Today, the Senate debated Sen. Richard Shelby’s (R-AL) consumer protection amendment to Sen. Chris Dodd’s (D-CT) financial regulatory reform bill. As I’ve noted, Shelby’s amendment would gut the Dodd bill and prevent the consumer protection regulator from enforcing its rules against almost every institution in the financial system. It would also undermine the ability of individual states to police consumer lending practices.

Sen. Bob Corker (R-TN) took to the Senate floor today to make his case against Dodd’s consumer protection title because the newly created Bureau of Consumer Financial Protection would have the ability to outlaw certain predatory products. He claimed that such power “has to undermine the safety and soundness of our financial institutions”:

One of the things that I think is most disruptive about this legislation is that, if you can imagine this. I think all of us realize that what led to this last crisis was we had very poor underwriting and loans. I mean, that was the essence of this last crisis, it got spread around the world, the fact that we had very poor underwriting…But what the Dodd bill does is give to a consumer protection agency loan underwriting standards. Now, if you can imagine that, I’d like people in this body to think about that, but a consumer protection agency being involved in setting underwriting standards for loans has to undermine the safety and soundness of our financial institutions. To me, that is a huge problem.

Watch it:

What Corker is saying, when you boil it down, is that banks have to rip off customers in order to make money. Without the ability to use predatory products, according to Corker, banks won’t be able to make a profit and will fall apart.

Not only is this preposterous — banks can get along perfectly fine employing only traditional banking products — but it is a very dim view of how we should protect financial consumers. While consumers should obviously be aware of the risks of financial products, there are some products that serve no purpose aside from trying to separate the buyer from his or her money.

As National Economic Council Director Larry Summers said last week, “we don’t allow you to sell baby seats that are unsafe for babies…I don’t see the problem with some regulation that actually goes to the content of the product.” Stephen Lubben put it this way at Credit Slips, when Shelby made a similar argument:

Did toaster companies go out of business when the Consumer Product Safety Commission stopped letting them sell exploding toasters? I guess the ones who couldn’t make it selling legitimate toasters did — but the Senator can’t really be saying that America’s banking industry is like a shoddy toaster company, can he?

Sen. Chris Dodd (D-CT) aptly called Shelby’s amendment “a stimulus package for scam artists.” And that’s exactly what it is: an argument for preserving the banks’ ability to prey on consumers.

BP has long touted itself as a “green” company interested not only in oil and other fossil fuels, but in renewable energy like wind and solar. But as Rebecca Lefton reported on ThinkProgress last week, BP barely invests anything in clean energy — most of its green campaign is actually just a massive advertising gimmick to conceal the truth about the company.

While BP has spent hundreds of millions building its brand, it has offshored the dirty work of promoting expanded drilling to right-wing front groups and trade associations. In a 2007 PowerPoint presentation obtained by ThinkProgress, BP appears to have been interested in fighting to open up protected waters to new offshore drilling. The presentation, organized by the BP-funded front group “Consumer Energy Alliance,” was delivered at the American Gas Association’s marketing meeting in Ponte Vedra Beach, Florida. The presentation calls for a five-year plan to build grassroots support to open wide swaths of both the East and West coasts to new drilling on the Outer Continental Shelf:

– Slide 5 depicts a map of “undiscovered technically recoverable resources on Federal OCS” along the East coast, from Maine to Florida, and on the West coast, from Washington to California.

– Slide 7 notes that expanding OCS access “provides univeral benefits to all sectors.” The page pitches the campaign to aid both the oil and natural gas industry.

– Slide 9 lists the 5 year plan “strategic priorities,” including “military/veterans groups,” “energy consumers,” “editorial boards/letters to the editor,” and “academia & think tanks.”

– Slide 14 lists the groups involved in doing grassroots outreach. Under “affiliated groups,” FreedomWorks — a right-wing “grassroots” group that helped plan the tea parties and continues to lobby aggressively against clean energy reform — is listed along with the 60 Plus Association, the American Conservative Union, and others. U.S. Chamber of Commerce and the American Petroleum Institute are some of the trade associations involved. Slide 14 also shows that BP is one of the member companies supporting the campaign.

Trade associations openly represent the needs of industry, so many industry groups like API have delicately tried to defend offshore drilling, but without explicitly defending the actions of BP. However, FreedomWorks portrays itself as simply a citizen-based group. In reality, FreedomWorks has a long history of orchestrating public support for its corporate and lobbyist backers.

Today, the Senate plans to vote on Sen. Richard Shelby’s (R-AL) consumer protection amendment to Sen. Chris Dodd’s (D-CT) financial regulatory reform bill. As I pointed out yesterday, Shelby’s amendment is remarkable in that it not only gives a bank regulator veto power over the new consumer division’s rulemaking authority, but it prevents the division from enforcing consumer protection rules against almost the entire financial system. Commercial banks, investment banks, payday lenders, auto dealers, check cashers, and non-banks that deal in products other than mortgages (such as AIG) would all be exempt from the division’s enforcement.

But of course, the Shelby amendment has its supporters. Sen. Mike Johanns (R-NE) — who has previously made outlandish claims about the attempt to create an independent consumer protection agency — took to the floor today to make two attacks against Dodd’s bill, while offering his support for Shelby’s amendment:

The current bill really changes current federal law under the guise of giving states more power over their consumer protection laws…This will wreak havoc for financial companies operating in more than one state…[The bill] would subject numerous merchants to the regulation of this new Bureau [of Consumer Protection] just because the business provides the ability to their customers to repay in four installments…That’s why the dentists, the lawyers, the advertising agencies, and even the florists are concerned with this bill and are showing up in our offices saying ‘what are you doing?’

Watch it:

Johanns endorsed the Shelby amendment as a “well thought out,” “reasonable approach.”

Johanns is employing two arguments here. The first has to do with federal preemption, the pernicious practice of federal bank regulators overruling states that try to write and enforce tough consumer protection laws. States like Georgia and New Jersey tried to reel in predatory subprime lending in 2002 and 2003, but federal bank regulators stopped them in their tracks. Dodd’s bill would force regulators to preempt state law on a case-by-case basis (which still isn’t great), while the Republican alternative would grant the banks blanket preemption, rendering every state’s consumer protection efforts moot henceforth. It seems odd that the party so concerned with states’ rights would advocate nullifying state laws before they’re even written.

Johanns then moves onto the common Republican canard about the consumer protection provisions applying to small businesses like florists, which is a myth that just won’t go away. However, Section 1027 of Dodd’s bill clearly lays out an exemption for merchants and sellers of non-financial services.

Conservatives keep getting hung up on a provision that says a payment plan consisting of more than four installments could be considered for regulation by the consumer regulator, but the very next provision (on page 1082) emphasizes that this doesn’t apply to any company “not engaged significantly in offering or providing consumer financial products or services.”

Is a dentist “engaged significantly” in selling financial products? Is a florist? Or is the GOP just searching for a reason to vote against enhancing consumer protection?

One of the more contentious parts of the financial regulatory reform debate currently occurring on the Senate floor is over derivatives regulation, after Sen. Blanche Lincoln (D-AR) surprised many people by offering legislation that not only brings derivatives out of the dark, but would force commercial banks to place their derivatives trading operations under a separate roof that is independently capitalized.

Currently, a lot of derivatives trading occurs “over-the counter,” meaning it’s between two parties, without public information. Lincoln’s bill would place all standardized derivatives trades onto public exchanges (like the stock exchange), so that both investors and regulators can see what is going on in the market. It would also employ clearinghouses to act as the middlemen between trades, ensuring that both parties have sufficient collateral on hand should the deal go bust.

This approach would help to avoid another AIG-type situation, in which a party is making derivatives trades with nothing to back them up. Republicans, however, are not happy with Lincoln’s legislation. Sen. Saxby Chambliss (R-GA), along with Sens. Mitch McConnell (R-KY) and Richard Shelby (R-AL), have crafted an amendment that not only gets rid of the exchange trading mandate entirely, but gives regulators vast discretion to exempt trades from going through clearinghouses:

The 218-page Republican amendment differs from the Democratic bill by exempting more end users from requirements to send trades through clearinghouses. It would let regulators decide which derivatives would need to pass through clearinghouses…Unlike the Democratic bill, it would not mandate exchange trading for swaps.

According to Shelby, the bill will simply stipulate that “transactions will be ‘made known’ to regulators,” whatever that means.

At its core, the amendment is an attempt to leave the derivatives market as is: opaque, with a lack of information for investors looking for fair prices and regulators looking to enforce the rules. As the Roosevelt Institute’s Mike Konczal wrote, “the first axis by which to judge the financial reform of derivatives is to what degee derivatives are required to trade in clearinghouses…The second axis measures to what degree derivatives are required to trade in exchanges.” The GOP plan fails on both measures.

When it comes to complex financial instruments, the more information that investors and regulators have, the better the market is. The wide use of exchanges and clearinghouses will drive down prices, increase competition, and prevent the huge derivatives market from building up systemic risk.

Even former Treasury Secretary Hank Paulson feels this way, telling the Financial Crisis Inquiry Commission today that derivatives should be standardized and put on exchanges, and anything that is not standardized should have onerous capital requirements. “Such regulations will encourage standardization, promote transparency, and penalize excessive complexity with capital charges, thereby restoring these products to their proper function — mitigating, not enhancing, risk,” he said.