Financial reform? It’s about time, Dodd.
One of the unstated benefits of the watered-down health care bill signed into law by Barack Obama last week, is that it will deprive conservatives of the ridiculous talking points that have become so dear to them lo these many months. That is not to say that the Republican Party isn’t trying. Indeed, the GOP is desperately attempting to prolong the health care debate—even after the legislation’s passage—in order for their tried-and-true platitudes to remain relevant.
Whether or not the tea party crowd and other conservatives realize it, the proposed repeal of health reform being bandied about—probably disingenuously since they surely know better—by some congressional Republicans is but pure fantasy. President Obama would never sign a repeal. Therefore, Republicans would have to gain enough seats to obtain a two-thirds majority in each chamber to override a veto, which would require an electoral disaster for the Democrats in November that is without historical precedent. It is absurd even to speak about repealing this law now or in the near future. Yet, there was Mitch McConnell (R – Kentucky) on Saturday delivering the weekly Republican radio address mindlessly canting, “Repeal and reform.”
Eventually, Republicans will come to realize that they must move on, lest they be perceived as beating a dead horse when the Democrats have already saddled up a new one to take them on to banking reform. That debate, which may carry us through the November midterm elections, ought to be a very interesting public discussion, if not a crazy one, even more so than health care. Christopher Dodd (D – Connecticut) recently unveiled his plan to reform the financial services behemoths on Wall Street. As usual with Democratic first drafts, the bill falls well short of what is needed. (To point out one glaring omission, the bill contains no capital requirements, which means that banks can continue to leverage themselves to the hilt—20:1, 30:1, 50:1, whatever, just like before—and wait for the next big crisis lay waste to their balance sheets.) However, at the moment it contains some important regulatory provisions which, if banking reform is ultimately passed will probably be watered down as well. This is how Democrats govern: roll out an initial legislative proposal that doesn’t go nearly far enough in the hopes that it will attract bipartisan support, and when it inevitably doesn’t, dilute it even further to garner a few marginally relevant GOP votes if any at all.
While the big banks went long in donating to Democrats in 2008, they cannot reasonably expect that there will be no financial reform. It’s quite amazing that Congress has yet to do anything on this front, as financial regulatory change is equally, if not more important than health care reform given the global magnitude of the stakes involved. It would be even more amazing—almost impossible—to imagine that there will be no changes at all. Given that there ought to be far less opposition to financial reform than health care, the Democrats should have an easier time passing Dodd’s or a similar piece of legislation. After all, can the tea partiers and their ilk really get whipped up into opposing a bill that seeks to impose new regulations on the financial services sector to ward off a future economic crisis?
Upon preliminary consideration, the answer is no. But the Republicans have shown themselves particularly adept at souring seemingly good policy ideas in order to make them less palatable to their ill-informed base. The key to killing or weakening any banking legislation, whether it’s Dodd’s current proposal or something else, will be to convince Americans that regulating banks will end up hurting them personally. Expect a recurrence of some of the main themes of the opposition to health care. Conservatives will almost surely decry the proposed “government takeover” of our financial system. The addition of more regulation will create cumbersome “red tape” that will hinder lending, and thus cripple all-American “small businesses” which are the “real engines of the economy.” A Consumer Financial Protection Agency will create an unnecessary bureaucracy that will inhibit economic growth, etc.
The U.S. Chamber of Commerce absurdly presents itself as being a defender of American workers and consumers by virtue of its being rabidly pro-business, as if the interests of all parties involved do not conflict. It should therefore come as no surprise that the Chamber has already released several ads against the would-be agency. Its most prominent ad (which starts automatically when you go to its site) rails against the CFPA without ever mentioning what the acronym actually stands for or what it would attempt to do for obvious reasons. The commercial features a presumably upstanding white small business owner who is kept awake until the wee hours of the morning worried sick about his struggling finances (for which he actually has Wall Street to thank), whereupon around 5am he walks toward his SUV which is parked right in front an American flag quaintly hanging from the porch of his house in Anytown, U.S.A. (I thought the footage more appropriate for a Paxil advertisement, but that’s just me.)
This is the narrative conservatives will have to weave if they want to stop or weaken banking reform: The CFPA, which under Dodd’s bill would exist as an arm of the Federal Reserve, is not designed to crack down on high-risk and predatory lending; it is not designed to consolidate the regulatory functions of several different bureaucracies into one agency. Rather, it is designed to destroy the fabric of American capitalism by imposing undue restrictions on lending institutions by the creation of a vast superbureaucracy within the already all-powerful Federal Reserve.
This last hypothetical objection leaves the Democrats open to some legitimate criticisms about giving the Fed more power. There is a small but very vocal contingent of Americans—particularly in the tea party crowd—who despise the Fed and its opaque way of doing business. While there is need for a CFPA or something akin, placing it under the aegis of the Fed is a dubious proposition.
Nonetheless, fundamental change is desperately in the financial sector.
We will probably get some change, but again, whatever it is will leave much to be desired. Almost as critical as the reform will be this coming debate about it. As I and countless other analysts have observed, many Americans have an alarming penchant for opposing measures that would actually benefit them. The debate will be crucial, not only because it will shape reform’s outcome, but because it will help pinpoint Americans’ tolerance threshold for corporate propaganda. Although it seems nearly unconscionable that anyone could oppose tightening banking regulations in light of the recent financial crisis, this is what’s going to happen very soon. In relatively short order, the Republicans will drop their phantasmagoric rhetoric about repealing the health care bill when they realize that they’re the only ones still talking about it. They will then paradoxically ride the populist wave of anger in a bizarre attempt to prevent these new bank regulations from being enacted into law. To some extent, it will probably work.
Of course, the main problem with this effort to reform Wall Street is the same that mars all attempts at financial reform: Congress is always regulating the last crisis. Defense is at its best when guarding against plays and formations it’s seen before. The problem is, Wall Street is always devising new high-powered offensive schemes that no defense could anticipate until it’s far too late.
- Max
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