In June 2009, after just five months in office, President Barack Obama and key advisers introduced a series of regulatory
proposals aimed at, among other concerns, addressing strengthened consumer protection, restraining executive pay, preventing bank financial distress, limiting systemically significant risk exposures and commensurate capital requirements to deal with them, introducing expanded regulation on the run-away shadow banking system and reining in structured finance, particularly over-the-counter (OTC) derivatives the are not traded on exchanges.
New regulatory regimes were also proposed to enhance the authority for the Federal Reserve to safely resolve distressed systemically-important financial institutions. ns.
On October 29, 2009, Treasury Secretary Timothy Geithner, testifying before congress, listed five elements as critical to effective finance regulatory reform:
1) Expand the bank resolution mechanism of the Federal Deposit Insurance Corporation (FDIC) to include non-bank financial institutions;
2) Ensure that a firm that takes unwarranted risk is allowed to fail in an orderly way and not be "rescued" by the government with public funds;
3) Ensure that taxpayers are not on the hook for any losses from government bailouts of distressed firms, by applying losses first to the troubled firm's investors, including the creation of a reserve pool funded by the market's largest financial institutions;
4) Apply appropriate checks and balances to the FDIC and Federal Reserve in the resolution process; and
5) Require stronger capital and liquidity positions for financial firms and their related regulatory authority.
In the November 2010 mid-term elections, the Democrats lost control of the House of Representatives, losing from a Democrat majority of 275 Democrat seats versus 178 Republican seats won in 2008, to a Republican majority of 242 Republican seats versus 193 Democrat seats. The Democrats lost 83 seats in an anti-incumbency electoral tsunami in the aftermath of the financial crisis. In the senate, the Democrats managed to hold on to a slim majority of 53 Democrat seats versus 47 Republican seats, but losing a near super majority of 59 Democratic seats before the election.
A new legislation was ushered through the Democrat-controlled House of Representatives on December 2, 2009, in the House Financial Services Committee by chairman Barney Frank. On July 15, 2010, the senate finally passed it by a vote of 60 to 39. Three Republican senators - Scott Brown of Massachusetts and Olympia J Snowe and Susan Collins of Maine - joined 57 members of the Democratic caucus in support. Senator Russell Feingold of Wisconsin was the lone Democratic opponent, saying the measure didn't go far enough.
Many liberals have criticized the bill for failing more forcefully to reform the structural flaws of Wall Street and for leaving too many critical decisions to the discretion of federal regulators, which had ignored or missed many of the warning signs before the crisis.
On January 5, 2011, six months after shepherding the bill through the senate, under a cloud of ethics scandal, senate banking committee chairman Chris Dodd announced he would not seek a sixth four-year term in 2012.
Dodd's ethics trouble began in June 2008, when Conde Nast Portfolio revealed that he had been granted two cut-rate mortgages of nearly US$800,000 by subprime mortgage giant Countrywide Financial in 2003. As the magazine reported, Dodd was a "Friend of Angelo" - one of several notables marked for special treatment by Countrywide co-founder Angelo Mozilo.
The report triggered a dizzying carnival of misleading Dodd statements. First, he issued an angry written statement denying any favorable treatment. A few days later, he told some reporters that he knew he had been treated as a VIP by Countrywide, while the same day assuring other reporters that he had not.
Michael Moore's Capitalism: A Love Story (2009) shows on film that what Dodd got from Countrywide was actually over $1 million of a sweet-heart mortgage deal. Dodd nonetheless called for stronger regulation of mortgage lenders and proposed that predatory lenders should face criminal charges.
Conde Nast Portfolio reported that several other influential lawmakers and politicians beside Dodd, including senate budget committee chairman Kent Conrad, and a former chief executive of mortgage guarantor Fannie Mae, Jim Johnson, also received favorable mortgage financing from Countrywide by virtue of being "Friends of Angelo".
Clinton Jones III, senior counsel of the House financial services subcommittee on housing and community opportunity, and "an adviser to ranking Republican members of congress responsible for legislation of interest to the financial services industry and of importance to Countrywide" also received special treatment for a mortgage from Countrywide. Jones is now state director for federal residential-mortgage bundler Freddie Mac.
Alphonso Jackson, acting secretary of the US Department of Housing and Urban Development at the time and long-time friend and Texas neighbor of President George W Bush, also received a discounted mortgage from Countrywide for himself and sought one for his daughter. In 2003, using VIP loans for nearly $1 million apiece, Franklin Raines, Fannie Mae's chairman and chief executive from 1999 to 2004, twice refinanced his seven-bedroom home, which has a pool and movie theater.
Paul Pelosi Jr, son of House Democrat majority leader Nancy Pelosi, also received a VIP loan with Countrywide. Democrat Senator Barbara Boxer, former Republican Congressman (until January 4, 2011) Adam H Putnam, diplomat the late Richard C Holbrooke, Democrat Congressman James E Clyburn, and former health secretary Donna Shalala are also among those who have or have had mortgages from Countrywide.
CBS News obtained the following list of then-Fannie Mae employees whose names have been turned over to investigators as having received VIP loans from Countrywide:
Sandra Adams: Fannie Mae account associate,
Nitirwork Armstrong: Fannie Mae director,
Gregg Ayres: Fannie Mae customer acct manager,
Jeffrey Baker: Fannie Mae business analyst ,
Ingrid Beckles: Freddie Mac VP default mgmt ,
Cherry Billings: Fannie Mae asst to CEO,
Christine Buckley: Fannie Mae sr assistant,
Sharon Canavan: Fannie Mae govt relations/lobbyist,
Delynn Conley: Fannie Mae underwriter,
Carla Corpuz: Fannie Mae senior underwriter,
Tanguy De Carbonnieres: Fannie Mae legal counsel,
Bernard Deane: Fannie Mae director,
Mollie Dougherty: Fannie Mae sr business manager,
Roy Downey: Fannie Mae director,
Cynthia Fatica: Fannie Mae legal counsel,
Jamie Gorelick: Fannie Mae vice chair,
Lizbeth Grant: Fannie Mae director tec/secondary mkt,
Greta Hamilton: Fannie Mae manager/home loans,
Lester Handy: Fannie Mae consultant,
James Johnson: Fannie Mae chairman and CEO,
Jack King: Fannie Mae manager,
Karen King: Fannie Mae credit risk manager,
Gerald Langbauer: Freddie Mac VP sales,
Derek Lowe: Fannie Mae technician/home loans,
Mary Lee Moriarity: Fannie Mae sr underwriter consult/lending,
Daniel Mudd: Fannie Mae vice chair and COO,
Paulette Porter: Fannie Mae sr proj mgr/mtg securities,
Alan Quirion: Freddie Mac director,
John Radwanski: Freddie Mac sr port director,
Franklin Raines: Fannie Mae chairman and CEO,
Robin Ramsay: Fannie Mae customer acct manager,
Rebecca Rosena: Fannie Mae Credit Risk manager,
Irwin Rosenstein: Fannie Mae asst general counsel,
Robert Sanborn: Fannie Mae vice president,
William Shirreffs: Fannie Mae director,
Joseph Silva: Fannie Mae servicing portfolio manager,
Donna Simpson: Fannie Mae customer acct manager,
Michelle Sorensen: Fannie Mae sr business an/mortgage,
Mary Ann Staley: Fannie Mae marketing dir,
Deborah Kay: Tretler Fannie Mae VP risk management,
Kirk Willison: Freddie Mac VP trade relations/dir industry relations,
David Yoon: Fannie Mae acct associate.
A watchdog group, Judicial Watch, filed a complaint alleging that Dodd assisted a longtime friend and associate, Ed Downe Jr, to obtain a reduced sentence and ultimately a full presidential pardon from Bill Clinton for tax and securities crimes, in exchange for gifts, including a sweetheart mortgage deal that he failed to properly disclose on his senate financial disclosure forms.
Senator Dodd was elected United States senator from Connecticut in 1980 and served for 30 years to become a powerful senior senator. He chose not to seek re-election for a sixth six-year term in the November 2010 elections because of a number allegations of ethics violation. His campaign war chests had been heavily funded by the financial services industry - which was regulated by committees Dodd either chaired or sat on in the senate for decades.
Dodd's reputation was irreparably damaged from an amendment he introduced to US economic stimulus bill in February 2009 ratifying hundreds of millions of dollars in bonuses to top executives at AIG executives at a time when the beleaguered company was receiving billions of dollars in government bailouts.
AIG has had a major off-shore presence in Bermuda for more than 50 years and aside from its main operation on Richmond Road, Pembroke, operates a number of Bermuda-based subsidiaries.
On YouTube, one can watch the short clips, recorded in March 2009, of Dodd caught in stark prevarications over his role in protecting $165 million in bonuses for his generous friends at financial giant and crisis albatross AIG. Over the course of two interviews given within 24 hours on CNN, Dodd first denied with his trademark vehemence that he had anything to do with inserting a section into the February 2009 stimulus bill that allowed AIG executives to keep their staggering bonuses granted by a company that required nearly $100 billion in government rescue with taxpayer money.
Because of ethics issues involving Dodd's role in senate committees that regulated the financial services sector, particularly over his controversial financial ties to AIG and its one-time Bermuda affiliate, IPC Holdings Ltd, his election chances were so damaged that Dodd decided not to seek re-election in 2010
On December 20, 2010, the senate select committee on ethics dismissed an ethics complaint filed against Dodd by Judicial Watch.
Dodd, who received more than $280,000 in campaign contributions from re/insurance giant AIG and whose wife was appointed to the board of a Bermuda subsidiary of the firm, left office in January 2011 free from investigations or prosecution.
The proposed act, which came to be known as the Dodd-Frank Act, was passed on December 2, 2010, as a legislative response to the global financial market crisis that began in the US in mid-2007 and the global recession that followed, was presented as the most sweeping reform of financial regulation in the United States since the New Deal that Franklin D Roosevelt put together in the midst of the Great Depression after the market crash of 1929.
The new bill aimed at effectuating a paradigm shift in the loose US financial regulatory environment that had resulted from the steady dismantlement of New Deal governmental regulation on financial markets during the decades of market liberalization the eventually led to global systemic financial market failures in mid 2007. The proposed bill was intended to protect both the US financial system and the US investing public from practices that led to excessive systemic risk. The bill also aimed at curbing rampant moral hazard, which occurs when institutions, insulated from the consequences of risk, behave differently and recklessly than it otherwise would if they were fully exposed to the consequences of their risk taking.
Moral hazard, coupled with Federal Reserve loose monetary policy of easy money, had fueled the emergence of structured finance that led to the debt bubble, the bursting of which forced the government to bailout distressed "too-big-to-fail" institutions with taxpayer money in order to avert a systemic meltdown.
The new bill also aimed at re-establishing the largely dismantled New Deal era mandate for Federal financial regulatory agencies to reactivate procedures of effective systemic market risk management that will affect practically every aspect of the nation's post-crisis financial services industry going forward.
On July 21, 2010, three years after the financial crisis broke out in July 2007, President Obama signed into law the 2,300-page-long Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111-203, H.R. 4173, Dodd-Frank Act), passed by the Democrat-controlled congress, four months before Obama's first mid-term elections.
The stated aim of the Dodd-Frank Act is: "To promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail", to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes."
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