by Jeff Sovern
As we've noted in the past, Senator Dodd's bill subjects the proposed consumer financial protection bureau to a veto by a two-thirds vote of a Financial Stability Oversight Council. Raj Date, Executive Director, Cambridge Winter Center for Financial Institutions Policy, has prepared a series of slides exploring, among other issues, how the Council would have voted back in 2005 if it had considered non-traditional mortgage protection. The conclusion:
Unfortunately, given the public pronouncements of key regulators at the time, it is quite likely that a Financial Stability Oversight Council -- if it had been in place during the credit bubble -- would have overruled a Consumer Bureau's attempts to rein in the non-traditional mortgage market. The existence of the veto provision, in other words, would have prevented the Consumer Bureau from taking its most significant potential actions to forestall the credit crisis.
Of course, it's impossible to know what would have happened with such a counterfactual, but given the importance of getting this right, taking unnecessary chances doesn't seem like a good idea.