Friday, April 16, 2010

Financial Reform Opposition

The chairman of the Senate Banking Committee, Chris Dodd, and the chairman of the House Financial Services Committee, Barney Frank, have unveiled bills designed to prevent another bailout of financial industry giants. House Minority Leader Mitch McConnell, however, is not pleased, declaring on the Senate floor

We cannot allow endless taxpayer-funded bailouts for big Wall Street banks. The way to solve this problem is to let the people who make the mistakes pay for them. We won't solve this problem until the biggest banks are allowed to fail.

Sounds like good rhetoric, and that's exactly what is- rhetoric, and nothing McConnell believes. A Time magazine blogger caught the similarity between McConnell's jargon and that of pollster Frank Luntz, a favorite of Fox News who works with Republicans:

Luntz: "The single best way to kill any legislation is to link it to the Big Bank Bailout."

McConnell: "We cannot allow endless taxpayer-funded bailouts for big Wall Street banks. And that's why we must not pass the financial reform bill that's about to hit the floor."

Luntz: "Taxpayers should not be held responsible for the failure of big business any longer. If a business is going to fail, not matter how big, let it fail."

McConnell: "[The Dodd bill] gives the government a new backdoor mechanism for propping up failing or failed institutions.... We won't solve this problem until the biggest banks are allowed to fail."

Luntz: "Government policies caused the bubble and its ultimate crash. Fannie Mae, Freddie Mac, the Federal Reserve, and the Community Reinvestment Act all had a role in the catastrophe. The government inflated economic bubbles with easy credit policies."

McConnell: “It also directs the Fed to oversee 35 to 50 of the biggest firms, replicating on an even larger scale the same distortions that plagued the housing market and helped trigger a massive bubble we'll be suffering from for years. If you thought Fannie and Freddie were dangerous, how about 35 to 50 of them?"

Not a coincidence, not even close. (Luntz's advice came before there was any bill.) If one were to listen to the Kentucky Senator, one would be tempted to believe that the intent of the proposals was to expand corporate power and influence. Dodd's initiative is a little weak but at least points the federal government in the right direction as

The bill also creates for the first time a legal method to wind down failing large, systemically-important financial firms. This is an authority federal regulators consistently argue that they lacked during the financial crisis -- the reason, they cite, for using hundreds of billions of taxpayer dollars to bail out private banks and financial firms.

If Senator McConnell truly were interested in preventing "people who make the mistakes" from being rewarded, he would be encouraged by Representative Franks' bill, which

creates a Financial Stability Oversight Board that will monitor the activities and practices of large financial institutions, but if they run into trouble the Board becomes a death panel. If a Wall Street bank or investment bank begins to fail, threatening the safety of the financial system, it will be put to death. End of story. Shareholders are wiped out, unsecured creditors are out of luck, management and every employee that is not required to shut down the company is fired. And even secured creditors may be required to take haircuts. The industry pays into a fund to put the institution to death, and this fund is only used to protect the system and our economy when the bank fails.

But McConnell, feigning concern about "too big to fail," wants to continue as one of Wall Street's stealth champions, Fox Business reporting on April 12:

As a financial reform bill starts to take shape in Washington, two key lawmakers came to New York City last week to explain what it means for Wall Street, and how financial executives might help prevent some of its least market-friendly aspects from becoming law by electing more Republicans, FOX Business Network has learned.

About 25 Wall Street executives, many of them hedge fund managers, sat down for a private meeting Thursday afternoon with two of the most powerful Republican lawmakers in Congress: Senate minority leader Mitch McConnell of Kentucky, and John Cornyn, the senior senator from Texas who runs the National Republican Senatorial Committee, one of the primary fundraising arms of the Republican Party.

The stated topic of the meeting: The Financial reform bill being sponsored by Senator Chris Dodd, the Democrat and chairman of the senate banking committee. Both McConnell and Cornyn listened to numerous complaints the executives have with the bill. These included complaints about provisions that allow the government to continue to prop up financial institutions that are “too big to fail.”

The Republicans noted they expect to pick up several seats in the Senate and take control of the House. but cautioned

in order to assure those gains, and add even more, McConnell and Cornyn made it clear they need Wall Street's help.

We've seen this all before- just recently, in fact, with health care. Unmoved by the need to prevent another financial meltdown, the GOP on Friday sent to Majority Leader Reid a letter, signed by all 41 in their caucus, declaring

We are united in our opposition to the partisan legislation reported by the Senate Banking Committee. As currently constructed, this bill allows for endless taxpayer bailouts of Wall Street and establishes new and unlimited regulatory powers that will stifle small businesses and community banks.

This might have seemed a little more sincere if the Dodd bill had not been crafted with the assistance of Republican Senator Bob Corker (not a RINO, he) of Tennessee- or if the GOP senators had not planned earlier in the week to send a letter pledging to filibuster the bill, only to be stymied by one senator (Collins of Maine) who who was reluctant to commit to a strategy of blocking debate.

But this requires, in what Digby recognizes as "a kabuki dance," someone pretending to play the honest broker. The previous day, Judd Gregg (R-NH) had been asked on MSNBC about the possibility of compromise and replied

The question is how do we get back to the table. I think Senator McConnell is absolutely right. He's saying, hey talk to us on this issue. If you're not going to talk to us then we're not going to support taking the bill across the floor and we'll use our capacity to stop the bill, but what we really want to do is sit down and reach agreement because these agreements should be very doable.

That same day, however, Ezra Klein noted

if you're looking for help predicting the ultimate amount of bipartisan cooperation on this bill, the fact that Cornyn and McConnell are basing their fundraising strategy around their opposition to financial regulation should offer a clue.

We've seen this all before- quite recently, in fact, with the health care "debate." Digby, with insight rivaling that of Thomas Frank, has it figured out:

Judd's job is to ensure that the bill is watered down to something that Wall Street is happy with, but which Republicans can still vote against in the end, this time saying "it doesn't go far enough." It worked with health care.

The difference this time is that liberals are not nearly as invested in this bill as they were in health care. There could easily be defections on the left if they water this thing down any more than it already is. Nobody's life is literally at stake and Obama can't keep going to the "my legacy depends on it" well.

The Dems would do better politically to tell the Republicans to go to hell, pass a tough bill and take it to the people. Conservatives voting against financial system reform are in a much more difficult political position than liberals because everyone knows that Republicans are the party of big business and have been for a century. They'll try to muddy it up with cries of socialism, but only the veriest teabagger will be able to absorb the dissonance in all this without their heads exploding. If the Democrats allow the GOP to water down their bill even further so they can then vote against it in a faux populist hissy fit, they get what they deserve. They'd be better off walking away and running the fall campaign on the GOP's obsequious obeisance to Wall Street bankers.

Or, the Democrats can, as with health care: allow the GOP to move the goalposts and compromise till the bill is substantially watered down; watch as they nonetheless face a wall of opposition from the GOP; and listen to the mainstream media blame them for refusing bipartisanship. Fool me once, shame on you; fool me twice....

1 comment:

Dan said...

The democrats should be able to win the message war on this. Most people understand the need for better regulation to prevent similar crises, and most people don't see themselves as losing anything if it passes.

They had better get an independent consumer protection agency in place soon.

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