How A Bill Becomes a Law!

How A Bill Becomes a Law!

As much as I think the Dodd bill is a significant improvement over the Paulson power grab, and I do, it is missing a number of important things.

First, as Kay Hagan points out, the review portion seems to be missing teeth. If the review board doesn't like what the Secretary is doing, what can it do about it? Also, she's right that it needs to meet once a week, not once a month. This crisis is moving too fast for once a month.

Second, there doesn't seem to be any provision for paying for this beyond praying it'll eventually pay for itself. I don't see any good reason not to add in Bernie Sanders suggestion of a 10% surcharge tax on the Americans who earn over a million a year. They're the ones who benefited from the last 8 years, who benefited from the policies which caused this disaster, they're the ones who should pay to clean up the mess.

Next, the bill (Section 10) allows for insurance of money market funds but doesn't appear to require that if they fail anyway, they be taken over by the FDIC. This needs to be a bedrock principle, if you blow up your business, the government gets it, you don't get to keep it when in a free market you'd be bankrupt.


I also don't see any real re-regulation of the industry in this bill. That needs to occur, and it needs to be in the bill, because once Wall Street has their bailout they will fight against being properly regulated tooth and nail. This needs to include very strict rules not allowing the use of default insurance any more, getting rid of most different types of swaps, regulations limiting the use of securitization and limits on how debt in general can be sold. (In particular, debt should probably not be able to be sold more than once, and originators should be forced to keep at least half on their books to avoid them selling stuff they know is crap.)

Dodd needs to add an organization which has the right to regulate banks. This needs to be in badly.

Finally, while there is a claw back provision for executives who overstated earnings (that would be, oh, all of them) and the Secretary is allowed to set limits on executives of organizations which sell assets to the treasury, this is very much entirely at the Treasury's secretary's belief. That needs to be in there. As long as executives can pay themselves enough in a few years (heck, in one year) so that they never need to work again, they will have incentives to play games that cause disaster years down the line, while they make good now. Much of the current problem came from taking theoretical profits from years to come, and booking them as current profit. When those profits didn't happen, because the models were incorrect about what the future would hold, the system came crashing down. No system which does not limit executive compensation enough to make them need their job ten years from now, or twenty, will stop another such crisis from occuring.

Dodd's done a good job here, but there's more work to be done. I hope that Congress will put some more work into the bill to make sure it's a bill which won't just try to deal with the crisis now, but which will go a long way to making sure it doesn't happen again.