stimulus bill, had a positive impact in deterring unemployment, explaining that unemployment rates would be higher if the stimulus bill hadn’t passed.

Frank also said that the lack of regulation in the financial sector, which he contributed to Alan Greenspan, the former Chairman of the Federal Reserve, led to the AIG crisis and the following recession. He praised the current Chairman of the Federal Reserve Ben Bernanke for his willingness to collaborate with Congress over new financial regulatory reforms.

Frank remained positive about the economic outlook.

“We are making progress … things are getting better virtually on every front [and] I am confident that when we are through with financial regulations…the kind of things that got us in trouble in the past won’t get us in trouble in the future,” Frank added.

World Bank Group President Robert Zoellick says “It should not be a surprise that American democracy is hesitating about authorizing the Fed to supervise systemic banking risks as well as operate monetary policy, adding to its power.” (0:12)

 

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Regarding the Federal Reserve’s power, World Bank Groups President Robert Zoellick asks, “Will democratic governments permit independent central banks to assume even more authority?” Zoellick adds that “Congress felt surprised about the Federal Reserve’s authority to create funds, buy assets, devise global swap lines and make transactions outside the usual process for expending public monies.” (00:13)

 

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Rep. Ron Paul (R-Texas) says more oversight, not secrecy is what the Federal Reserve needs. :16

 

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Rep. Ron Paul (R- Texas) says the Federal Reserve is no longer fulfilling the role it was created to fill, so he believes the entity needs government oversight. :34

 

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Federal Reserve Board of Governors General Counsel Scott Alvarez says that if Rep. Ron Paul’s (R- Texas) H.R. 1207 proposal is enacted, the public would lose confidence in the Fed’s ability to control interest rates and monetary policies. :44

 

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by Julianne LaJeunesse- University of New Mexico

Should the Federal Reserve Committee be regulated by the Government Accountability Office? U.S. Representative Ron Paul (R-Texas) says yes, and Scott G. Alvarez of the Federal Reserve says no.

Paul is the sponsor of H.R. 1207, which calls for audits on the Federal Reserve, a quasi-public entity that in theory can control the nation’s money supply, set interest rates, and implement monetary policy.

At a Friday hearing, Paul said the Fed needs GAO oversight because they aren’t doing their job correctly.

“The Federal Reserve was designed, and their mandate was to make sure that we have full employment, price stability, and stable interest rates,” Paul said. “In my lifetime, interest rates have been 21 percent and less than one percent- so they fail there. They [the Fed] want a stable dollar and stable prices… well, we have continuous inflation.”

Paul said it’s Congress’ responsibility to make sure the Fed does what it was created for and not buy into the idea that the Fed needs more power and more secrecy.

Fed Board of Governors General Counselor Scott G. Alvarez argued before Paul, Chairman Barney Frank (D-Mass.), and other members of the House Financial Services Committee, saying that Fed autonomy is instrumental in safeguarding U.S. interest rates, but also that an independent Fed is a nonpolitical Fed.

Alvarez said from an economic stance, GAO regulation would hinder Fed access to and implementation of some programs.

“If it looks like the Federal Reserve is changing directions because a statement [of] the policy review by another agency is influencing the Federal Reserve’s decision… then the integrity of the process will be undermined, confidence that the Federal Reserve will move in the direction that is best for the economy will be undermined, and we won’t be able to carry out our job as well,” Alvarez said. “And that’s what we’re concerned about.”

Alvarez said the Fed has taken many steps to increase transparency since the 2008 bank bailouts, but when Rep. Emanuel Cleaver II (D- Mo.) asked him about the misinterpretation between Congress and the Treasury Department and the Federal Reserve, as far as Troubled Assets Relief Program allocations, Alvarez said the latter departments decided to use the funds to restore confidence to banking institution, a decision Cleaver said was not immediately apparent when TARP was passed.

Treasury Secretary Timothy Geithner explains why the newly proposed Consumer Financial Protection Agency must have the authority to both write and enforce rules for consumer protection. (0:33).

 

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