Sen. Christopher Dodd’s “regulatory reform” bill, S. 3217, the Restoring American Financial Stability Act of 2010, has many contentious proposals that have members from both political parties on edge.
The bill cauterizes “too big to fail” by establishing a Financial Stability Oversight Council that would indentify politically important institutions, sending the signal that some companies are indeed too big to fail.
It creates a permanent bailout authority by authorizing the Federal Deposit Insurance Corporation (FDIC) to “make available … funds for the orderly liquidation of covered financial institutions.”
This bill does nothing to address the problems created by Fannie Mae and Freddie Mac. Rather it makes permanent the failed risky lending policies of the past by paying banks to advertise and seek out low-income people who would otherwise not qualify for loans. The bank, backed by the government, issues risky loans and either the loan is paid back on time, in which case the bank keeps all the profits, or the loan defaults and the government uses taxpayer money to cover the bank’s loss. Win-win for government-backed banks, total failure for taxpayers.
Additionally, this bill promotes activist- and union-shareholder proxy terrorism by requiring firms to allow shareholders to nominate directors in the proxy statement, ensuring political popularity and influential power trump knowledge and experience.
And the list goes on and on.
However, one specific component that would make George Orwell say, “I told you so,” is the establishment of the Bureau of Consumer Financial Protection (BCFP). If the name of the agency is not enough to conjure up images of black helicopters, the description will certainly do the trick.
Established in Title 10, this new autonomous agency will be sheltered within the Federal Reserve, but will function independent of the currently established, traditional regulatory framework. Congress or any other agency will have no veto power over the BCFP.
This new agency’s budget will be 12 percent of the 2009 Federal Reserve System operating budget, or approximately $646 million. In 2008, the Federal Reserve’s operating budget was $2.5 billion but it increased $600 million to $3.1 billion for 2009. The 2009 budget baseline was used because it was the most inflated baseline in recent history. Rather than trimming the fat like many state budgets are forced to do in the current economic crisis, Mr. Dodd used the most inflated budget baseline he could find to fund this agency.
This bureau is given the unprecedented authority to monitor personal bank transactions and uses personal financial data to regulate consumer choice.
Established in Section 1022 on Page 1028, the BCFP is given the authority to monitor consumer financial patterns and, “implement and, where applicable, enforce Federal consumer financial law.” Specifically, Subsection C gives this agency authority to “gather information and activities of persons operating in consumer financial markets.”
Further, Section 1071 allows the BCFP to “use the data on branches and [individual and personal] deposit accounts” and “shall assess the distribution of residential and commercial accounts at such financial institution across income and minority level of census tracts; and may use the data for any other purpose as permitted by law.” Never before has the federal government actively sought to aggregate data on every single personal and business financial transaction in the U.S. until now.
It is vitally important to understand exactly what this provision mandates. At every single branch automated teller machine where deposits are accepted, and other deposit-taking service facility for any financial institution, that institution shall maintain a record of the number and dollar amounts of the deposit accounts of customers.
The bill goes on to mandate that customer addresses be geocoded for the collection of data on the census tracts of the residences or business locations of customers. The government is mandating that every cent any individual deposits will be linked to the census-based personal address of each customer and to their deposit at the corresponding financial institution. The bureau is permitted to share this data with whomever they wish.
If passed, the government will posses the data and tools to map on a national level all financial deposit and consumer purchasing behavior. This bill provides that this data and information can be shared with Wall Street and big business to discern individual purchasing patterns down to a county or neighborhood level.
Imagine the ability for merchants to target consumers based on patterns they did not cognitively realize they were engaging in.
Can you hear the black helicopters now?
Brian M. Johnson is federal affairs manager in charge of financial services at Americans for Tax Reform.