Beyond the political calculations sparked by Connecticut Sen. Chris Dodd’s decision to retire, the decision of the chairman of the Senate Banking Committee to relieve himself of electoral considerations a full year before his term is up may carry deep implications for various flavors of financial reform legislation making their way through Congress. Indeed, given Connecticut’s “blue state” tendencies, and the fact that Dodd’s poll numbers had been lagging badly ever since the revelation that he accepted a “sweetheart” mortgage from Countrywide back in 2003, his retirement – politically – is something of a gift to Democrats hoping to hold onto the Senate in the next election. The once formidable vote-getter who won five terms in the Senate is by now, at best, damaged goods in the political sense.
But Dodd’s influence on the Senate debate on a myriad of issues may well be magnified as he seeks to erase or at least mitigate the damage to his reputation caused by the Countrywide scandal, as well as accusations that the financial industry has exercised undue influence on him during his tenure as Banking Committee chairman.
The desire to clear his name runs deep in Dodd, whose father, the late Sen. Thomas J. Dodd, was one of only six senators ever censured by the U.S. Senate after the Senate Ethics Committee found in 1967 that Dodd, also a Connecticut Democrat, had converted regularly used campaign donations for personal use. It led to a quick, ignominious end to Thomas Dodd’s public career. He did not live to see his son elected in 1980, but in many ways, those close to the family saw Chris Dodd’s own Senate career as part of a personal quest to clear the family name. The question of the younger Dodd’s legacy, then, likely will be more than a footnote for the remainder of his term, which ends in January 2011.
Like many intimately involved in the rescue of the financial system following it’s the near-death experience of late 2008, Dodd has taken many positions which could hardly be construed as “pro-bank.” In particular, he has been among the most vocal proponents (along with the FDIC chief Sheila Bair) of relieving the Fed of its role as the primary systemic regulator.
In November, following passage of a House financial reform bill driven primarily by Rep. Barney Frank, Dodd’s counterpart on the House Banking Committee, the Connecticut senator introduced a Senate’s version which surprised many in the depth of changes it proposed – including many of the investment bankers who commute to Wall Street from Connecticut’s affluent southwestern suburbs, whom over the years have been loyal donors to Dodd’s reelection campaigns.
Senate Republicans, including the ranking minority member on the panel, Sen. Richard Shelby, have attacked the bill as overambitious with regard to regulation and timid when it comes to protecting taxpayers from further exposure to “too-big-to-fail” institutions.
Dodd’s bill, with important differences, bears some resemblance to the House version. Like the bill passed by the lower chamber, it would create a consumer protection agency to deal with transparency issues regarding credit cards, mortgages and other lending vehicles. It empowers the SEC and other agencies to regulate derivatives, and imposes new insurance and capital requirements on banks.
Yet where the House bill accepts the Fed’s role as the chief regulator of systemic risk, Dodd’s bill would strip the Fed of some of its powers and instead create a separate panel to monitor the issue and even move to “resolve” (i.e., break up) firms that pose a dire risk to the economy. While Dodd supported Ben Bernanke’s reappointment, he grilled him on these issues during recent hearings. On December 7, Dodd wrote that while the Fed deserved credit for action after the depth of the 2008 debacle became clear, it had too much power.
“Responsible for protecting consumers in mortgage markets, the Federal Reserve failed to develop meaningful mortgage regulations until after the housing bubble burst. Responsible for regulating bank holding companies, the Federal Reserve failed to rein in excessive risk-taking by large financial companies that ultimately required a taxpayer funded rescue. The lesson? An institution assigned too many roles cannot fulfill them all well. We must learn from these mistakes as we develop an architecture for financial regulation that can better predict and prevent the next crisis. Loading up the Federal Reserve with too many responsibilities dilutes attention from its core duties and exposes it to dangerous politicization that threatens its independence. Therefore, I propose creating new entities to focus responsibility for bank regulation, consumer protections and systemic risk, so these important duties will not need to compete for attention.”
Meanwhile, the lineup of Democrats on the Banking Committee post-election looks more moderate, as Concept Capital’s Jaret Seiberg notes (in a report excerpted by bnet’s Alain Sherter). Moderate Democrats, it seems, will be ascendant.
Many questions remain, of course.
· Will Dodd as Lame Duck now move more forcefully to reinstitute some elements of the Glass-Steagal Act?
· Will the fact that he no longer faces pressure to raise campaign funding empower him the in House-Senate negotiations, which ultimately must reconcile the various differences in these bills?
· Will the new, unbound Dodd be more or less friendly to the industry which he oversaw for so many years? At 65, after all, he may still want a paycheck, and the financial services industry is always on the lookout for influential advisors.
I’d love to hear your opinions …
One Response to “Dodd Unbound”
Dodd will do what’s best for Dodd.