ALM Properties, Inc.
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One Step Forward, Two Steps Back?
While financial regulators are furiously trying to catch up on long-overdue rule-making mandated by the Dodd-Frank Act, other entities are trying to kill the law. In February eight more states joined a lawsuit challenging its constitutionality.
Alabama, Georgia, Kansas, Montana, Nebraska, Ohio, Texas, and West Virginia are the latest plaintiffs to join the suit, which was filed in June in U.S. District Court for the District of Columbia by State National Bank of Big Spring, Texas; the Competitive Enterprise Institute; and the 60 Plus Association. Michigan, Oklahoma, and South Carolina joined them in September.
The original suit focused on the Consumer Financial Protection Bureau, complaining that it "aggregates the power of all three branches of government in one unelected, unsupervised, and unaccountable bureaucrat," as former White House counsel C. Boyden Gray, of Boyden Gray & Associates, said when the suit was filed. Gray and O'Melveny & Myers represent the private plaintiffs.
The 11 state attorneys general are focusing on Title II of Dodd-Frank, which gives the Treasury secretary so-called orderly liquidation authority. Intended as a third way between bankruptcy and bailout, the new authority allows Treasury to order the Federal Deposit Insurance Corporation to take over and liquidate a nonbank determined to be "in default or in danger of default," if its collapse would have a "serious adverse effect on the financial stability of the United States."
In a news release, West Virginia Attorney General Patrick Morrisey said that Title II of the law "negatively impacts West Virginia and its taxpayers. The orderly liquidation authority allows unelected Washington bureaucrats to pick winners and losers among affected creditors, entirely abandoning the rule of law."
Texas Attorney General Greg Abbott added: "Under this law, unelected federal bureaucrats can unilaterally liquidate financial institutions in which the state invests taxpayer dollars. Texas could be denied basic due process rights and taxpayers' dollars could recklessly be put at risk."
In November the federal government filed a motion to dismiss the suit, arguing that the plaintiffs lack standing. "Their theory that the orderly liquidation authoritywhich has never been invokedmay be applied to a financial company of which their pension funds are allegedly creditors is pure conjecture," states the motion, which lists 29 government lawyers as counsel and was signed by Wendy Doty, a trial attorney in the U.S. Department of Justice's federal programs branch.