Luntz’s Financial Reform Memo, I

From Huffington Post, we get Frank Luntz Pens Memo To Kill Financial Regulatory Reform. The 17-page memo titled, “The Language of Financial Reform,” is included at the Huffington Post webpage which you can read.

A few initial thoughts about the memo itself, and I’ll come back to this later:

End Goals People shouldn’t freak out too much about this. As far as I can see it, the end goal is the same. Reformers aren’t trying to ‘agree to disagree’ with people who have radically different opinions on where the final destination is. I want an end to Too Big To Fail, I want simpler contracts, I want fewer lobbyists writing the regulation, and I want less discretion on the part of regulators and more hard, firm ‘rules of the road.’ We have very different ideas about how to get there, but this is exactly the kind of framework where strong arguments can make a difference.

That So-Called Bailout Fund It doesn’t surprise me that the Frank Bill is getting nailed as “the bailout bill.” The design, implementation, and arguments for the fund associated with the Frank bill was a complete disaster. I pointed out at the time that you had the AFL-CIO and the AEI, so the full spectrum of people commenting on the bill, both thinking that this was akin to a permanent TARP regime. Frank and the proponents dropped the ball in explaining how this would work in clear language, and the switcharound in how it would be funded (after then before the fund is tapped) made it hard to sense what they expected it to do. The simplest language: “FDIC has emergency funds for shutting down and cleaning up a failed commercial bank, and this bill needs the same to shut down other kinds of financial firms” would be a start.

I heard little (none?) of that. When it came to the House vote, where you had no Republicans voting for it and an endless drum-banging about this “bailout bill”, I heard a lot of “that’s not in the bill” rather than a defense of what they were voting for. Pointing out that the Republicans are distorting things and expecting that to be the end of the argument is so John Kerry, so 2004. We need to come up with our own positive arguments and narratives for why these reform works.

Derivatives There’s nothing on derivatives reform in here. And Luntz points out that everyone seems to hate loopholes and lobbyists. Selling a simple “There was a loophole added by lobbyists to the derivatives regulation in 2000 and we got Enron and AIG” line is straightforward. 88% of Republicans didn’t vote for a simple, exchange-with-clearing mechanism designed to stop the next AIG when that reform came to a vote. Why aren’t people harping on this? Everyone hates Enron and AIG.

CFPA Actually Not Disliked I assume people associated with the giant campaign ($2m from the Chamber of Commerce alone) to stop the Consumer Financial Protection Agency (CFPA) put Luntz on this, since all of his questions come back to stopping the CFPA as opposed to, say, preserving end-user exemptions or stopping other pieces of reform. This chart from the paper is noteworthy:

Notice the sneaky “if true” line: If the CFPA would “authorize future taxpayer bailouts of Wall Street” I’d definitely check the box showing my concern. I imagine everyone who supports a CFPA would! Luckily I’ve never heard of that being an issue.

Also notice the “combined answers” part. The elite conservative opinion-makers have made their arguments against the CFPA, and I’ve watched the debate very closely to make sure counter-argument and narratives were being put in place by supporters. In general, elite conservative opinion-makers have converged on two worries: (1) It would increase the cost of capital, reflected here by “more difficult for small businesses to get loans” (an argument taken apart in a series of posts by Adam Levitin) and (2) It would “limit consumer choice”, (an argument that has been sledgehammered by James Kwak here, still one of my favorite).

Note that these are the two arguments that people care least about. There were 50% more checks for “None of them concern me” than limiting consumer choice (and “None of them concern me” would be the only check, while limiting choice would be one of up to three, juking that stat even further), and 80% more were very worried about the CFPA being run by an “unelected czar”, which probably says more about the population sample Luntz chose than anything else. The biggest worry goes to a general worry about the Federal deficit or the Obama Presidency, a meta-argument that won’t be won within the CFPA or financial reform argument.

Vanilla In fact here is what Luntz finds:

The American consumer wants more easily understood contract language so that consumers have all the information they need….14. Americans want to end the legalese and confusion in contracts. The strongest argument in favor of the CFPA is the claim the agency would somehow end confusing contracts written by lawyers in language only lawyers can understand. When was the last time a government agency made things easier to comprehend?

Luntz actually finds that Americans are calling out for vanilla contracts. They don’t phrase it that way, but they are tired of confusing contracts. And I bet if pushed further, they don’t necessarily hate the confusing contracts per se, as much as they hate the endless gotcha fees that seem to come out of nowhere, that they in turn blame their contracts for.

Just to say, I have talked about vanilla contracts before. I’ve been told that the administration had no sense of how to roll out, describe and defend this feature, so it doesn’t surprise me that it got thrown overboard first.

It is also worth noting that having a change of leadership on the reform, especially Geithner, would be helpful. So any Lakoff-esque minded people want to brainstorm with me on the language needed to get real reform into play? We’ll continue that part of it later.

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3 Responses to Luntz’s Financial Reform Memo, I

  1. Russ says:

    Just to say, I have talked about vanilla contracts before. I’ve been told that the administration had no sense of how to roll out, describe and defend this feature, so it doesn’t surprise me that it got thrown overboard first.

    What could be so hard to describe about “Simple, fair contracts without loopholes, tricks, and hidden fees”?

    I guess it’s hard to be clear about that when they don’t want to be, as this admin’s heart wasn’t in the CFPA any more than it was with the “public option”.

  2. Pingback: If True «  Modeled Behavior

  3. John Lamb says:

    “We need to come up with our own positive arguments and narratives” – great point – I’ve blogged about this myself here.

    As for the language in which to frame the idea of going back to simple contracts, I think the word “handshake” needs to be in there somewhere. “If you could put a handshake on paper, that’s the kind of contract we need.” (Hey, I’m just brainstorming here.)

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