Today in Washington, D.C. - May 5, 2010 - In Summary, The Dodd Bill Still Sucks!

As senators prepare to vote on amendment to the Democrats’ financial regulation bill over the next couple of days, news stories continue to point out numerous problems with the bill that need to be fixed.

The AP notes today that Democrats have “agreed to jettison a $50 billion fund to liquidate large, failing firms” from the bill, which is being offered by Senate Banking Committee Chairman Chris Dodd (D-CT). The AP story also points out, “In their willingness to drop the $50 billion fund, Senate Democrats on Tuesday abandoned a provision that Republicans attacked repeatedly as a perpetual Wall Street bailout-in-waiting. The Obama administration also did not support the fund, which would have been financed by an assessment on large financial institutions.”

Prior to this agreement, Democrats were adamant that bailout provisions were not included in the bill. President Obama declared last week, “[W]hat’s not legitimate is to suggest that somehow the legislation being proposed is going to encourage future taxpayer bailouts, as some have claimed.” Despite these assertions, various experts, the CBO, and other Democrats all disagreed on the bailout issue.

Even The New York Times editors acknowledge that the Dodd bill needs work in their editorial today: “One of the most divisive issues in the Senate bill is a provision that could force big banks to spin off their lucrative derivative dealings. The provision was added to the bill late in the game, without hearings. Opponents fear that it would push derivatives deals into hedge funds or other entities that would be harder to regulate. Supporters say that the bill would adequately regulate derivative dealers wherever they are. The Senate debate, and hearings that can be scheduled before the House and Senate produce final legislation, can help settle the issue.”

The derivatives issue is the very thing that prompted FDIC chair Sheila Bair to write a letter to senators explaining the problems in the current Democrat proposal. As The Washington Post reported yesterday, “‘If all derivatives market-making activities were moved outside of bank holding companies, most of the activity would no doubt continue, but in less regulated and more highly leveraged venues,’ Federal Deposit Insurance Corp. Chairman Sheila C. Bair wrote in a recent letter to lawmakers. She said that [Democrat Sen. Blanche] Lincoln's measure could push $294 trillion worth of derivatives deals beyond the reach of regulators. If some FDIC-insured banks simply transferred this type of business to affiliated firms, it could still pose a danger because the affiliates would not be required to set aside as much capital as banks to cover losses from derivatives trading, Bair said.”

And The Wall Street Journal reports today, “Republicans have complained for months that the Obama administration’s financial overhaul push doesn’t include any resolution to the government’s expensive conservatorship of Fannie Mae and Freddie Mac. Now, three Republicans plan to offer an amendment during the floor debate that would force Democrats to take a politically difficult vote on what to do with the companies. Sens. John McCain (R., Ariz.), Richard Shelby (R., Ala.), and Judd Gregg (R., N.H.) plan to offer an amendment in the coming days that would force the government to end its conservatorship of Fannie Mae and Freddie Mac after a transition period and make the firms operate ‘without government subsidies’ in the future.”

Senate Majority Leader Harry Reid keeps insisting, “We have a very good bill on the floor.” But even Democrats acknowledge that “There are parts that need to be tightened,” as Sen. Mark Warner (D-VA) said recently. And a series of news stories over the last couple of weeks has highlighted serious problems with the bill, especially regulatory overreach harming Main St. businesses and the complete lack of provisions addressing the problems with Fannie Mae and Freddie Mac.  In summary, the Dodd Bill Still Sucks!

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