By Silla Brush - 06/17/09 08:21 PM EDT
Democrats and Republicans across Capitol Hill on Wednesday criticized President Obama’s plan to overhaul the financial system, with many lawmakers calling for specific changes while others slammed the broad outlines of the proposal.
Congressional Democrats and the administration are intent on passing legislation by the end of the year, but Obama’s desire for sweeping change to the system will run into tough questions from both parties and the stark reality of a calendar already dominated by thorny issues such as healthcare reform.
“By setting out clear rules of the road and ensuring transparency and fair dealings,” Obama said, “we will actually promote a more vibrant market.”
Lawmakers will begin digging into the details of the proposal on Thursday, when Treasury Secretary Timothy Geithner testifies before both the Senate Banking Committee and the House Financial Services Committee.
The chairmen of those two panels, Sen. Chris Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.), said they were both given assurances from leadership in the House and Senate that a regulatory plan would win floor time this year. Frank intends to pass legislation through his committee by the August recess, while Dodd said he envisions holding hearings in the fall to mark up legislation.
“Of course, we expect a give-and-take and for these things to evolve,” Geithner said on Wednesday, referring to Congress. “The important thing is that we get legislation passed that addresses the core problems in this crisis.”
The criticisms and lobbying battles began even before Obama formally announced the plan on Wednesday afternoon. In its effort to strike a middle-ground proposal and not rebuild the system from the ground up, the administration will face a series of criticisms from those who believe that Obama either went too far or not far enough.
Republicans opposed the vast majority of the proposal, arguing that in many cases it amounts simply to additional government bureaucracy. “It is hard to see how creating more regulators will solve the fundamental problem of a broken regulatory system,” said Rep. Scott Garrett (R-N.J).
In the Senate, where the debate is likely to be stiffer, Sen. Richard Shelby (R-Ala.) said that lawmakers should proceed slowly.
“I welcome the president’s proposal, but at the end of the day it will be the people in the Senate and the House who will have to put this together,” Shelby said.
Democrats praised the administration’s efforts to restructure the system, but many also had a litany of specific concerns.
Sen. Charles Schumer (D-N.Y.) urged lawmakers to consider “further consolidation” among the banking regulators. And while the administration decided against calling for a merger of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), Schumer underscored his desire to see the SEC gain greater power.
Sen. Tom Harkin (D-Iowa), chairman of the Senate Agriculture Committee, which has authority over the CFTC, sponsored a bill that goes further than the Obama administration in regulating derivatives.
Two of the toughest provisions will be the president’s desire to empower the Federal Reserve with new authority to watch over “systemic risk” and the proposal to establish a new Consumer Financial Protection Agency.
“While we do need to increase regulation of systemically important firms, the record of the Federal Reserve leading up the present crisis has not convinced me that they will be the strict and independent watchdog that we need,” Harkin said.
Dodd, who at times has also been critical of the Fed, told reporters bluntly after Obama spoke that there is “not a lot of confidence in the Fed right now.”
The central bank has come under criticism for its lack of transparency and for the trillions of dollars it has committed to fight the crisis without explicit authorization from Congress. While the plan would give the Fed major new powers, the administration bowed to the criticisms and wants the central bank to receive written approval from the Treasury Department before it commits resources in “unusual and exigent” circumstances.
Rep. John Conyers Jr. (D-Mich.), the chairman of the House Judiciary Committee, linked legislation allowing bankruptcy judges to write-down mortgages to the legislation. That bill is opposed by the banking industry.
In its 85-page “white paper” announcing the plan, the administration acknowledged that it could seek additional changes in the future. “More can and should be done in the future. We focus here on what is essential,” the plan said.
J. Taylor Rushing, Mike Soraghan and Sam Youngman contributed to this article.
What the experts say
Douglas J. Elliot
Fellow, The Brookings Institution
Co-director, Center for Economic Policy and Research
The best part of the plan is the proposal for a Consumer Financial Protection Agency. This likely would have prevented the worst abuses in the mortgage market over the last decade.
However, the big downside to this reform proposal is the implication that the problem was the regulations and not the regulators. The reality is that the Fed had all the power it needed to rein in the housing bubble, which is the cause of the current crisis. However, they chose to ignore its growth, either not recognizing or not caring that its collapse would devastate the economy.
If regulators are not held accountable for such a monumental failure (e.g., by getting fired), then they have no incentive to ever stand up to the financial industry.
Professor of banking, LSU, and senior fellow at The Wharton School
The ultimate litmus test is whether any of the proposed reforms could prevent the crisis from happening again. While many of the proposals are mildly positive, none pass that test, leaving securitization and credit rating agencies functionally untouched.
The proposals instead spread the largess of the federal safety net beyond commercial banks, granting Treasury and the Fed powers to oversee new financial market subsidies under Congress’s close scrutiny. For consumers, it’s the 1960s all over again, with restricted product choice and premium rates. For businesses, it’s national industrial policy. After two years of crisis, one would expect far more depth.
— Compiled by Katelyn Ferral