Although Senate Banking Committee Chair Chris Dodd and his sometime Republican ally Richard Shelby continued to make noises on the Sunday talk shows about a possible bipartisan deal, both President Obama and House Financial Services Chairman Barney Frank have personally urged Dodd not to cut a deal with Republicans. I asked Frank point blank why Dodd would want such a deal, and he said--on the record--"I have no idea, but both President Obama and I have urged him not to."
This is a welcome sign that Obama realizes that public opinion is moving in the direction of tougher banking reform, and that he learned from the health debate that bipartisan compromise on key reform issues is a snare and a delusion. Kudos to Chairman Frank and to the President.
Assuming that Dodd doesn't cave, the Democrats still need 60 votes if Republicans decide to filibuster the motion to take up the bill. But with tide turning strongly against coddling Wall Street, it is hard to imagine that a few Republicans won't break ranks. If so, there may be no filibuster at all.
On one of the most contentious issues, derivatives reform, Maine Republican Senator Olympia Snowe sent a letter to Majority Leader Harry Reid on Friday urging him to back Senator Blanche Lincoln's tough derivatives provision, which not only narrows exclusions in the draft legislation, but keeps big banks from trading derivatives for their own accounts. It's hard to imagine Snowe backing this measure and then joining in a filibuster to block consideration of the reform altogether. Here is part of her letter:
"I believe that strong derivatives regulation goes to the heart of an effective financial reform bill and that Chairman Lincoln's legislation is a strong step towards realizing this fundamental component to financial reform......I believe that we should err on the side of caution and finally bring full transparency to these markets once and for all and allow regulators to preemptively identify these damaged firms.
"Accordingly, I believe the Senate should start with a comprehensive, strong derivatives reform proposal and defend attempts to weaken it, not the other way around and the legislation produced by the Senate Agriculture Committee includes the strongest safeguards and most robust transparency provisions on our expansive derivatives market.
I urge the Majority Leader to incorporate these provisions into the regulatory reform bill."
Then we have the case of the accidental senator from Massachusetts, Scott Brown, who is facing re-election in just two years. His special election last January was a fluke--a perfect storm of voter backlash against recession and a weak Democratic campaign. Brown ran as a kind of regular-guy economic populist. I can't believe that Brown will stand up for Wall Street against Main Street and vote to filibuster against even taking up the bill (Elizabeth Warren should run for the Democratic nomination to take him on in 2012. Now that would be one helluva race.)
In short, Republican leaders McConnell and Shelby are bluffing. They know they can't hold their troops, and that's why they so desperately want a deal with Dodd for a weaker bipartisan bill that Republicans can support.
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If Dodd avoids such a deal, my hunch is that several Republicans will not support the filibuster and that debate will proceed. And once it does, there will be several votes on key strengthening amendments. These will also put Republicans in a bind.
Senator Chuck Grassley supported the Lincoln bill in the Agriculture Committee. Will he now join Snowe and vote to add it to the reform bill? How could Grassley vote to strengthen the derivatives position, but vote to block taking up the whole bill?
My sources tell me that one key Democrat, Treasury Secretary Tim Geithner, is actually somewhat more pro-banker than moderate and heartland senate Republicans when it comes to derivatives reform. He is sympathetic to Wall Street complaints that the Lincoln bill would eat into derivatives profits, and has weighted in on the side of watering down her bill. Happily, he doesn't vote, but President Obama should decide the administration position and not leave it to Geithner.
Two other key amendments: One will be offered by Senators Sherrod Brown, Ted Kaufman, Bob Casey and Sheldon Whitehouse, limiting the size of large banks; another by Senators Jeff Merkley and Carl Levin would write into law the Volcker Rule separating commercial banking from financial gambling. These will also put Republicans in a deliciously awkward spot--though they may also be opposed by pro-Wall Street Democrats such as Evan Bayh of Indiana and Mark Warner of Virginia. And watch closely to see how Chuck Schumer votes on these strengthening amendments. Schumer, once known as the senator from Wall Street, is remaking himself as a financial reformer in preparation for a possible run for majority leader against Dick Durbin should Harry Reid go down this November.
Bottom line: If the Senate Democratic Leadership can resist the snake oil of a bipartisan deal and if Obama personally works the phones and takes control of his own administration, the bill will probably get stronger as it works its way through Congress. This is the right kind of bipartisanship--a progressive bill so clearly demanded by public opinion that many Republicans don't dare to oppose it.
Even so, this bill is far from the final chapter of reform. While banks will not be able to do quite as much damage to the rest of the economy, entire areas of abuse such as credit rating agencies, hedge funds, and private equity are largely untouched and the basic business model of the financial conglomerates will be only partly constrained. Real mortgage relief is also put off for another day.
A little history is reassuring. For all of his personal resolve, it took Franklin Roosevelt seven years and several pieces of landmark legislation to complete the New Deal structure of financial regulation that kept Wall Street well harnessed until the late 1970s - including the Securities Act of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Act of 1935, ending with the Investment Company Act of 1940. Even in that golden age of reform, Wall Street wasn't tamed in a day.
If the Democrats don't extinguish the momentum with a premature bipartisan deal, public understanding and indignation are still building. Regulatory agencies are beginning to do their jobs, and Democrats are starting to sound like a progressive party. It's about time.