Financial reform moves ahead
WASHINGTON (Legal Newsline) - The U.S. House of Representatives last week passed financial reform legislation that President Barack Obama says will result in more protections for consumers.
The bill, introduced by outgoing U.S. Sen Chris Dodd, D-Conn., is aimed at preventing a future collapse of the financial industry like the one that led to taxpayer-funded bailouts last year. It also creates a rule-making Consumer Financial Protection Agency.
"It will put in place the strongest consumer financial protections in history, curbing abuses by banks, mortgage and credit card companies and giving their customers the information they need to make responsible financial decisions," Obama said Wednesday.
In April, Duke University professor Michael Munger said the administration should be more worried about economic problems caused by Dodd.
"It's just political grandstanding," Munger told Legal Newsline. "For Chris Dodd to make this his legacy, as if he is going to fix the financial industry crisis he had a big role in causing, is beyond hypocrisy."
In the late 1990s, Dodd suppressed regulations on credit default swaps, said Munger, who has given speeches on what he feels were the real causes of the financial crisis.
Dodd also turned back efforts to regulate Fannie Mae and Freddie Mac, Munger says. In the 1990s, New York Attorney General Andrew Cuomo, then the secretary of the Department of Housing and Urban Development, required Fannie Mae and Freddie Mac to buy $2.4 trillion in mortgages over a 10-year span.
Cuomo said that meant affordable housing for 28.1 million low- and moderate-income families. Munger said that meant other banks had to finance questionable housing loans to keep up.
"The idea that the failure of regulation caused the financial crisis is ludicrous," Munger said. "The problem was negligence. We bailed out the most negligent parties with taxpayer money.
"We created a moral hazard that if you win, you get to keep your money, and if you lose, you were playing with house money and if you lose you get it back."
Munger earned his PhD in economics at Washington University in St. Louis and worked as a staff economist at the Federal Trade Commission. A Libertarian who received 3 percent of the 2008 vote for governor, Munger, who also has a PhD in political science, is the head of the political science department at Duke.
Obama said he looks forward to the bill passing the Senate.
From Legal Newsline: Reach John O'Brien by e-mail at email@example.com.
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