Treasury versus Progressives on the Financial Reform Bill

Bob Kuttner wrote an essay about disappointment with ObamaJon Cohn and Jonathan Chait responded. On a related note, people have asked me what I think about Senator Feingold deciding not to vote for the financial reform bill.

- For my overall impression of the bill, I want to echo points brought up by Roosevelt Institute Senior Fellow Rob Johnson here:

The financial reform legislation is both disappointing and inspiring. The legislation is the product of a broken government process where dollars overwhelm voters. Lobbying in the gazillions predictably stopped the needed major structural reforms that were revealed by the scope and scale of the financial crisis…

What is heartening is to see how so many people and organizations — who had little knowledge of this arcane subject matter two years ago — have contributed the energy to learn and engage and push relentlessly for reforms against the monied odds…It is also heartening to see people like Michael Greenberger, Elizabeth Warren, Damon Silvers, Dennis Kelleher, Matt Stoller, Jane Hamsher, the AFR team, Bob Kuttner and Senators Cantwell, Dorgan, Levin, Kaufman and Merkeley leading this formidable effort.

This is the first act of a many act play. Finance was too large in proportion to our economy. It is still too large, and our dysfunctional political system that aided and abetted the growth of the financial sector over the last 20 years cannot be expected to turn on a dime and enact profound and needed change. That agenda is still ahead. This first round was not the whole fight. It was the wake-up call and the beginning of the fight. Rest up and get ready. There is so much more to do.

I think that’s right. Considering that every financial industry bill going back to the early 1980s has been written hand-in-hand with the financial industry, the first bill to push back on this failed deregulation was going to be a nightmare. But I’m impressed and humbled by the works, education and advocacy network that was put into place in such a short period of time and against such odds.

- Jonathan Bernstein notes that Feingold’s opposition gives extra power to the centrist Republicans. I’m not sure how I feel about the debate over how much President Obama could have done or could do, especially in terms of the military or in terms of the health care bill. But I do think Treasury could have moved this bill in a lot of ways. They set the terms under which the debate would unfold. And whenever they got involved with Congress, they pushed for less structural reforms. They pushed for the solution that embraced the status quo with arms wide open.

Treasury against Progressives on FinReg

Examples? Off the top of my head, ones with a paper trail: They fought the Collins amendment for quality of bank capital, fought leverage requirements like a 15-to-1 cap, fought prefunding the resolution mechanism, fought Section 716 spinning out swap desks, removed foreign exchange swaps and introduced end user exemption from derivative language between the Obama white paper and the House Bill, believed they could have gotten the SAFE Banking Amendment to break up the banks but didn’t try, pushed against the full Audit the Fed and encouraged the Scott Brown deal.

You can agree or disagree with any number of those items, think they are brilliant or dumb, reasonable or a pipe dream. But what is worth noting is that they always end up leaving their fingerprints on the side of less structural reform and in favor of the status quo on Wall Street. These are some of the many ideas that progressives brought to the table, and there’s a documentable trail of each one of them being opposed and fought against by the administration.

This is not to say that the administration is against reform. But it is to say that the problem I see is that they think what we had was a crisis where regulators didn’t have enough powers, not that the financial sector in 2007 was too dangerous and too risky. They did push hard for the CFPA, and I am thankful for that. But if they had put any effort to move just a few of the items above, even watered down versions, I could feel comfortable criticizing Feingold for not voting.

(I also want to note Ezra Klein here: “If he wants to vote no, he should vote no. But he should vote against the Republican filibuster.”)

But I didn’t see any effort. Perhaps there are some examples. What documentable examples do you know of? And at what moment did Geithner and Treasury push for something stronger?

One of Kuttner’s problems with financial reform is that how it was going to unfold was obvious from the personnel and their choices around PPIP and the stress test. That weaker reform was always pursued instead of stronger reform in the financial sector should come as no surprise given the way Treasury decided to handle this whole crisis.

And it is their bill. If it fails, if resolution doesn’t work, if derivatives stay in the dark, if banks are still too big to fail, it won’t be because progressives hijacked this bill. It will belong with those who supported the status quo.

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6 Responses to Treasury versus Progressives on the Financial Reform Bill

  1. Pingback: One Paragraph on the Financial Reform Bill « The Baseline Scenario

  2. Ed Beaugard says:

    One other thing that helped to sink financial reform was the Progs belief that TBTF is a real and not pseudo-problem. As pointed over and over, Canada’s economy is dominated by 4(or 5) large banks, that is, they were very large in the context of the Canadian economy. Yet none of them required bailouts or major government support. How do the Pwogs explain this? They mostly don’t, they ignore it. Paul Krugman pointed out that during 1929-32, it was the bankruptcy of thousands of small banks that occurred, the large money center banks didn’t fail, so where was TBTF in that situation?
    The Pwogs have no answer to either one of these objections to TBTF.
    Does it matter? Probably not, since no effective financial reform would have occurred anyway, as we’ve seen. But it certainly didn’t help, and it was a huge distraction from the real issues, and not fundamental to the banking crisis in any way.

  3. ep3 says:

    & who gets blamed for the failure? progressives. because obama has allowed himself to b described as a big govt person so that any minute failure can push us farther to the rite

  4. I am increasingly convinced that the US has sold out to bankers, and perhaps did long ago. In the end, I suspect that the bankers will get what they want, and there is nothing the administration or the people can do about it. However, banks are now confronting their own problems in the globalized economy, where Wall Street is increasingly sidelined on critical deals while bankers in other countries are seeing their dealflows increase. I believe that we will eventually see a new collapse in the US banking industry that will match or exceed that which occurred only a few years ago. This second collapse will place our nation into its worse depression of all time, and might possibly lead to the end of our union as regions of the US secede rather than provide bailout funds for the US or states such as New York and California. I hope I am wrong, but the best I can do is expect the worst and hope for the best. In the mean time, I have little faith that bankers really care about saving our nation from chaos…

  5. Renee Kofi-Bruce says:

    I watched James and Simon on Bill Moyers again yesterday. Today, while skimming an Economist article on China’s banks I wondered if the “too big to fail” banks here are part of strategy to offset China’s financial market potential? Response, comment and explanations please!

  6. Pingback: Charade Ends For Pseudo-Populists « TheCenterLane.com

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