Main Street

Battle Shaping Up on Financial Reform

In a conversation last week, a member of the House Financial Services Committee told me that Democrats expect to get some Republican support for financial regulatory reform in the Senate. I don’t see it. And it appears that Paul Krugman agrees with me.

The White House is optimistic, because it believes that Republicans won’t want to be cast as allies of Wall Street. I’m not so sure.

Perhaps Democrats are simply stretching a political canvas in hopes that some Republicans will either add a few brushstrokes or just paint themselves into a corner. But back in December when the House passed the Wall Street Reform and Consumer Protection Act (summary) it received not a single Republican vote.

Then last week when the Senate Banking Committee approved the Restoring American Financial Stability Act (summary) it too received no Republican support. In recent interviews Republican Senator Bob Corker (TN) has stated his continued opposition to the committee’s reform plan and that he prefers to slow things down.

Where have we heard that before?

Last Sunday The New York Times reported that Wall Street and the financial industry, along with their business and conservative allies, were gearing up to spend “tens of millions of dollars” in a “campaign to scale back or block” Democratic financial reform plans. Still, they purport to favor reform.

Wall Street executives say that although they support increased regulation, the changes sought by Democrats could exacerbate the problems that emerged in the 2008 economic crisis rather than fix them. Among the targets of their criticism are the creation of a consumer fiscal protection agency, the establishment of a multibillion-dollar fund to head off bailouts of companies deemed “too big to fail,” and the regulation of derivatives as well as other high-risk trading instruments.

That wouldn’t seem to leave a whole lot of room for any real reform, though, would it?

There are actually two fights shaping up here. One is a political fight, foremost in the Senate. On that front all indications point to Republicans and Wall Street wanting to drag things out — appearing to “come to the table” and then walking away — while trying to ensure that neither substantive rules nor enforcement “teeth” make their way into a final package. And they’d prefer to keep postponing any action in hopes the public will tire of it all — or even turn it into a Democratic liability.

The other fight is over substance. Will enough specificity, rules and structural changes be put in place to make a real difference? And which ones? Will Wall Street be held accountable and made to pay to clean up the mess it created? Will we have learned the lessons of the Great Recession, of the dangers of the de-regulators and the fallacy of free market fundamentalism? Will we put in place strong consumer protections, as well as regulations that will help financial markets work in constructive rather than destructive ways?

For far too long the myopic, smug and rapacious financial elites have treated economic and regulatory policy as their private playground, as if the citizenry were incapable of understanding such complicated matters. Their paid economists and conservative pundits look to shroud matters in mystery.

But they are the ones who got it all wrong. And it’s not such a mystery after all. My next post will provide a compendium, of sorts, of useful links to resources and information to help us “bone up” for the financial regulatory reform battles ahead.

Tags: financial regulatory reform