Financial reform passes

John O'Brien Jul. 21, 2010, 3:14pm


WASHINGTON (Legal Newsline) - A group of Democratic state attorneys general are excited that President Barack Obama signed federal financial reform legislation into law Wednesday.

The bill puts new consumer protection regulations in place, including some that state attorneys general will be allowed to enforce. They will also be able to team with the newly created Consumer Financial Protection Bureau.

The bill received public support from state attorneys general like Illinois' Lisa Madigan, Iowa's Tom Miller, Massachusetts' Martha Coakley and Ohio's Richard Cordray.

"Irresponsible lending and lax oversight helped cause our financial crisis," Miller said. "This new law will help protect Americans and help safeguard our economy."

Not everyone agrees, though. Nebraska Attorney General Jon Bruning, a Republican, told Legal Newsline earlier this year that the legislation will not help the nation's economy.

"Increased layers of regulation would simply make it harder for community banks to create liquidity in the market, and right now small businesses need that liquidity," Bruning said.

"America won't come out of this recession if small businesses can't thrive."

Outgoing U.S. Sen. Chris Dodd, D-Conn., was the bill's champion. Duke University professor Michael Munger has said Dodd played a large part in creating the country's economic crisis.

"Chris Dodd suppressed, particularly in the late 1990s, regulations on credit default swaps," Munger said.

"People wanted to regulate credit default swaps as if they were insurance, but Chris Dodd spearheaded an effort, and Bill Clinton signed, and allowed credit default swaps and a variety of other derivatives to be almost completely unregulated."

Dodd also turned back efforts to regulate Fannie Mae and Freddie Mac. 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.

A pair of HUD staffers under Cuomo wrote the Wall Street Journal earlier this year to defend Cuomo's actions, blaming the mortgage crisis on President George W. Bush.

"Mr. Cuomo left HUD in 2000 and Fannie Mae and Freddie Mac did not step up their purchases of subprime assets until after 2004, when the Bush administration allowed the companies to triple the amount of subprime securities they held," Jon Cowan and Howard Glasaer wrote.

"As a direct consequence of the Bush administration aggressively pushing Fannie and Freddie into the subprime market, the companies purchased or guaranteed more loans from 2005-2008 from risky borrowers than in all prior years combined."

Obama, though, says this legislation will crack down on fees hidden in fine print and abusive mortgages.

"We'll make sure that contracts are simpler -- putting an end to many hidden penalties and fees in complex mortgages -- so folks know what they're signing," Obama said.

From Legal Newsline: Reach John O'Brien by e-mail at

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