Dodd not the only lame duck: Midterm prospects will slow down reform momentum

Exclusive analysis for FinReg21 by Darrell Delamaide

Sen. Chris Dodd bowed to the inevitable this week and announced his retirement from the Senate rather than face defeat in November’s midterm elections.

Spin experts seized on the withdrawal of the Connecticut Democrat, who is chairman of the Senate Banking Committee, to say that it would help regulatory reform, because Dodd would no longer have to accommodate potential contributors in the financial services industry. A New York Times editorial urged the “real” Chris Dodd to stand up and show his liberal bent.

Others, including many in the industry, quietly welcomed the move, because as a lame duck chairman, Dodd would have less leverage to push through any agenda of his own.

As pundits do the electoral math for the midterm elections – current betting is on a gain of 30 or so seats in the House and three or four in the Senate – it’s clear that Dodd is not the only lame duck. The Democrats’ filibuster-proof Senate majority of 60 is all but certain to disappear in the next Congress.

This means that the party will be more reluctant than ever to push through controversial legislation between now and then. Any regulatory reform legislation in the Senate is likely to be watered down to pass, or will simply die.

Dodd actually did his party a favor by clearing the way for Connecticut’s popular attorney general, Richard Blumenthal, to run as the Democratic candidate for his seat, because Blumenthal has a much better chance of winning and keeping the seat for the party.

But Blumenthal, who has attacked credit rating agencies and credit card companies, will not, of course, become chairman of the Banking Committee. That assignment, if seniority prevails as usual, will go to Tim Johnson of South Dakota.

Johnson, who easily won reelection in 2008, is not a lame duck, and is considerably more conservative than Dodd. He is particularly attentive to the needs of credit card issuers, since many major banks have located their card affiliates in South Dakota. Johnson has come under fire from consumer groups for not sufficiently supporting consumer protection.

So what are the chances that the Senate panel, with one eye on its chairman-in-waiting, will dig in its heels and insist on a Consumer Finance Protection Agency with full rule-writing and enforcement powers?

Already a compromise that would authorize a new agency or even just a council of regulators to write new rules and leave enforcement to existing regulators is making the rounds on Capitol Hill.

So the odds on a full-fledged CFPA as originally conceived are not good, even if Dodd does take a stand, as the Times urges him to do. But consider this: There will be a number of cozy board appointments and consulting or lobbying fees for a former committee chairman who does not

rupture his relations with the banking industry. And Dodd, who is not super-wealthy, might welcome the extra income once he returns to private life.

It was, after all, Dodd’s perceived closeness to the industry – with a sweetheart mortgage from Countrywide and legislation that let AIG pay big bonuses even after a taxpayer bailout – that turned Connecticut voters against him in the polls.

(The Times, parenthetically, acknowledged that a job in industry might be in the offing, but suggested rather lamely that he could do Wall Street a favor by saving it from its own excesses with substantial reform before going there.)

In September, Dodd turned down the opportunity to take over the chair of the Health Committee formerly held by the late Ted Kennedy. He opted instead to stick with Banking Committee and see through reform legislation, perhaps hoping to turn public opinion in his favor. It didn’t work and Dodd was much more dilatory in putting together Senate legislation than his counterpart in the House.

When Dodd announced his retirement, Barney Frank, chairman of the House Financial Services Committee, was quick to fire off an e-mail to reporters to let them know that even though he will miss Dodd’s leadership in future Congresses, reform is not dead.

“I do look forward to working closely with him for the rest of this year on finishing the job of significant financial regulatory reform, to which he is committed, and to which he has already worked to advance,” Frank said. But this may be wishful thinking on Frank’s part.

With President Obama’s own poll numbers dipping below 50%, the White House is not likely to push Congress too hard. The top economic policymakers in the administration, White House advisor Larry Summers and Treasury Secretary Timothy Geithner, are hardly known as hawks for regulatory reform, and neither is a big fan of the CFPA.

Lameness, in Washington, is a contagious disease, and will hobble congressional efforts to get regulatory reform passed.