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Dodd-Frank Bill Collides Head On With Deficit Realities
Implementation of the historic Dodd-Frank bill – which President Barack Obama signed into law last July to regulate Wall Street against the excesses that led to the Great Recession — is in danger of being gutted if Republicans’ proposed deep spending cuts become a reality. Representative Barney Frank (D-MA) pointedly criticized Republicans’ proposal to slash government spending to 2008 levels. According to Frank, that is not an option because the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) need funding to hire hundreds of employees to write and issue regulations to give the new law teeth. Frank co-sponsored the bill with former Senator Christopher Dodd (D-CT).
Unfortunately, the positive things that Dodd-Frank was designed to accomplish have run head on into the non-partisan Congressional Budget Office’s (CBO) bleak warning about the direction of the nation’s debt. According to NPR Planet Money correspondent David Welna, “It was not a pretty picture that CBO director Douglas Elmendorf painted as he sat before the budget committee”. This year’s deficit, he said, will be nearly $1.5 trillion dollars, nominally the largest in history. And if the tax breaks that got extended this year continue throughout the next decade, Elmendorf said the nation’s debt would grow to be the size of its economy, something that hasn’t happened since the end of World War II. The time to do something about it, he told the grim-faced panel of senators, is now.”
Elmendorf warned that “The longer the necessary adjustments are delayed, the greater will be the negative consequences of the mounting debt, the more uncertain individuals and businesses will be about the future government policies, and the more drastic the ultimate policy changes will need to be.” Senator Kent Conrad (D-ND), chairman of the Senate Budget Committee, said “The thing that makes the most sense is there is a summit between the White House, leaders in the House and the Senate, because at the end of the day, the White House has got to be at the table. And unfortunately, during the budget process, the president is left out.” NPR’s Welna continues, “The revenue side of the equation, of course, is taxes and raising them has been a taboo topic for most in the GOP. But the likely need for more revenues was underscored toward the end of today’s hearing when Conrad noted that the Social Security surplus that lawmakers have been raiding for years disappeared this year and instead, Social Security has started cashing in its IOUs with the Treasury.” Social Security will post nearly $600 billion in deficits over the next 10 years as the economy recovers and millions of baby boomers begin retiring, according to new congressional projections.
House Republicans, led by Representative Scott Garrett (R-NJ), chairman of the House Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, wants to cut $55 to $60 billion in non-defense spending during fiscal year 2011. “A dramatic spending increase to fund the SEC and CFTC, as envisioned by the authors of the Dodd-Frank legislation, would further the mindset that our nation’s problems can be solved with more spending, not more efficiency,” according to Garrett. Frank countered that Garrett’s comments only reinforce his “fear that Republicans are attempting to cripple regulation by failing to fund it. I had thought even among people in the Tea Party that credit default swaps were not that popular. We’re arguing the security of the average American was far more endangered by the financial crisis than by a lot of other things that our military does.”
If the cuts are put into place, the SEC and CFTC would be frustrated in their mandates, such as setting up a new office of municipal securities, according to Frank. The Republican response to Democratic concerns is that their goal is to make federal regulators more efficient. Representative Spencer Bachus (R-AL), chairman of the House Financial Services Committee, said “Past experience indicates that a few investigative reporters have been more effective than the many employees at the SEC in addressing and exposing financial wrongdoing.”