Consumer advocates, labor unions and progressive advocates of Wall Street reform are hailing passage of the bill by the conference committee early Friday, even as analysts warn that it fails to solve the problems of bank size and interconnectedness that led to the financial crisis.
Given the complexity of financial regulatory reform, progressive observers looked to key leaders to gauge the value of the proposals under discussion. Among others, the group included Elizabeth Warren, a Harvard professor and head of the congressional panel overseeing the bailout; Heather Booth, the director of Americans for Financial Reform; Richard Trumka, the president of the AFL-CIO who has made confronting Wall Street a central part of his union's mission; and Kathleen Day, a former Washington Post business reporter now with the Center for Responsible Lending.
All of them are out with statements celebrating the final bill, though with some reservations. The AFL-CIO put its statement out under the name of the director of the office of investment, Daniel Pedrotty. "This is a David and Goliath victory of working people against the big banks and Wall Street," he said. "While it's not perfect, this legislation is a giant step to changing the rules of the game that caused the economic crisis."
Elizabeth Warren's statement comes as she is routinely floated as the best candidate to head the Consumer Financial Protection Bureau. "It has been more than 20 months since the largest financial crisis since the Great Depression, and we are still living under the same set of rules we had in place before the meltdown. Thanks to the leadership of President Obama, Chairman Frank, and Chairman Dodd, that's about to change. Members of the House-Senate conference committee and their staffs worked through the night to produce the strongest set of Wall Street reforms in three generations. They created a strong, independent consumer agency that will have the tools to rein in industry tricks and traps and to cut out the fine print. For the first time, there will be a financial regulator in Washington watching out for families instead of banks," said Warren.
Warren didn't mention in her statement that the CFPB won't have the power to regulate lending by auto dealers, an often predatory practice involving the second-largest purchase a consumer typically makes. The Pentagon battled the auto dealers over the carve-out, arguing that soldiers are being ripped off so routinely that it is damaging military readiness and national security.
The auto dealer lobby is chest thumping. Ed Tonkin, chairman of the National Automobile Dealers Association, said that the carve-out was "a testament to the hard work of all of the auto dealers and dealership employees around the country who made sure that the merits of the issue were heard. Their grassroots efforts truly made today's victory possible."
Day praised the creation of the bureau but chided Congress for buckling to the auto dealers. "House and Senate conferees reached a historic agreement to create a consumer protection agency that is truly independent from the lenders it will oversee: It will have a single director nominated by the president and confirmed by the Senate; funding that is largely insulated from meddling by industry lobbyists; and the tools and scope needed to ensure most lenders operate under one set of common-sense rules. That's a win for families, small businesses, taxpayers and the economy," she said. "Auto dealers -- whose lending record is rife with unfair, deceptive practices, especially for people of color and military personnel -- should not have been exempted from oversight."
Day was more enthusiastic about tight mortgage lending rules that survived in conference. Originally passed by the House as Miller-Watt-Frank, after lead sponsors Brad Miller (D-N.C.), Mel Watt (D-N.C.) and Barney Frank (D-Mass.), the legislation bans a number of abuses that helped fuel the crisis. Brokers can no longer be rewarded for steering borrowers into dangerous loans, among other reforms, and the CFPB is empowered to rein in deceptive and abusive practices. Stabilizing mortgage lending would go a long way to stabilizing the financial sector, said Miller.
"It's hard to believe what went on in the mortgage market in the last decade, and that so many members of Congress just parroted the talking points of lobbyists defending the indefensible. The financial crisis began with millions of Americans trapped in subprime mortgages that they couldn't pay, when they qualified for prime mortgages that they could," Miller told HuffPost. "If these rules had been in place we would never have had the foreclosure crisis, the financial crisis or the Great Recession."
Booth, of Americans for Financial Reform, a coalition of unions, consumer groups and progressive organization, "hailed" the legislation.
"We see landmark legislation when it comes to consumer protection, offering all of us an independent watchdog on our side. For the first time, the $600 trillion derivatives market will be transparent and have to maintain capital to back up its bets -- a move that was once inconceivable. The adoption of the Volcker Rule represents a major change of direction, stopping banks from using insured deposits to support speculative activity. We see big steps in the right directions when it comes to hedge funds and private equity, as well as improvements for investors to have a voice," she said. "Americans for Financial Reform calls for members of Congress to support this bill and move to final passage immediately. This is a big step forward, and a first step towards the further changes we need to make sure Wall Street serves Main Street and not vice versa."