Dodd, Fed Scourge, Makes U-Turn

Flickr/<a href="http://www.flickr.com/photos/davidberkowitz/2851354225/">David Berkowitz</a>.

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Despite rampant criticism and open attacks on its leader, the Federal Reserve could emerge a winner in the Senate’s long slog toward financial-reform legislation. The latest news from the Senate banking committee’s ongoing negotiations, led by chairman Sen. Chris Dodd (D-Conn.), is that the Fed will retain oversight power for the nation’s biggest banks—the 23 institutions with more than $100 billion in assets—according to a Sunday night report from the Financial Times (sub req’d). Banks with less than $100 billion in assets will potentially fall under the oversight of a new, centralized super-regulator, which would mean a victory for Dodd who included a super-regulator in his November reform draft. Among the losers would be the Fed’s branch banks spread throughout the nation, whose authority right now includes mid-sized banks. 

For Dodd, the move to keep big-bank authority with the Fed and its embattled chairman, Ben Bernanke, marks a startling reversal. Last year, Dodd was the scourge of the Fed, calling its consumer-protection and bank-oversight performance in the run-up to the crisis “an abysmal failure.” His apparent U-turn on the Fed’s role is undoubtedly a conciliatory move to win bipartisan support with his main negotiating partner, Sen. Bob Corker (R-Tenn.), who has backed giving more power to the Fed. Doing so, however, will rankle consumer advocates who have lambasted the Fed for its utter failure to prevent the subprime mortgage collapse and the global financial meltdown.

The Financial Times story included additional updates on the state of the Senate’s talks:

A new “resolution” regime to deal with failing, but systemically important, institutions would allow the government to wind up a company quickly to avoid contagion spreading through the financial system.

But in a concession to Republican fears about giving government too much power over business, a bankruptcy judge would provide checks and balances.

The regime is designed to prevent a repeat of the costly bail-out of AIG or the damaging bankruptcy of Lehman Brothers.

But Democrats have had to come up with a complex system that incorporates a role for the judiciary to meet Republican concerns, while also limiting the time and scope of a judge’s intervention to prevent an unruly process that infects the entire financial system.

If these latest leaked reports are true, then that means the Senate talks are nearing their conclusion, with the fate of a consumer-protection agency one of the few remaining hurdles. Expect to see a bill emerge out of the banking committee sometime this week.

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SIX TRUTHS

Reclaiming power from those who abuse it often starts with telling the truth. And in "This Is How Authoritarians Get Defeated," MoJo's Monika Bauerlein unpacks six truths to remember during the homestretch of an election where democracy, truth, and decency are on the line.

Truth #1: The chaos is the point.

Truth #2: Team Reality is bigger than it seems.

Truth #3: Facebook owns this.

Truth #4: When we go to work, we're in the fight.

Truth #5: It's about minority rule.

Truth #6: The only thing that can save us is…us.

Please take a moment to see how all these truths add up, because what happens in the weeks and months ahead will reverberate for at least a generation and we better be prepared.

And if you think journalism like Mother Jones'—that calls it like it is, that will never acquiesce to power, that looks where others don't—can help guide us through this historic, high-stakes moment, and you're able to right now, please help us reach our $350,000 goal by October 31 with a donation today. It's all hands on deck for democracy.

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