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Killing Financial Reform by Defunding the Regulators

December 21, 2010 - by Donny Shaw

There was something odd about the death of the omnibus appropriations bill last week. The bill would have funded the government at the exact level requested by the Republican leadership and of the oft-criticized earmarks in the bill, the top beneficiaries would have been Republicans. The bill was produced through a long, bipartisan, and mostly agreeable committee process.

So why did the Republicans suddenly turn against it?

One theory is that the November midterms changed everything. Before the midterms, Republicans were requesting billions in earmarks and working with the Democrats to fund the government. But then the voters spoke, and the Republicans heeded their message and turned against their own earmarks.

That’s possible, but it seems more likely that the Republicans saw the midterm results as a chance to get more control of the federal budgeting process and potentially defund some of the laws passed by Democrats over the past couple years. Wonk Room reports that by forcing the government to be funded by a continuing resolution until March, when they will have more control over the process, the Republicans have already begun slowing down implementation of the Dodd-Frank financial reform bill:

However, the resolution does not include funding for the implementation of the Dodd-Frank financial reform law. Under the omnibus, the Securities and Exchange Commission would have seen its budget increase to $1.3 billion from $1.1 billion, and the CFTC would have gone from $169 million to $286 million.

Already, the SEC has halted implementation of a variety of measures under the law as it waits for funding. Included in this halt are new regulations for credit rating agencies and an office for financial markets whistleblowers. The Commodity Futures and Trading Commission (which is charged with implementing the derivatives title of the bill) has said that its current funding level “is far less than what is required to properly fulfill our significantly expanded role.” “The implementation of that good and historic law is in jeopardy if the CFTC doesn’t have increased resources,” Bart Chilton, a CFTC commissioner, has said.

If the prospects for enhanced funding next year looked promising, this would be less of a problem. However, House Republicans are threatening to deny funding to the agencies implementing the bill when they take control, and in particular to kneecap the newly-created Consumer Financial Protection Bureau before it even gets off the ground. This is much the same game that the GOP is threatening to play when it comes to funding the Affordable Care Act, which also got tripped up by the omnibus spending bill’s defeat.

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