Chris Dodd has now formally dropped a free-standing Consumer Financial Protection Agency (CFPA), instead pushing for a new Treasury-housed "Bureau of Financial Protection." Per Bloomberg:

Senate Banking Committee Chairman Christopher Dodd abandoned the Obama administration’s stand- alone consumer financial agency and is proposing a bureau in the Treasury Department, seeking to overcome Republican opposition to legislation overhauling Wall Street regulations.

The Bureau of Financial Protection would be run by a director appointed by the president, have power to write rules for companies offering financial services and be funded mainly through industry fees, according to a two-page summary the Connecticut Democrat circulated this weekend.
This is a mistake, but not in the way you'd think. I was talking to a friend about this the other day, and he was lamenting the fact that the left has made the CFPA into a litmus test for whether Democrats are serious about financial reform — essentially making it the "public option" of financial reform. A free-standing CFPA never had a chance in hell of making it through the Senate (really, a 0% chance), so setting the CFPA up as a litmus test just guarantees that the left will end up angrily denouncing Senate Dems as sellouts.

I suggested that since Dodd clearly knows that a free-standing CFPA is out of the question, he should push for whatever he can get in terms of a new division dedicated to consumer protection inside Treasury, but should make absolutely sure that it's called the "Consumer Financial Protection Agency." The vast majority of progressives don't really care about the details of the CFPA, nor could they tell you what specifically they want the CFPA to do (and be able to do). They just want a CFPA. If the new Treasury division is called the CFPA, then a lot of progressives will be happy. It doesn't give journalists — who know even less about the substance of the CFPA — the chance to easily label one proposal as "bad" and the other as "good," but will instead force them to distinguish the proposals by, you know, actually describing the differences (which will likely be minimal). And it'll definitely reduce the likelihood of a free-standing CFPA becoming progressives' next big "line-in-the-sand hissy fit." (Memo to progressives: the time you need to draw a line in the sand is when the DSCC is recruiting candidates for the next Senate races. But once you've let them fill the caucus with Blanche Lincolns and Evan Bayhs, you can't profess to be outraged(!) when we can't push something like a free-standing CFPA through.)

Since I'm talking about political strategy, I should also address Matt Yglesias and Felix Salmon's argument that we should hive off the CFPA from the larger financial reform package, and try to pass a CFPA bill separately. Hiving off the CFPA is a total non-starter — it would be the fastest way to guarantee that nothing resembling the CFPA ever gets passed into law. Now, Salmon is a self-professed political neophyte, but Yglesias has been paying close attention to politics for long enough that he should know this. And I almost spit out my coffee because I was laughing so hard when I read this part of Yglesias' argument:
If Corker doesn't want to vote for a CFPA then let's write a different bill to create a CFPA, have everyone go on TV and talk at rallies about how awesome it is, and maybe a Collins or a Snowe or a Brown will feel compelled to vote for it and it'll pass or maybe they'll all vote no and it won't pass.
This is a true fairyland and pixie dust strategy. If we could just explain why creating a free-standing CFPA is such good policy, then Men of Good Will in the Republican Party — known the world over for their intellectual honesty — would agree that we're right and vote for the CFPA bill. (Followed by a Kumbaya sing-along on the Senate floor.) Yeah, because that's absolutely how it works.

Look, there are no Republicans in the Senate who would vote for a free-standing CFPA. That's just a reality. Perhaps you weren't paying attention to the health care and stimulus debates? The CFPA is a partisan, left vs. right issue now (partly because progressives have been stomping their feet so loudly about a free-standing CFPA). Even if there was a Republican who was willing to break ranks on this issue, there are still several pussies moderate Dems who almost certainly won't vote for a free-standing CFPA. Ben Nelson, Evan Bayh, Blanche Lincoln, Claire McCaskill, just to name a few. You better believe Ben Nelson's going to extract his usual pound of flesh on this issue. Hell, we're still not sure if Tim Johnson will vote for the CFPA, so it might have trouble just making it out of committee (if Johnson and Bayh both vote nay).

Progressives really do need to face reality here: a free-standing CFPA absolutely, positively cannot pass the Senate. If Corker is willing to go along with Dodd's "Bureau of Financial Protection," and provide (crucial) cover to the moderate Dems to also support it, then progressives should consider that a huge victory. And it would be a huge victory.

As to Yglesias' argument that even if the bill didn't pass, it would at least "clarify who's for it and who's against it," I would ask: are you interested in getting a federal office dedicated to consumer financial protection, or are you just interested in knowing who's for the CFPA and who's against it? Knowing who's for it and who's against it would be the worst consolation prize ever. Honestly, which consolation prize would you rather have:
(a) a new division in the Treasury Department that's only slightly weaker than the House-passed CFPA, can be strengthened/expanded in the future without a huge public fight, and will protect consumers for years to come; or

(b) the knowledge of which Senators are for a free-standing CFPA and which are against it.
Hiving off the CFPA would be tantamount to choosing option (b). If that's what progressives want, then so be it.

12 comments:

Matthew Yglesias said...

Right. That's exactly what I want. Per your remarks, a freestanding CFPA isn't going to pass the Senate. And per your remarks, the political dynamic has been set up that if the Senate Democrats drop the idea of a freestanding CFPA they'll be denounced as sellouts. That will have poisonous effects on the politics of the whole rest of financial regulatory reform.

Better to hive off the freestanding CFPA idea into a freestanding piece of legislation. That will clarify who does and does not support a freestanding CFPA and focus progressive CFPA-related ire on the people who deserve it -- the many Republicans and few Democrats who oppose it -- and let the rest of the package move forward.

The strategy currently being pursued by Dodd -- step-by-step watering-down of the CFPA idea in an effort to court Senator Corker is going to lead to a replay of the public option debate. At the end of the day for all the same reasons that Republicans won't an independent CFPA they won't back any kind of consumer protection bureau unless it's rendered totally toothless. Either way, it's almost certainly not going to pass. Which means it's a pure political fight. And it's a fight that Dodd can either play right by making the real villains take the fall for killing it, or it's a fight where Dodd and the Dem leadership can get themselves labeled sellouts.

JCH said...

Radical progressives are sort of like toy WW2 Japanese soldiers. They see great honor and purpose in falling on rubber swords.

Braden said...

I was taught that one of the fundamental components of your psychological disposition is whether you perceived the world as full of constraints (real or imagined). If so, you tend to pursue pragmatic or conservative solutions, assuming that those around you are largely incapable of change.

Perhaps the Democratic Party secretly selects for such personalities through some institutional mechanism, because it's getting kind of ridiculous how many commentators are watching Republicans convince the American public that 1)health care reform will lead to death panels, 2)America is on the brink of financial insolvency, and 3)climate change is a grand conspiracy concocted by a bunch of effeminate British scientists, while simultaneously arguing that President Obama can't convince the most vulnerable Senate Dems to vote for legislation that in any other period of American history would be labeled as Center-Right.

Until I see President Obama in Bangor accusing Collins and Snowe of selling out America's children to a future of indentured servitude to America's banks I'm going to continue to argue that his biggest problem is a lack of political courage.

Francois T said...

"Progressives really do need to face reality here: a free-standing CFPA absolutely, positively cannot pass the Senate."

I take this as a scathing indictment targeting the Senate.

Whichever way people want to spin this sage, the fact remains that the progressives were absolutely right: a stand alone CFPA is the best option for consumers.

Of course, we all know that in the USA financial sector, consumers should not have any rights, except the one to pay up.

urban legend said...

The all-knowing insider talk gets annoying. How about enlightening the rest of us who perhaps will get sick of following this blog why a stand-alone agency "absolutely, positively" has no chance to pass in the Senate, and why so many seemingly-intelligent intelligent people concerned with the ability of such a politically-captive agency to act independent are actually idiots?

Saying it won't pass because it doesn't have the votes is not an answer.

JCH said...

Because the community banks - the ones to which money is being moved - fiercely oppose it and they have tremendous sway with senators in all 50 states, not just Wall Street.

Economics of Contempt said...

urban legend: Unless you know another way to pass a bill, "it doesn't have the votes" is the only answer.

Why won't an independent CFPA pass? Because not enough Senators will vote for it. I honestly don't know how else to answer that question.

I never said that people who are concerned with the ability of a Treasury-housed CFPA to act independently are idiots. You can have that concern and also think that it's the best deal we're going to get. The two are not mutually exclusive. I do, however, think it's foolish to believe that an independent CFPA is politically possible right now. That much should be clear as soon as you do a back-of-the-envelope whip count of the Senate. I don't like that an independent CFPA isn't possible in the Senate; but I'm also not going to deny reality.

JCH said...

Sioux Falls is the credit card Wall Street of the prairie, so Johnson will be under huge political pressure to vote against it.

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