Full Tilt Boogie: GOP attempts to gut Dodd Frank financial regulations

Yesterday’s post on financialism and its contribution to crony capitalism rambled the territory in a general way, which is not to say there aren’t some specifics that need to be highlighted.  Perhaps the Dodd Frank Act didn’t go far enough to insure banks don’t take advantage of the American public — and the 1 of every 118 property owners in Las Vegas,  Nevada who have received a foreclosure filing at some level — but it went farther than the bankers would like.  We can tell that because they’re trying to get it repealed.

Calls for Outright Repeal

Nevada Senator Dean Heller (R-NV) has joined Senator Jim DeMint, sponsoring S 712 which would repeal the Dodd Frank financial reform act.   DeMint saying:

We must repeal the Democrats’ takeover of the financial markets that favors Wall Street corporations, over-regulates small businesses with massive new bureaucracy and hurts consumers,” said Senator DeMint. “This financial takeover will strangle our economy and move jobs overseas unless it is repealed. Democrats rammed this government power-grab through last year, despite widespread concerns it would perpetuate federal bailouts, restrict credit to qualified borrowers, and raise costs for all Americans.

The first question is obvious, if the Democrats took over the financial markets in a way that favors Wall Street, then why are Wall Street investment houses so interested in repealing the financial regulation reforms?

The second part of DeMint’s statement is a focus group talking point — whatever “it” does, it has a deleterious effect on “small business.”  “IT” over-regulates small business, and creates a “massive bureaucracy.” And, in some abstract way this will “hurt consumers.”  This is standard Republican boilerplate, and we can identify the template because of the dire prediction — it “will” strangle our economy — not because of anything that has actually happened.

What S. 712 does is to (1) repeal measures which require banks to have a plan for orderly liquidation (another word for bankruptcy), (2) repeal requirements that banks keep records of transactions which would need to be transparent in case an “orderly liquidation” is in order, (3) repeal the establishment of an oversight committee to determine when a bank is becoming “too big to fail,” and is endangering the financial system — an early warning system if you will.  The new requirements governing (4) Swaps would also be repealed, along with the (5) Consumer Protection bureau.

Were there ever a “Wall Street Wish List,” S. 712 would be IT.

Chipping Away

Rep. Vicky Hartzler (R-MO) has introduced H.R. 3336* on the House side, a bill which purports to assist small banks.  H.R. 3336:

“…would exempt small banks, credit unions, and farm credit banks from regulations that were intended to rein in the activities of large, national banks. Small banks do not have the resources to comply with these harsh regulations. Since small banks are generally more conservative in their lending decisions and make loans based on personal relationships, rather than risky speculation, their activities do not pose a risk to the global financial markets and deserve relief from the heavy-handed Washington tactics.”

There we go with the “heavy hand of Washington” narrative theme again, a repetition of DeMint’s focus group lament.  At first blush this exemption might seem beneficial to small banking operations — except when we remember that most of the new regulations proposed under the Dodd Frank Act don’t have anything to do with small banks in the first place.

Hartzler’s  assertion that small banks do not have the resources to comply with the regulations omits the information that most small banking operations don’t engage in the kind of banking activities regulated by the Dodd Frank Act.

Hartzler’s sentiments are echoed by Rep. Sean Duffy (R-WI) who alleges that:

“For small community banks and credit unions, like those in Central and Northern Wisconsin, the hundreds of new rules will require an estimated 2,260,631 labor hours just for compliance,” Duffy wrote in an op-ed piece published by The Washington Times on July 20, 2011. “Those are hours that your local bank or credit union will spend dealing with some Washington bureaucrat instead of focusing on the needs of customers like you.”

There they go again.  Underneath the “concern for small business” lurks the Wall Street Wish List.

The problem with Duffy’s complaint is that the numbers don’t add up.  Politifact took a look at the figures:

More importantly, Duffy attributes the fallout from all that paperwork to small banks and credit unions. But some of the rules appear to have little to do with Main Street lenders.

For example, several rules in the first batch — including the one with the 600,000 hour paperwork burden — regulate the transparency of activities by so-called “swap dealers.”

Politifact continues:

Duffy used the sympathetic “Main Street” bankers to illustrate his concerns about the regulatory impact of the Dodd-Frank law. There’s no doubt it will create more work, and Duffy turns to an estimate from a credible source.

But in dramatizing the burden, he misapplies a very precise number to one subset of the many institutions that will be affected by the law. No one knows how many of those hours will land on the small players.

Putting a less sympathetic light on Hartzler and Duffy’s concerns, it appears that under the guise of empathy for the plight of small banks they are seeking to either repeal outright or provide wholesale exemptions for all or part of the banking sector from financial regulation reform.

Because Hartzler’s bill has yet to be published, it’s hard to discern which subset of the banking industry will be exempted.  IF the definitions in the proposal are broad enough then several larger financial institutions could benefit from a reduction in oversight.

Yet another proposal, from Rep. Randy Neugebauer (R-TX) would gut the portion of Dodd Frank which establishes the Consumer Financial Protection Bureau.  [TPM]

It’s fairly simple to discern who’s behind the moves to gut the Dodd Frank Act when we look at the lobbying efforts:

“The financial industry has spent more than $100 million so far this year to court regulators and lawmakers, who are finalizing new regulations for lending, trading and debit card fees. During the second quarter, Wall Street spent $50.3 million on lobbying, a small dip from the prior period, according to an analysis by the Center for Responsive Politics.”

“Big banks are among the most prolific spenders. JPMorgan Chase’s team of in-house lobbyists spent $3.3 million, a slight uptick over last year. The biggest war chest among organizations focused primarily on Dodd-Frank belongs to the American Bankers Association, which so far spent $4.6 million on lobbying.”  [WhistleWatch]

Whether wrapped in the Small Business Flag (Hartzler/Duffy) or draped in the Wall Street Banner (DeMint/Heller), the Republicans would very much like to repeal, replace, or rescind the provisions of the Dodd Frank Act, and allow the Wall Street Casino to resume operations at full tilt.

*The text of the legislation has not been received from the GPO as of this date.

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