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Congress ready to abdicate March 6, 2010

Posted by WillardWhyte in Musings.
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It appears ever clearer with each passing day that there is no commitment to any type of meaningful financial reform in Congress. This is doubly true for reforms that would provide any dependable seat at the table for consumers — by that I mean families who borrow or invest in annuities, IRAs, mutual funds, 401Ks or 526 student loan funds, individuals and small business operators who borrow short or long-term, or taxpayers whose money (current and future) is increasingly pledged as a backstop to the next disaster from Wall Street.

The loud debate on healthcare — while necessary as a critical piece of legislation nears a vote — has all but drowned out the slow, steady and continuing retreat from measureable steps to address the problems that allowed markets to crash and seize, and then thrust the world economy into a tailspin that only recently found bottom.

The most visible sign is the withering of the proposed Consumer Financial Protection Agency (CFPA), a concept in full retreat soon to be buried in some garage in suburban Virginia with a sign out front noting which of the seven agencies that failed to do the job in the last 25 years won the fight for control of the new “cop” on the beat. The most effective arrow in the quiver of opponents of an agency whose SOLE duty is consumer protection in financial markets has been the suggestion that a new, costly bureaucracy would “burden” people and “small businesses” and place a drag on the economy. More Big Government. More Socialism. My favorite is this from the U.S. Chamber of Commerce:

“… protecting consumers is a critical part of financial regulatory reform, but creating more big government and more red tape with the CFPA is the wrong approach. This new agency will impose new burdens on small businesses and consumers, and their ability to invest, create jobs…”

Yes, having a separate agency with its own budget, clearly written authority answerable to the President is much more burdensome to the very people its mission calls for it to protect than having the budget split seven ways, the authority — and responsibility and accountability — splintered in the back offices of seven agencies whose primary missions are designed to maintain a healthy banking/investing environment. The only way that saves any money is if the budgets for those seven bureaus in the seven agencies don’t add up to what would be spent in one independent Agency.

Now the Chamber is claiming that small businesses across the country are clamoring against the CFPA for this reason. We know this from Ryan McKee, senior director for the U.S. Chamber’s Center for Capital Market Competitiveness. And his job, I’m sure, puts him in everyday contact with small businesses on Main Streets across the country for whom Capital Market Competitiveness is a real big concern.

I think not, because I think a lot of those small businesses, particularly ones who have relied on revolving credit or lines of credit, would simply love to have a dependable cop making sure the loan agreements are in everyday language, with no hidden fees or conditions or fraudulent claims, no back-office tricks that turn an on-time payment into a default.

The truth is that the financial industry is a major player at the U.S. Chamber of Commerce’s picnic and small businesses are not. And the same is true in Congress — with Democrats and Republicans. Which is why consumer protection, the separation of banks from investment houses and insurance companies also will not occur, even indirectly through what is now known as the Volcker Rule. The order of the day in the money markets remains “buyer beware,” and any substantial reform is doomed because it might cost money and it might hinder “innovation.” That means outsized risk — now drawing even more heavily on bank deposits and supported by federal government guarantees. Steps not even designed to treat the causes of the collapse and certainly unlikely to prevent the next debacle. Steps designed not to prevent behavior that risks another “systematic failure” but to erect a wall of public money to prevent such behavior from bringing the whole house down.

Congress is not studying and considering financial system reforms, or deciding what should be legal or not. It’s yelling at Toyota not with just one committee, but with three. It’s filibustering an extension of unemployment benefits. It’s playing to the cheap seats with whatever seems like the flavor of the day, hoping we all will fall for the same old Red-Blue dance in six months.

Financial reform legislation will pass when the financial industry gets done wrestling within its own ranks and tells Congress what is allowable, what won’t be a “drag on the economy” or hinder “global competitiveness.” They won’t even wonder for a moment what’s needed to make it less tough for a bakery down on Main Street to hire another counter hand. If you’re looking for an answer to a question like that, they’ll tell us where we can find that garage in the boonies with the guy who raises his hand at the Federal Reserve Board’s conference table to ask if something’s a square deal for the consumer, the stockholder or the taxpayer.

Here’s hoping that little guy holds his bowl way up high.

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