The Slow Death of Financial Regulation

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So how is Chris Dodd doing in his negotiations with Republicans over financial reform? Felix Salmon points us to a memo from Taylor Griffin and Tony Fratto that suggests a compromise on the Consumer Finance Protection Agency is in the works: “An independent agency with its own source of funding would be established to regulate all federally chartered banks. The agency would have two divisions: one to conduct prudential regulation and one for consumer protection. The agency’s director would decide disputes between the divisions.” Felix comments:

I’m not entirely clear what this means, but it seems, on its face, to imply that the FDIC, OTS, and OCC will all be combined into one agency, which would then have somewhat conflicting goals, when it comes to the zero-sum tug-of-war between banks and consumers. On the one hand, it would be responsible for ensuring that banks are profitable and well-capitalized; on the other hand, it would be responsible for ensuring that banks don’t gouge consumers in their search for adequate profits.

Most worryingly, the consumer-protection part of the agency would only seem to have control over federally chartered banks. That’s a very bad idea indeed, since it’s precisely the non-bank financial institutions — subprime lenders, payday lenders, non-bank credit card companies, Walmart, etc etc — which need as much if not more regulation, from a consumer protection point of view, as the banks.

….So, there’s no good news here, I’m afraid. And I’m inclined to agree [] that if working with Corker means losing the guts of the CFPA, it’s best to ditch him altogether and just try to push something through the Senate with the support of Democrats alone.

As much as I’m in favor of a strong CFPA, I’ve never thought it was the linchpin of financial reform. Much more important are broad, effective limits on leverage and capital requirements. Unfortunately, the Senate bill probably won’t do very much on that front either, and what limits it does put in place are likely to be limited to conventional banks. But as with the CFPA, if the bill’s scope doesn’t include all the non-bank financial institutions, it’s really not likely to do much good.

So I agree with Felix in one sense: if you don’t have rules that go beyond conventional banks, you’re not doing anything very useful. But what I don’t get is his belief that if Bob Corker won’t bend on this, then “it’s best to ditch him altogether and just try to push something through the Senate with the support of Democrats alone.” How exactly can Democrats do this? This kind of regulatory stuff can’t go through reconciliation, and it’s certain to be filibustered. So without some Republican support, passing a bill is impossible. I don’t really see what alternative there is.

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WHO DOESN’T LOVE A POSITIVE STORY—OR TWO?

“Great journalism really does make a difference in this world: it can even save kids.”

That’s what a civil rights lawyer wrote to Julia Lurie, the day after her major investigation into a psychiatric hospital chain that uses foster children as “cash cows” published, letting her know he was using her findings that same day in a hearing to keep a child out of one of the facilities we investigated.

That’s awesome. As is the fact that Julia, who spent a full year reporting this challenging story, promptly heard from a Senate committee that will use her work in their own investigation of Universal Health Services. There’s no doubt her revelations will continue to have a big impact in the months and years to come.

Like another story about Mother Jones’ real-world impact.

This one, a multiyear investigation, published in 2021, exposed conditions in sugar work camps in the Dominican Republic owned by Central Romana—the conglomerate behind brands like C&H and Domino, whose product ends up in our Hershey bars and other sweets. A year ago, the Biden administration banned sugar imports from Central Romana. And just recently, we learned of a previously undisclosed investigation from the Department of Homeland Security, looking into working conditions at Central Romana. How big of a deal is this?

“This could be the first time a corporation would be held criminally liable for forced labor in their own supply chains,” according to a retired special agent we talked to.

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