After 9 months of hard fighting, yesterday financial reform came down to this: an amendment,
proposed by Senators Jeff Merkley and Carl Levin that would have forced
big banks to get rid of their speculative proprietary trading
activities (i.e., a relatively strong version of the Volcker Rule.)
The amendment had picked up a great deal of support in recent weeks,
partly because of unflagging support from Paul Volcker and partly
because of the broader debate around the Brown-Kaufman amendment (which
would have forced the biggest 6 banks to become smaller). Brown-Kaufman failed, 33-61, but it demonstrated that a growing number of senators were willing to confront the power of our biggest and worst banks.
Yet, at the end of the day, the Merkley-Levin amendment did not even get a vote. Why?
Partly this was because of procedural maneuvers.
Merkley-Levin could only get a vote if another amendment, proposed by
Senator Brownback (on exempting auto dealers from new consumer
protection rules) got a vote. Late yesterday afternoon, Senator
Brownback was persuaded, presumably by his Republican colleagues and by
financial lobbyists, to withdraw his amendment.
Of course, Merkley-Levin was only in this awkward position because
of an earlier lack of wholehearted support from the Democratic
leadership - and from the White House. Again, the long reach of Wall
Street was at work.
But the important point here is quite different. If Merkley-Levin
did not have the votes, it was in the interest of the megabanks to have
it come to the floor and be defeated. That would have been a clear
victory for the status quo.
But Merkley-Levin had momentum and could potentially have passed -
reflecting a big change of opinion within the Senate (and more broadly
around the country). The big banks were forced into overdrive to stop
The Volcker Rule, in its weaker Dodd bill form ("do a study and
think about implementing"), perhaps will survive the upcoming
House-Senate conference - although, because this process likely will
not be televised, all kinds of bad things may happen behind closed
doors. Regulators may also take the Volcker Rule more seriously - but
the most probable outcome is that the Fed and other officials will get
a great deal of discretion regarding how to implement the principles,
and they will completely fudge the issue.
Most importantly, everyone who wants to rein in the largest banks
now has a much clearer idea of what to push for, what to campaign on,
and for what purpose to raise money. This is the completely reasonable
and responsible ask:
- The Volcker Rule, as specifically proposed in the Merkley-Levin amendment
- Constraints on the size and leverage of our largest banks, as proposed by the Brown-Kaufman amendment
When the mainstream consensus shifts in favor of these measures, or
their functional equivalents, we will have finally begun the long
process of reining in the dangerous economic and political power of our