Critics question Dodd's reform proposal

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By Sean Lengell

Senate banking committee Chairman Christopher J. Dodd proposed a major overhaul of the government's financial regulatory system Tuesday, calling for bolder changes than the House and the Obama administration are seeking.

The measure - which aims to prevent another economic collapse, protect consumers and dismantle failing institutions - is likely to win significant support among voters who blame the economic downturn on Wall Street greed.

But Republicans, who have not signed on to the Connecticut Democrat's bill, said the proposal was designed to revive Mr. Dodd's slumping re-election campaign in the aftermath of an ethics investigation involving a sweetheart mortgage deal.

"This is not a time for timidity," Mr. Dodd told reporters Tuesday.

"This proposal will create a new architecture to make our financial institutions more transparent, more responsible and more accountable to the American people," he said. "It will address the problems of the past, but as importantly, if not more importantly, it also looks forward to the needs of the future."

The National Republican Senatorial Committee had a different view, calling Mr. Dodd's action a political move.

"Despite Chris Dodd's election-year conversion to populism, he cannot escape the significant role he played in our nation's current economic crisis," said committee spokeswoman Amber Wilkerson Marchand.

"After repeatedly putting the priorities of the special interests ahead of consumers and constituents, it's no wonder Chris Dodd faces some of the lowest approval numbers of any Senate incumbent facing re-election next year."

Mr. Dodd and Sen. Kent Conrad, North Dakota Democrat, admitted to participating in a special program that secured them special low-interest home loans with defunct mortgage giant Countrywide Financial Corp. Both said they knew they got low mortgage-rate deals in the lender's VIP program but thought the special treatment was a "courtesy" on par with "frequent flier" discounts.

The Senate ethics committee in August cleared both of wrongdoing. But the incident is blamed for a steep slide in Mr. Dodd's poll numbers in Connecticut, where he faces a difficult race in 2010 in a bid for a sixth Senate term.

Mr. Dodd's proposal, like a similar version passed last week by the House, would create an independent watchdog agency to give consumers new protections against excessive credit-card rate and fee increases, predatory lending practices and deceptive mortgages that have helped fuel the nation's economic woes.

The draft also calls for an independent council of regulators to identify and address risks posed by large, complex companies; products; and activities before they threaten the stability of the financial system. The agency could force companies that threaten the economy to divest some of their holdings.

In extreme cases in which a large company is on the verge of collapse, the government could step in and dismantle the firm before it brings down the economy.

Mr. Dodd's plan differs from the House bill and the administration's proposal in that it would do more to scale back the powers of the Federal Reserve, which many lawmakers blame for the economic crisis.

Both the House and Senate bills likely would place limits on the Federal Reserve's ability to provide emergency loans and eliminate its oversight of consumer protections.

The senator denied that his plan is meant to punish the Federal Reserve. Rather, he said, it was designed to return the Fed "back to its core enterprises."

"There's nothing punitive in this bill," Mr. Dodd said.

Mr. Dodd's proposal is expected to gain broad support among Democrats. But the banking committee's top Republican, Sen. Richard C. Shelby of Alabama, who traditionally has worked with Mr. Dodd on financial services measures, so far hasn't offered his support.

Mr. Dodd said he will seek Republican input for the bill, which tentatively is scheduled for markup by the committee in early December.