Financial law is very complicated. I understand that. There are all kinds of interlocking pieces, and small changes in law can have big unintended consequences. Something might seem like a good idea but actually would create all kinds of perverse incentives. But Sheldon Whitehouse’s amendment was pretty straightforward.
“SEC. 141. LIMITS ON ANNUAL PERCENTAGES RATES.
“Effective 12 months after the date of enactment of this section, and notwithstanding any other provision of law, the interest applicable to any consumer credit transaction (other than a transaction that is secured by real property), including any fees, points, or time-price differential associated with such a transaction, may not exceed the maximum permitted by any law of the State in which the consumer resides. Nothing in this section may be construed to preempt an otherwise applicable provision of State law governing the interest in connection with a consumer credit transaction that is secured by real property.”
That’s legalese for “no national bank can charge more in interest than what the consumer’s State’s laws provide.” Or, in other words, national banks and their subsidiaries will not be exempted from obeying state law by an act of Congress. Seems like a pretty obvious thing. Too bad only 33 Democrats and two Republicans voted for Whitehouse’s amendment.
It’s interesting how Republicans get very quiet about State’s Rights when it comes to financial regulation of usury. But it is pretty depressing to look at the list of Democrats who want to keep it safe for national banks to charge onerous interest rates. Now, I admit that I don’t fully understand current law or how Whitehouse’s amendment might have screwed certain deals up that could conceivably lead to a greater good. But, on the surface, this kind of crap stinks to high heaven. And that leads me to my impatience with the shenanigans the Democrats are carrying out regarding Blanche Lincoln’s derivative regulation.
Blanche Lincoln surprised everyone when she chose, as chair of the Agriculture Committee, to include very tough language in the Wall Street Reforms bill that would force big firms to spin off their derivatives desks. It won her a lot of headlines about how she was sticking it to Wall Street. But, Dodd announced a watered down compromise on Lincoln’s election night and then withdrew the compromise when she was forced into a run-off. Now it looks like the tough language might actually survive in the Senate bill, but everyone and their brother knows that they intend to strip the language out when the Senate bill and the House bill are melded in conference. It’s a stupid game of trying to make Lincoln look like a populist just long enough for her to win the nomination, only to reveal the truth that’s she’s a corporatist the moment after. This disturbs me.
I’m not even that upset about the fact that her language will never survive. Dodd opposes the language, as does Obama and his financial advisers. Maybe they’re right. I kind of doubt it, but I don’t understand all the interlocking pieces of this legislation. What disturbs me is the cynicism and dishonesty of trying to make Lincoln look like she’s some kind of populist. She’s not. There is a core of Democrats in the Senate (it looks to number about thirty-five) that are consumer friendly on financial matters. Blanche Lincoln is not in that core. So, stop bullshitting the voters in Arkansas. Strip her language out now and show some respect for our intelligence.
The WH is correct about the language, and you’re correct about protecting Blanche Lincoln. Strip it out now. End this charade. Get that corporatist out of there already. She’s going to lose her seat, whether it’s now or later should make this choice plainly obvious: the party’s best chance is if she loses now.
I’m tired of them protecting incumbents just for the sake of it. Do the Republicans do this kind of shit, or is it just our side?
Also, from what I’m hearing, Merkley-Levin would be pretty easy for Wall Street to get around. So rather than supporting their amendment, we should support a version of the Volcker rule that actually works. It’s either a bit of grandstanding on their part, or a genuine belief that the Street will be hit hard by it. I’m going with the former.
Although I don’t know much about this. I’d like to see more sources before making my full judgment. I’d especially like to see Volcker’s position on this himself.
Sorry for the spam 🙂
Why is it a bad idea?
Well, like you said, Sheila Bair and Obama’s other advisors (such as Paul Volcker) have all come out against it:
http://thehill.com/blogs/on-the-money/banking-financial-institutions/96687-volcker-warns-against-lin
coln-derivatives-provision
That’s number one. I respect Paul Volcker’s judgement. Although that’s odd, considering he is an inflation hawk. Perhaps it’s because he was competent at his job at the Fed whereas Greenspan was too busy allowing the Maestro labels get to his head and allow the markets to go awry.
Number two, the “no bailout” provision (Section 106) would cut off a shit load of banks from the Fed’s discount window. A lot of people might think this is good, but this is one of the main reasons the Fed is supposed to be independent in the first place; to prevent the stigma of borrowing when they need to. Slight tangent, but Dean Baker doesn’t think there would be any stigma attached to this, but he never says why he doesn’t think so. I find that odd considering that’d be the point of the audit: to pinpoint the people borrowing and tell them to stop.
Number three, the point that EoC makes regarding this cannot be ignored:
http://economicsofcontempt.blogspot.com/2010/05/origins-of-blanche-lincolns-disastrous.html
When I’m seeing financial lawyers, the Fed, the SEC, Volcker, and the a great deal of other economics people in the admin coming out swinging against this, it might be a good idea to heed their advice. Yeah yeah, there’s a risk that they’re all bought and paid for, but really, lobbying only goes so far. Dodd may be preparing for his next job; he might want to use this new bill to make himself some money at the casino; but the fact remains that he is retiring, and he knows an awful lot about this sector.
Volker is against it because he thinks his own rule is good enough.
“When I’m seeing financial lawyers, the Fed, the SEC, Volcker, and the a great deal of other economics people in the admin coming out swinging against this, it might be a good idea to heed their advice.”
Funny, most of those people thought we had repealed the business cycle and it was the DFH’s that were right again. As they have been since 2000.
And this comes down to a comment I read on here not too long ago regarding this. The DFH’s are so warped up in their own reality of always being right that anyone possibly opposing something they propose MUST be wrong. I don’t read who says it and say “Oh hey, they must be right!” I’m reading their arguments and make an assessment based on that. The former would be a fallacy.
Do you have any other sources besides EoC? Has Krugman, Stiglitz or Roubini weighed in on it?
Never mind my last comment. You are lucky. 😉 I’ve since found out that Yves Smith at Naked Capitalism actually agrees with EoC on this. But that still doesn’t bode well for the over all bill actually preventing another crisis any time soon.
Or am I missing something.
Interesting list of Democratic opponents with only a few surprises.
Hagan is not a surprise; she’s owned by Bank of America.
This is an important topic and thanks to BooMan for pointing out that Blanche Lincoln is no populist nor is she a progressive.
Good to see too, BooMan, that two real liberal Democrats, Russ Feingold of Wisconsin and Maria Cantwell of Washington, said “NO” to Harry Reid and said that the bill in the Senate that supposedly will reform financial regulations is too weak. They are asking for major components of the Glass-Steagall Act to be brought back. It took real courage and leadership for these two Democrats to stand up and say the reform bill doesn’t go far enough.
Good for these two fine Democratic Senators. They, not Blanche Lincoln, deserve our applause.
You have perfectly articulated my deep grievance with our politics:
Everything is done for appearances only. This has happened with “health care reform” which became “health <small>insurance</small> reform (I hope the “small” tag works like it does at my place). There are good things in that bill, but on the whole it’s a sop to the industry.
So I’m not surprised to see this happening financial “reform”. Every good idea or beneficial policy is twisted and gutted to the point of uselessness (and often just plain harm), and then presented to the people like it’s the best thing since sliced bread, until all the problems come out, at which point the lawmakers shrug and say “who coulda known.” You send them to DC to bake you a chocolate cake, but instead they make it lout of shit. Then when you complain they say “what? It’s brown, isn’t it?”
Good diary, short and to the point.
Roubini is in the current Bloomberg BusinessWeek – and states the Dodd bill “doesn’t go far enough”.
again, nearly half of the senate are millionaires; are half of us millionaires? the notion of “representative” government at the federal level is a complete, hideous FARCE.
The other half haven’t been in the Senate long enough yet.
Of course, getting $1 million in net worth is not as difficult as it used to be. Lots of Californians would be millionaires except for the fact that the bank holds $900,000 of their mortgage.