Scott Brown For Financial Reform, Sort Of
Scott Brown's Facebook page is replete with comments from individuals angry about the 60th vote he provided in the U.S. Senate in favor of financial reform. Cindi Scott Benton remarks
We have to know... we HAVE to KNOW... what was it that changed your mind on this today??? You said NO... and then said YES??? WTF????????
Michael Wall more simply asks, rhetorically,
You voted for this bill, 2000+ pages of regulation? Why, just why?
Perhaps we can help them. In order to pay for the legislation, a House-Senate conference committee had inserted a provision which
would raise the level of funds the FDIC is required by law to hold in reserves to insure bank customer deposits. The FDIC would increase its so-called reserve ratio from 1.15 percent to 1.35 percent, or $1.35 for every $100 in deposits. The fund is supported through fees on the banking industry.
The change would shift the burden to the largest U.S. banks since the earlier plan would have also assessed hedge funds. Dodd said small banks would be exempt from having to pay for the increase.
As of June 28th, the Massachusetts Republican supported financial reform, which had passed the Senate with his vote after the Volcker Rule was weakened. wherein
Lawmakers agreed to an exemption pushed by Brown, for example, that would allow banks to continue to invest at least a small amount of their capital in hedge funds and private equity. The measure would prohibit a bank from placing more than 3 percent of its capital in such investments.
In English, a blogger at Alternet explains:
Brown demanded that the Volcker Rule—a ban on risky proprietary trading by banks—be watered down. Proprietary trading doesn’t serve any client or help any business, it’s just a naked bet, and when those bets are made through the commercial banking system, they’re subsidized by taxpayer perks (those perks are designed to boost economically productive lending).
One of the biggest banks in Massachusetts is State Street Bank. It’s a pretty boring institution—except for its prop trading operations. Throughout the crisis, it made decent money, and generally didn’t run into any trouble—except from its prop trading operations. State Street’s gambling operations backfired big-time, forcing taxpayers to step in with billions of dollars in bailouts.
What did Brown learn from this episode? Why, that State Street deserves to keep gambling with taxpayer dollars! Prior to Brown’s efforts, the Volcker Rule would have banned any proprietary trading at major banks. After Brown’s efforts, banks can put up to 3 percent of their capital into a proprietary hedge fund. That dealt a tremendous blow to the substance of the reform. When banks sponsor proprietary hedge funds, they collect lots of money from outside investors. If those hedge funds go under, the bank’s reputation is immediately on the line, and it faces a tremendous amount of pressure to bailout other investors in the hedge fund. If they don’t stand behind the hedge fund, investors wonder why, and it can spark a run on the bank.
So even if only a small amount is initially invested in the fund, banks often end up paying out several times their original investment to cover losses (Bear Stearns put about $40 million into a hedge fund and had to pay $3.2 billion when it went under). There are some provisions in the reform bill limiting the degree to which big banks can bailout their hedge funds, but they will be extremely difficult to enforce.
In sum, Brown actively weakened U.S. financial stability, and hit taxpayers with unnecessary fees, and did it all for the express benefit of a handful of special interests.
Still, on June 29th, however, Brown wrote a letter to Senate Committee on Banking Chairman Chris Dodd and House Committee on Financial Resources Chairman Barney Frank vowing to oppose the bill when it came back to the Senate because of the new provision. Of course, the conferees amended the bill to Brown's liking because, in Obamaworld, no bill may be passed without Republican support, even if it means losing the support of progressive Democrats. (Ultimately, this provision was dropped because at the last moment it was found to violate Paygo rules.)
The Administration had a choice. It could have accomodated Democrats Russ Feingold of Wisconsin, who wanted the original, powerful Volcker language, and Washington States's Maria Cantwell, who advocated the stronger derivatives language initially proposed. But it chose instead to placate Massachusetts' Scott Brown and Maine's Susan Collins (sound familiar?). And it proved easier to appease an opportunist like Scott Brown, bereft of any ideological underpinning, rather than to demand a bill which would have effectively addressed the abuses of the nation's financial institutions.
Really, then, notwithstanding the shock of Scott Brown's right-wing followers, the financial reform bill (now named after Senator Dodd and Representative Frank) followed a similar script to that of health care reform (although the Republican support there ultimately failed to materialize), one highly favorable to their side.
While giving appropriate blame to the Blue Dogs, Open Left's Chris Bowers observed on June 29
Just in case you hadn't noticed, the New England Republican party is, in fact, the governing party of America right now.
Consider Wall Street reform, which is now going back to conference committee in order to appease Scott Brown and Susan Collins.
Consider unemployment benefits and jobs. The bill was defeated at the behest of Olympia Snowe, Susan Collins, and Scott Brown. However, now that Snowe has said unemployment extensions should be passed as a stand-alone bill, well, it looks like Congress is going to try and do just that (the House failed to pass such a bill a few minutes ago, but only because it required a two-thirds majority since the rules were suspended).
The country is being run by a regional rump party.
Have no fear, conservatives. All this is occurring with 253 Democrats in the House of Representatives, 59 (once the replacement for West Virginia's Bob Byrd takes the oath of office, expected this coming week) Democrats in the Senate, and the "Si Se Puede" Democrat in the White House. Imagine what will transpire once there is a GOP majority in Congress and/or a Republican president.
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