Dodd’s proposal for financial sector reform is out. It amounts to increasing discolosure, making banks pay for a bailout fund, adding another regulator, and giving more power to existing regulators.
For example:
Creates an Office of Credit Ratings at the SEC, which will be tasked with enforcing higher levels of disclosure, and will maintain a right to deregister an agency.
Disclosure is not the problem with credit agencies, and higher levels of disclosure will not solve the problem. As long as the model is that credit agencies get paid by those whose debt they rate, they will not be fixed.
Disclosure in general is not the issue. And anyone who thinks that either
a) new regulatory agencies will solve anything
or
b) that the old regulatory agencies, if given more power, will use it sensibly
is insane, or on the payroll. The old regulators had enough power (especially the Fed). The Fed could have stopped the credit bubble any time it wanted. The FDIC could have shut down any bank it wanted. Etc…
What is needed is to reinstate Glass-Steagall, or something close to it. Keep insurance, retail banking, investment banking and brokerage businesses separated from each other. Any company which is too big to fail should be broke up the second it gets that big. A proposal to do anything else is a joke.
Next.