Senator Dodd's financial reform bill, in summary

Here's a brief summary of the financial reform bill proposed by Senator Dodd:

• Consumers: A consumer-protection division would be created within the Federal Reserve, with the ability to write new rules governing the way companies offer financial products such as mortgages and credit cards. It would have authority over any bank with more than $10 billion of assets, and certain nonbank lenders.
• Banks: The Fed would oversee bank holding companies with more than $50 billion of assets. Regulators would have the discretion to force banks to reduce their risk or halt certain speculative trading practices.
• Failing companies: The government would be able to seize and break up large failing financial companies. Big companies would have to pay into a $50 billion fund to finance the dissolution of a failing firm.
• Systemic risk: A new council of regulators would be created to monitor broader risks to the economy. The council could strongly urge individual agencies to take specific actions to curb risk.
• Corporate governance: The Securities and Exchange Commission would have authority to write rules giving proxy access to shareholders who own a certain amount of stock. Shareholders would have a nonbinding vote on compensation packages for top executives.
• Hedge funds: Large funds would have to register with the government.

On the surface I don't think it's bad. I don't know much about the details.

I really like the consumer protection part, because a lot of credit card and consumer lending has gotten completely out of control. Will the new regulation result in 20% down payments for houses again? I doubt it. Why would the new regulation result in 20% down payments when the government, via the FHA, is encouraging 3.5% down payments?

I think having a systemic risk regulator is a good idea. I am skeptical about its ability to prevent future financial crises, though. After all, didn't the Fed completely look the other way during the buildup of the housing bubble? When everybody's getting rich, nobody wants to step in and stop the party. I don't see how this changes that innate human tendency.

Senator Dodd to retire

Good news:

Leading Democratic Senator Christopher J. Dodd, chairman of the Banking Committee, will announce Wednesday that he is retiring, NBC News has learned.

Dodd is a centrist and his popularity fell as the economy was gripped by a long recession brought on by the financial crisis.

Over the years, the Connecticut senator has raised millions of dollars from employees of Wall Street firms.

Senator Chris Dodd is a buffoon. He's the chairman of the Senate Banking Committee, yet has little understanding of the economy. He has been a leading advocate of homeowner bailouts. It's good to see him go.

His retirement probably reflects the fact that he has little chance of getting re-elected anyhow.

Senator Chris Dodd is still a crook

U.S. Senate Banking Committee Chairman Christopher Dodd got a special deal on mortgages from Countrywide Financial in 2003. Now he's playing games with reporters regarding the issue. From The Wall Street Journal:

Connecticut Senator Chris Dodd has finally, sort of, kind of, ended 193 days of stonewalling about his sweetheart loans from former Countrywide CEO Angelo Mozilo. At least he did if you were a fast reader and were one of the few reporters he invited to his Hartford office yesterday to review — but not copy or take — more than 100 pages of documents related to his 2003 mortgage financings through Countrywide's "Friends of Angelo" program.

These are the files that Mr. Dodd pledged to make public after the news broke last summer that the Chairman of the Senate Banking Committee had received preferential treatment from Countrywide. At first, Mr. Dodd denied everything. Later, he conceded that he'd been given special treatment but thought it was "more of a courtesy."

Heck, we'd all love the kind of courtesy that would have saved Mr. Dodd $75,000 over the life of the two loans he refinanced to the tune of $800,000, according to an analysis by Portfolio magazine. The savings came from rock-bottom interest rates and a free "float-down" — the right to borrow at a lower rate if interest rates fall before you've closed on the loan.

On Monday, with interest rates — even for non-VIPs — near historic lows, Mr. Dodd announced that he would refinance the sweetheart loans with another lender. ...

We don't know whether the documents Mr. Dodd briefly showed yesterday illuminate this mystery or not, because he didn't release them to us, or to the public or his constituents.

Update: I've covered Senator Dodd's "Friends of Angelo" loans in the past here. Wikipedia has details here, here, and here.

Barney Frank and Christopher Dodd deserve blame for Fannie and Freddie

The Independent, a British newspaper, blames the Democrats for the failure of Fannie Mae and Freddie Mac:

What is the proximate cause of the collapse of confidence in the world's banks? Millions of improvident loans to American housebuyers. Which organisations were on their own responsible for guaranteeing half of this $12 trillion market? Freddie Mac and Fannie Mae, the so-called Government Sponsored Enterprises which last month were formally nationalised to prevent their immediate and catastrophic collapse. Now, who do you think were among the leading figures blocking all the earlier attempts by President Bush — and other Republicans — to bring these lending behemoths under greater regulatory control? Step forward, Barney Frank and Chris Dodd.

In September 2003 the Bush administration launched a measure to bring Fannie Mae and Freddie Mac under stricter regulatory control, after a report by outside investigators established that they were not adequately hedging against risks and that Fannie Mae in particular had scandalously mis-stated its accounts. In 2006, it was revealed that Fannie Mae had overstated its earnings — to which its senior executives' bonuses were linked — by a stunning $9.3billion. Between 1998 and 2003, Fannie Mae's executive chairman, Franklin Raines, picked up over $90m in bonuses and stock options.

Yet Barney Frank and his chums blocked all Bush's attempts to put a rein on Raines. During the House Financial Services Committee hearing following Bush's initiative, Frank declared: "The more people exaggerate a threat of safety and soundness [at Freddie Mac and Fannie Mae], the more people conjure up the possibility of serious financial losses to the Treasury which I do not see. I think we see entities that are fundamentally sound financially." His colleague on the committee, the California Democrat Maxine Walters, said: "There were nearly a dozen hearings where we were trying to fix something that wasn't broke. Mr Chairman, we do not have a crisis at Freddie Mac and particularly at Fannie Mae under the outstanding leadership of Mr Franklin Raines."

When Mr Raines himself was challenged by the Republican Christopher Shays, to the effect that his ratio of capital to assets (that is, mortgages) of 3 per cent was dangerously low, the Fannie Mae boss retorted that "our assets are so riskless, we could have a capital ratio of under 2 per cent".

Senator Dodd: Help Those Poor Homeowners

From MarketWatch:

Senate Banking Committee Chairman Christopher Dodd said Tuesday the U.S. is facing a deepening economic crisis and called for more aid to homeowners and possibly an additional economic stimulus package to help consumers.

Those poor, suffering homeowners, why won't someone rescue them from their own mistakes?

"The Bank of America Bailout Bill"

On Tuesday, the United States Senate is expected to vote on the Dodd-Shelby Bill. The bill is officially named the "FHA Housing Stabilization and Homeownership Retention Act of 2008," however some congressional insiders are calling it "The Bank of America Bill" because of how it would benefit the bank. Bank of America even has a discussion document to promote the bill in Congress.

Examiner.com gives details on Senator Chris Dodd's sweetheart mortgage from Countrywide Financial, as well as Bank of America's political contributions. Bank of America is buying Countrywide.

Countrywide's VIP loan to Dodd, which saves the Banking Committee chairman $75,000 over 30 years, smells like a potential quid-pro-quo now that Dodd has pushed a bill that will save the company from itself, but what about Bank of America's behavior?

Bank of America's political action committee (PAC) has donated $20,000 to Dodd since he became chairman of the banking panel 17 months ago. From January 2007 to March 2008, Bank of America employees have donated at least $50,400 to Dodd's campaigns, according to the Center for Responsive Politics. So, while Dodd's sweetheart loan from Countrywide saves him personally $200 per month, his chairmanship earns him politically more than $1,000 per week.

These aren't bank tellers funding Dodd, either, as contributors include Bank of America's director of government affairs John Collingwood and Barbara Desoer, who oversees the merger with Countrywide and will "run the combined companies' mortgage operations," according to The Los Angeles Times.

Only Barack Obama and Hillary Clinton have received more Bank of America money than Dodd during the current election cycle. Republican nominee John McCain slightly trails Dodd, with $64,000 in reported Bank of America contributions.

Between the PAC and individual employees, Bank of America has showered $1.3 million on presidential and congressional candidates, according to the Center for Responsive Politics....

Bank of America stands to profit most from a bailout. It will take on Countrywide's bad loans, and under Dodd-Shelby, it could shift the worst ones onto the shoulders of taxpayers, via the Federal Housing Authority. Basically, Uncle Sam will buy Countrywide's stinky loans off of Bank of America.

Bank of America is kind of like an investor trying to "flip" a house: they buy a run-down property (Countrywide) for a discount, shell out some campaign contributions and earn some "sweat-equity" through lobbying. If Dodd gets his way, it will be a good investment for Bank of America.

To make things worse, the Associated Press is now reporting that President Bush may actually sign the bill despite his veto threat.

Again, you can very easily contact Congress and President Bush with a pre-written email opposing the bill by clicking here.