President Obama was quick to claim victory at week’s end, after congressional negotiators hammered out a final bill regulating the financial sector, saying it provides “90% of what I proposed.”
But just how the nearly 2,000-page bill will affect New York — which relies upon financial institutions for a major share of its tax base — remains unclear.
After all, as Senate Banking Committee Chairman Chris Dodd admitted: “No one will know until this is actually in place how it works.”
Which is why Rep. Jeb Hensarling (R-Texas) warns of “three unintended consequences on every page of this bill.”
Not exactly reassuring.
To be sure, negotiators rejected Sen. Blanche Lincoln’s demand that Wall Street banks spin off all of their lucrative derivatives-trading arms — a move that would surely have sent that business overseas, costing New York thousands of jobs.
The final bill forces them to shed only their riskiest derivatives trades — such as securities based on real-estate mortgages — over the next two years and allows them to hold on to certain trading related to interest rates, currency rates, gold and silver.
That’s seen as a big win for the banks, which had feared the worst — and were heaving a sigh of relief Friday despite having to pay $19 billion in new fees.
The bill greatly enhances the power of the Federal Reserve, which will assume vast new authority, including control of a new consumer-protection bureau with near-total autonomy to write and enforce rules regulating credit-card fees and such.
That could be problematic, since charging the Fed with oversight of day-to-day bank management stands to undermine its regulatory independence.
More importantly, the bill does nothing to end the kind of lending practices that instigated the financial crisis in the first place.
Fannie Mae and Freddie Mac — which ended up buying and/or backing 90% of the loans originated by Countrywide, the largest sub-prime lender — are barely touched by the bill, even as they continue to drain the US economy.
That’s hardly surprising: Both Dodd and House Financial Services Committee Chairman Barney Frank, the bill’s primary authors, have been Fannie and Freddie’s biggest champions and long turned a blind eye to their careless underwriting.
Which is why Sen. Judd Gregg, speaking for Republicans, calls the bill “a failure” that “will not significantly reduce systemic risk in our financial sector.”
Dodd-Frank, in other words, may play well for campaigning Democrats on the trail this fall. But, like health-care reform, its long-term impact on the US economy is ominous.