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Ellen Belcher is the Dayton Daily News opinion pages editor. She writes about state government, education, the environment, higher education and all things Dayton.
Martin Gottlieb is an editorial writer and columnist for the Dayton Daily News opinion pages. He focuses on the political process itself and does such national issues as war, the economy, taxes and Social Security, as well as a hodge-podge of local and state issues.
Scott Elliott is an editorial writer and columnist for the Dayton Daily News opinion pages. He writes about education, city and suburban issues, politics, business, workforce and consumer issues.Home > Blogs > A Matter of Opinion > Archives > 2010 > July > 18 > Entry
Editorial: Financial reform was needed after dereg flopped
Once upon a time — back in a much-forgotten part of 2010 — financial regulatory reform was supposed to be the one major bill that Republicans and Democrats in Washington might be able to get together on.
After all, the nation’s financial system had collapsed, bringing the economy down with it. Nearly everybody cited irresponsible behavior in the financial sector that the government did little or nothing about. And all this came after a long period of financial deregulation under both Democratic and Republican presidents.
Obviously, there would be a turning of the corner on regulation, with new government activism.
In fact, though,
the bill passed the U.S. Senate with all but three Republicans opposed (just as in the House). The Republicans in support were the women from Maine who have helped the Democrats before and the new guy from Massachusetts, Scott Brown. Ohio Republican Sen. George Voinovich was not there in the end, though he had earlier helped on a procedural vote. He offered four main reasons for objecting.
The first was, “The bill fails to address the main catalysts of the financial meltdown, Fannie Mae and Freddie Mac, whose push to acquire subprime mortgages … helped produce a bubble that burst.”
Those two agencies did play a role in the collapse. But they have been put under a sort of government conservatorship and are not behaving the same way now. They may still need further attention. But this bill does an awful lot of stuff. A line had to be drawn someplace. To oppose it primarily for what it doesn’t do seems odd.
His second criticism was in the same vein. He said the heart of the crisis was the awarding of home loans to people who couldn’t afford them. And he said a Republican senator put up a provision to prevent that.
“Amazingly,” he said, “my colleagues rejected this amendment, and thus virtually nothing in this bill addresses this problem.”
The bill actually has a number of measures to restrict predatory lending and regulate mortgage brokers. And it creates a new consumer agency to hear complaints.
Much is left up to regulators, to be sure. For example, there’s no flat ban on “adjustable-rate” mortgages, the kind under which people start out paying little, only to get blasted with much bigger bills later.
So, for sure, the passage of the new bill leaves problems unresolved.
Sen. Voinovich also said the new consumer agency will have too much power to harass businesses. And he has a problem with new regulations on “over-the-counter derivatives.”
Reasonable people can certainly disagree about various aspects of this complex legislation, almost two years in the making.
Though it entails more government, it is not extreme in that regard. It doesn’t even completely undo the deregulation of banks that happened under President Bill Clinton. (It does restrict bank investments.)
Immediately after the Senate vote, House Republican leader John Boehner called for repeal, just as he and others did after passage of health care. This seems to have become a strategy: every fight must go on and on, lest the president get credit for accomplishing something, and lest Republican financial contributors stop contributing.
Nevertheless, with passage of this historic legislation, on top of health care and his stimulus, President Barack Obama has now unmistakably established himself as an effective force for major change.
As many have noted, this does not seem to be helping him politically so far.
Presidential success on party-line votes seems to scare independent voters. And yet, in these highly polarized times, it would be quite a challenge to conceive an activist agenda that appeals across party lines. Perhaps it will be the challenge of Mr. Obama’s second two years.
Permalink | Comments (6) | Post your comment | Categories: Editorials, Locals in national affairs, Martin Gottlieb, National government, Predatory lending
Comments
By DSG
July 18, 2010 4:16 AM | Link to this
This hardly signifies Obama as an “effective force for major change”. That would require him to pass legislation when he doesn’t have Democratic party countrol of both houses. Before the media continues their adulation of his greatness let’s see how he does after the mid-term elections this fall.
By steve
July 18, 2010 11:05 AM | Link to this
you lose all credibility when you use the term “predatory lending”. you should replace it with “lack of individual responsibility”. the financial industry gives money to the dems also, barney frank and chriss dodd are just two examples. this bill will only add more red tape. obama spends billions to slow down the mortgage “crisis”, and then puts lending regulations on banks.
By steve
July 18, 2010 11:06 AM | Link to this
you lose all credibility when you use the term “predatory lending”. you should replace it with “lack of individual responsibility”. the financial industry gives money to the dems also, barney frank and chriss dodd are just two examples. this bill will only add more red tape. obama spends billions to slow down the mortgage “crisis”, and then puts lending regulations on banks.
By Mustellus
July 19, 2010 7:14 AM | Link to this
Right On, Steve !!! Corporations don’t have to be Personally Responsible (TM) !!! ONLY INDIVIDUALS HAVE TO BE PERSONALLY RESPONSIBLE. For example, no oil corporation would ever blow off common sense safety systems. They might cause a leak….
By joe_mamma
July 19, 2010 12:29 PM | Link to this
Nice job painting a nice neat picture of the financial failures. Unfortunately in reality it was not that neat and clear. The private sector surely deserves some blame, but the same amount of blame or more needs to be put on the very people who are now giving us financial reform… Who kept interest rates artificially low? The Federal Reserve. Who controls the money supply? The Federal Reserve. Who dictates financial institution’s reserves, thereby determining how much money they have to loan out? The Federal Reserve. Who passes legislation demanding that banks grant loans to minorities and who dictates what factors may and may not be used to evaluate credit worthiness? The Federal government and the U.S. Congress. Who requires banks and mortgage companies to pass periodic reviews to insure the percentage of loan applications from minorities is the same as from everyone else? The Federal government. Who created the secondary market for the securities containing these subprime loans? The Federal government through the policies followed by government-sponsored entities Federal National Mortgage Association, the Federal Home Loan Mortgage Association and the Government National Mortgage Association. Who rated these securities “AAA” to anesthetize the financial industry against their risk ? The government-controlled, government-approved investment rating cartel. Who requires all financial firms to use the ratings put out by that cartel? The Securities and Exchange Commission. And why were these government-sponsored entities created? To insure a “sufficient flow” of credit into the housing market for the “needy” and the “uncreditworthy”. Who filed 13 major lawsuits against major lenders charging them with discrimination in lending practices for not loaning sufficient funds to minorities? The Justice Department of the Federal government under the Clinton administration. Who regulates the home mortgage sector of the American economy? The Federal government, through the following agencies: The Department of Housing and Urban Development (HUD), the Federal Housing Finance Board (FHFB), the Federal Housing Administration (FHA), the Federal Home Loan Bank (FHLB) and the Office of Federal Housing Enterprise Oversight (OFHEO). Has any legislation been enacted dictating what policies and practices should be followed by all these regulators? Yes, including The Fair Housing Act, the Equal Credit Opportunity Act, the Community Reinvestment Act, the Home Mortgage Disclosure Act, the National Affordable Housing Act, the Community Development and Regulatory Improvement Act, the Home Ownership and Equity Protection Act, the Updated Community Reinvestment Act and the American Dream Downpayment Act. Who issued a booklet titled “Closing the Gap: A Guide to Equal Opportunity Lending” to all U.S. mortgage lenders — a booklet that derides as “arbitrary and unreasonable” such traditional credit standards as a 20% down payment or a history of paying one’s bills on time or a steady job yielding reliable income — a booklet that includes side-bar reminders of the fines and jail terms that await any lender found to be deficient in fighting discrimination by lending to less-than-creditworthy applicants? The Federal Reserve Board. Who, in 2002, set a goal of artificially boosting the home ownership rate from 65% of households (the average for the preceding two decades) to a rate of 70% — and directed all Federal home loan regulators and agencies to communicate this goal to the market? The Federal Government, at the behest of the Bush administration. Who, after dropping interest rates from 6% in 2001 to 1% in 2004, publicly criticized lenders for making too many traditional, fixed rate mortgages, and declared that “many homeowners might have saved tens of thousands of dollars had they held adjustable rate mortgages”? Alan Greenspan, Chairman of the Federal Reserve Board. Who called a “White House Conference on Increasing Minority Homeownership” and then pledged to “use the mighty muscle of the federal government” to meet his goal of “increasing the number of minority homeowners to at least 5.5 million families by the end of the decade”? The President of the United States and Head of the Executive Branch of the Federal government, George Bush. Who, in 2004, following Bush’s lead, promised to “close America’s homeownership gap” via “underwriting experiments that redefine creditworthiness” and promised to create “six million new homeowners” over the next 10 years? Federal National Mortgage Association chairman Franklin Raines. Who precipitated the adjustable rate foreclosure crises by running interest rates back up from 1% to 5% in 2006? The Federal Reserve Board.
By Raoul
July 21, 2010 4:17 PM | Link to this
Great post Joe. Apparently, we already have plenty of regulation and oversight, but hey, with the Dem’s and the DDN, its never enough. Not to excuse the Bush Administration, but I don’t think they were promoting bad loans. Bush should have cleaned house when he was first elected, like the Dem’s always do. Instead, Fannie, Freddie and the whole Mae/Mac family leadership was kept intact, including Jamie Gorelick, Franklin Raines, et al. These institutions are heavily in the leadership hands of big-government loving Democrat muckety mucks, but it all gets blamed on the private financial markets. I still would like to know why all the super-smart economists like Paul Krugman did not see all of this coming. Where was Tim Geithner and all the other financial wizards who sponsored this mess, and now are trying to use this disaster as a power grabbing opportunity. Or, maybe they knew it all along……..and didn’t want…..to let this crisis…..go to waste!