[StBernard] The Truth V. The National Journal: You have got to be kidding

Westley Annis Westley at da-parish.com
Fri Nov 20 22:11:52 EST 2009


The Truth V. The National Journal: You have got to be kidding



Washington, DC - Today, House Financial Services Committee
Communications Director Steve Adamske released the following statement after
reading the Nov. 21 National Journal article, "End of the Beginning,"
written by John Maggs:



"You have got to be kidding."



On page 54 of the November 21 edition, reporter John Maggs invents a
"question and answer" article that discusses the status of financial
regulatory reform. The article has several errors and misrepresentations
that have been corrected below:



National Journal: What's going on with financial regulatory reform? I know
that Dodd has a new plan and that Frank is expected to move his plan out of
committee soon, but I still can't tell what the administration's plan is.
Why so many plans? Well, for starters, this re-regulation of finance is
huge, so it is natural that everyone would want to drive the train.
Primarily, though, the many approaches reflect a strategic decision by the
Obama administration. Rather than come out with a fully formed plan and
guide the negotiations, the president's advisers decided to let Congress
work out the details.



HFSC: This is 100% false. President Obama's team did indeed produce a plan.
They delivered to the House Financial Services Committee and to the Senate
Banking Committee a 13 title bill totaling several hundred pages, complete
with legislative language, and that language is serving as the base text for
our deliberations.



National Journal: But didn't Obama offer a comprehensive bill over the
summer? It wasn't a bill; it was called a "blueprint." It was sketchy in its
details, and many of its ideas have been changed or abandoned. House and
Senate Democratic leaders, for example, now say that regulation by the
administration's Consumer Financial Protection Agency should be limited to
the largest 10 percent of banks. Other fundamental matters were left
unmentioned, such as the way to discourage big banks from taking on too much
risk -- how, exactly, to avoid fostering banks that are "too big to fail"
and thus take reckless risks because they believe that the government will
bail them out. No plan has settled on how to avoid this problem.



HFSC: 100% false again. As discussed above, while President Obama did
release a blueprint in early June, he ordered his staff and the Treasury
Department to produce a bill. They did. In addition, the National Journal
is dead wrong to suggest that we abandoned the administration's plan. To
the contrary, we are implementing the administration's plans.



The National Journal is also wrong to say that the House Financial Services
Committee's bill, H.R. 3126, limits the reach of the Consumer Financial
Protection Agency to 10 percent of the banks. This is 100% false. All
banks will be subject to the rules and regulations of the Consumer Financial
Protection Agency. The committee only exempted independent examinations of
community banks by the CFPA. In addition:

* The CFPA will write the rules for all institutions on credit cards,
overdraft fees, and all other aspects of financial consumer protection- none
of the covered banks will be exempt in any way from these stringent new
rules.
* The CFPA will receive and monitor all reports on consumer exams done
by the prudential regulators at a covered institution, looking for signs of
non-compliance by the institution or problems in the regulator's conduct of
exams.
* The CFPA may at its discretion send an examiner on any exam of a
covered bank, thrift or credit union.
* This examiner will participate in all aspects of the exam, from
design to final report writing
* In an unprecedented move, the CFPA will be able to remove the
prudential regulator and take over the exams itself if it finds that the
regulator is not adequately pursuing or enforcing violations, or that there
are other consumer problems at the bank.
* Finally, the CFPA retains complete control of the consumer complaint
process, and has authority to investigate and enforce against violations at
any institution based on those complaints.



National Journal: Isn't it typical to start with a blueprint? Isn't that how
President Reagan did tax reform in the 1980s? Yes, but it's not typical to
be as disengaged as the Obama administration seems to be this late in the
game. The White House said all along that it wants to complete the reform
process this year, and even though it has pushed Congress to vote on the
legislation, it opposes some aspects of both chambers' bills. That rush
apparently was at least partly responsible for a rift between Dodd and the
top Republican on the Senate Banking Committee, Sen. Richard Shelby of
Alabama.



HFSC: 100% wrong again. The staff of the House Financial Services Committee
has been in regular contact with White House staff and the Treasury
Department. It is a complete lie to say the Obama administration has been
disengaged.



National Journal: Why did the White House proceed this way, without firm
positions? For reasons of style and necessity. On the style point, it
should be clear from health care that in implementing his agenda, Obama
seems to prefer leaving the details to Congress. His style simply differs
from that of past presidents, who have led negotiations rather than let
congressional leaders take charge. To cite Obama's predecessors, the Bush
team was deeply involved in lining up votes and twisting arms to pass his
2001 tax cut; President Clinton did the same in ending Cold War trade
restrictions on China. That doesn't seem to be how this White House likes to
do things.



HFSC: Again 100% wrong. They have firm positions and they have worked with
us every step of the way - the National Journal just never bothered to find
out.



National Journal: What about necessity -- why did the administration have to
start out that way? Because even as late as June, Obama's advisers hadn't
decided what to do, and in many ways, they still haven't.



HFSC: Again 100% wrong. The administration brought to us a bill composed of
13 titles and hundreds of pages which has served as the base text. Of
course we have changed things, but this is normal in the course of
legislating. We have worked with them every step of the way.



National Journal: You've got to be kidding. As with every phase of the
financial crisis, the government was improvising, trying to stay ahead of
events. Arguably, Obama had good reasons for moving forward with something
on financial regulation, even if the proposal was incomplete. He had to send
the message to the global financial system that there was a plan, some
process, to avert a recurrence of the kind of crisis that took hold in 2008
and shut down bank lending. Five months after the inauguration, after an
$787 billion stimulus plan, and after deciding that health care would be his
focus in 2009, it just wasn't possible to re-design financial regulation in
a few weeks. On the other hand, deliberating for months internally, with
rumors and details leaking out, could have destabilized the markets.



HFSC: No, you have got to be kidding. As has been discussed in several
parts of this rebuttal, the Obama administration within five months of
taking office produced a blueprint for reform, and two months after that,
produced an extensive, 13 title bill that has served as the base text for
our deliberations.



National Journal: Wasn't politics a big reason for the haste? Without some
plan, Republicans would have spent the past five months complaining that
"Obama is wasting time on socialist health care and neglecting financial
reform." Of course politics was a big factor. History will have to judge
whether Obama's push on health care led him to neglect more-important
matters. With or without health legislation, however, it would have been
impossible for Obama to decide fundamental questions of financial regulatory
reform so quickly. For one thing, the financial industry was unprepared and
hadn't sorted out what it would and would not accept. The White House
couldn't take a final stand on matters without getting the banks and other
financial institutions on board. The months since June have really been a
feeling-out process for both sides.



HFSC: 100% wrong again. The Obama administration has been engaged on all
issues of financial regulation reform, producing direction and producing a
bill. The Obama administration has not neglected this effort.



National Journal: So banks are holding up this process? That's too
simplistic. In our system, where banks and other moneyed interests finance
every congressional campaign, banks have a seat at the table. There are
other considerations, but it would be silly to pretend that such a large
industry has no role. As with health care, the Obama team needed time to
determine which parts of the financial industry could kill the process and
which parts could be co-opted. For example, after the House's hearings it
became clear that smaller banks, with a presence in every congressional
district, weren't willing to go along with the consumer protection agency
proposal. Administration officials could see that the largest 10 percent of
banks accounted for 80 percent of lending, so they let the bottom 90 percent
off the hook. It took time to make this judgment, and there are many more to
make.



HFSC: 100% wrong again. Banks are not "off the hook" when it comes to
consumer protection. As discussed above, all banks are subject to the rules
and regulations of the Consumer Financial Protection Agency. We only
exempted independent examinations of community banks and credit unions from
the CFPA. All other rules apply to all banks.



National Journal: Well, where is the process now? Isn't the House going to
be voting on the Frank bill in a few weeks? Obviously, the bill won't be
finished this year, considering that the Senate plan was unveiled a week and
a half ago and is fundamentally different from the House version. The
question is whether the process is near the end or much closer to the
beginning, and there are signs that it is much closer to the beginning.



HFSC: The House will vote on the reform in mid-December and the Senate is
currently marking up their version.



National Journal: What signs? Among the differences between the chambers'
proposals, the Senate plan is predicated on a really big change--taking all
bank regulation away from the Federal Reserve Board and creating a powerful
agency to assume the Fed's role in managing the stability of the financial
system, both domestically and internationally. Fed Chairman Ben Bernanke is
against this, and so are Treasury Secretary Timothy Geithner and White House
economics adviser Lawrence Summers. This conflict is too fundamental to sort
out in routine conference negotiations. Other issues aren't as complicated
-- whether to merge two small agencies or four, for example. But some other
basic matters remain undecided.



HFSC: Issues are too fundamental to sort our in routine conference
negotiations? Says who? You? How else will the differences between the
House and Senate be decided?



National Journal: Such as? Such as the whole point of financial regulation.
Before the crisis, the government implicity guaranteed that it would do
whatever was necessary to prevent the collapse of the financial system.
Today, that guarantee is explicit, and it will be codified in this financial
regulatory overhaul. The problem is, no one has decided how to guarantee the
solvency of giant banks without encouraging the kinds of risky behavior that
caused the crisis. How do you prevent the emergence of banks that are too
big? There are ideas -- Dodd would use an exotic kind of bond to keep banks
in line -- but no decisions. Likewise on derivatives, the privately traded
securities that allowed insurance giant American International Group to
almost wreck the global financial system. To sum up the House and Senate
action on derivatives, the government is still in the early stages of
determining how derivatives will be regulated.



HFSC: On the too big to fail issue, I would encourage you to read the
excellent coverage by Bill Swindell in today's (Nov. 20) CongressDaily of
our committee's deliberations on the Kanjorski amendment, and continue
reading CongressDaily on page 8 on the Gutierrez amendment. Our whole
effort, from regulating subprime mortgages to reining in derivatives and
ending bailouts, is to ensure that the taxpayers never again have to foot
the bill for other people's lousy business decisions.



National Journal: When is this going to get done? A bill could be enacted
by June, but it is also easy to see action slipping past the fall 2010
election. Obama wants to get reform done to claim credit for Democrats, but
Republican opposition is arguably as strong as it is on health care, and the
GOP is confident that it will have larger numbers in 2011. The president was
able to shorten the customary reform timetable when it came to health care,
and perhaps he can do so on financial regulation as well. Big reforms
usually take time, however -- Reagan embraced tax reform in 1984, but it was
1986 before it came to a vote. Ironically, as the financial system recovers,
the pressure for reform lessens. Dodd, in a tough re-election fight, could
be crucial if he seeks to finish action in time to impress voters. He might
force a partisan vote this fall to get the issue off his plate, but that
might hinder compromises in the final stages.



HFSC: Wrong. Chairman Frank and Chairman Dodd are committed to making
financial reform a reality as soon as possible. The American people have
waited long enough for meaningful reforms, and they do not deserve to wait
any longer.



National Journal: It sounds like I should bet on this taking a lot more
time. With big reforms, that's usually a good bet.



HFSC: We certainly wish the National Journal would take its time to do some
quality reporting.



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