What Does Dodd’s Departure Mean for Finance Reform?

Yesterday I wrote that Sen. Chris Dodd’s (D-CT) retirement may actually improve the Democrats’ chance of retaining his seat in the fall. Indeed, as Greg Sargent reports, an early poll has Dodd’s likely replacement, Connecticut’s popular Attorney General Richard Blumenthal, leading all three of the Republicans in the race by a stunning 30%. But lost in the discussion of the Democrats’ prospects in the fall is what Dodd’s impending retirement means for legislation pending in Congress.

Sen. Dodd has been such a central figure recently that some colleagues have joked that this legislative session should be known as “the Dodd Congress.” As chair of the powerful Banking, Housing, and Urban Affairs Committee, as well as—after the death of Sen. Ted Kennedy—acting chair of the Health, Education, Labor, and Pensions Committee, Dodd has been instrumental in shaping the debate over two of the most important issues in front of Congress, health care reform and finance reform. Dodd has been dogged by questions about his ties to Countrywide Financial and AIG, which might seem to make him an unlikely financial reformer. But—perhaps out of a desire to deflect those questions—he has taken a fairly tough line with Wall Street so far, pushing to give the government greater authority both to regulate derivatives and to take over failing financial firms.

For Sen. Dodd now, it’s a question of his legacy. After 30 years in the Senate, he will be eager to leave some lasting mark. And while he no longer has to worry much about the questions about his ties to financial firms, he doesn’t have as much need to court them either. And now that he doesn’t have to spend the year campaigning, he’s can spend his time focusing on finance reform. He may need to strike a compromise to get something done—and he will probably remember his friends in finance—but he’s also unlikely to leave behind something completely toothless. That’s why many think the prospects for meaningful financial reform have suddenly gotten brighter.

At least in the short term. After Sen. Dodd retires, Sen. Tim Johnson (D-SD) is likely to take over as chair of the banking committee. Because many credit card companies have their base in South Dakota to take advantage of the fact the state doesn’t limit how much interest they can charge—according to Politico, 7% of non-farm jobs in the state are in credit card services—Johnson has often looked out for the interests of the financial services industry. In May, he was the only Senate Democrat—and one of only five Senators—to vote against a credit card reform bill that put limits on rate increases and fees. As Ryan Grim wrote last year, the prospect of Johnson taking over the committee terrifies advocates of greater regulation. And, as the Wall Street Journal notes, the prospect of Johnson taking over the committee might give the Republicans an incentive to try to delay the process until after Dodd is gone.