The Dodd Effect

The Senate begins debate this week on a "Wall Street Reform" bill that supporters claim will prevent another "meltdown" of the global economy. The bill will prevent financial companies from trading in derivatives in order to lessen their risk in issuing loans and will also place artificial caps on the size of companies to make sure they don't get to be "too big to fail".

As a proponent of the free market system, I can't support the measures contained with in the bill. If people feel they were ripped off in buying into derivative funds, perhaps they should have realized what they were buying. Memo to the Kimberly School Board: When the investment advisors say that the Collateralized Debt Obligations that you are buying are full of loans made to people who really can't afford to pay them back, that should give you some pause and make you think: "Gee, is the risk really worth the potential reward?" Or at least "Do I really understand where I am about to invest taxpayer money?" Double penalty points for borrowing the money to make those investments.

But what really gets my goat is that the reform bill is the brainchild of Connecticut Senator Chris Dodd. Dodd is the very Senator who helped to create the situations that led to the mortgage crisis. He led the charge to bully Fannie Mae and Freddie Mac to make the sub-prime mortgages that created the financial bubble which burst two years ago. At that time, banks were "evil" for locking so many "hard-working" Americans out of homeownership by having such ludicrous requirements like down payments and the ability to actually repay the loan. Senator Dodd also seems to forget he supported the de-regulation of Wall Street that opened the door to derivatives trading without direct SEC oversight.

In a way, Senator Dodd is like an arsonist firefighter who sets the fire on his way into work--then leads the charge into the house to save the family trapped inside so he can look like the hero. Of course, he also has to publicly chastise the homeowners for not taking the proper precautions to keep him from setting the house on fire. It must be really nice to feel like you are above being held accountable for your actions. I guess we can thank Martha Stewart and the rest of her Connecticut friends for giving Senator Dodd that feeling.