I generally find Andy Kroll to be both a rigorous and persuasive journalist. He knows what he’s talking about on Wall Street reform, and he routinely pens informative yet approachable articles about very complicated subjects. So I was both surprised and disappointed to see his piece from this past Thursday, in which he argues that Democrats need to lighten up on the political push to overhaul the nation’s broken financial system.
This strikes me as exactly the wrong argument at exactly the wrong time, but before I go into the why, let’s examine Kroll’s what. This excerpt sums up his argument:
“[Democrats are] potentially setting the stage for another health-care-esque bruiser in the Senate. Already, the bill, which should theoretically garner plenty of bipartisan support (everyone wants to end too-big-to-fail, predatory lending, and dangerous financial products, right?), has divided the Senate . . . . the debate over new financial reforms has rapidly disintegrated into a partisan shout-fest . . . . One of the few lawmakers . . . asking for a reasonable debate on the bill is Sen. Bob Corker (R-Tenn.) . . . . Corker’s pleas, however, could be bowled over if Reid decides the Democrats need to plow onward with financial reform.”
Unless I’m misreading Kroll, the implication here is that Democrats are being too hasty, Bob Corker is being reasonable, and the right thing to do is slow down and negotiate, lest the partisan black-eye of last month’s health care debacle be repeated.
I think this is wrong on both politics and policy. Let’s start with the politics. The Senate health care showdown finally put some wind in the Democrats’ sails. At last, Democrats drew a line in the sand around some core policies, allowing people to see exactly what it was that Democrats stood for, and realize it was something they, the public, actually supported. As a result, nearly everybody in the country felt better about the party in power than they had since January 2009. Democrats took their political licks while they refused to coalesce around a set of concrete demands—the party’s leadership looked (and, I believe, were) willing to accept any bill that garnered a Republican vote and could be characterized as “reform.” That reeked of political opportunism, and people found it unattractive.
But after pushing hard for their bill at the end, Democrats came away from the health care battle looking very good. I still miss my public option, but I simply cannot understand how that final thrust hurt them politically. They stood for something, and people liked what they stood for. Repeating this “bruiser” on Wall Street reform would be very good for Democrats come November, no matter how the final vote turned out. Democrats would be principled defenders of the reasonable ideas Kroll lists in his article, and the only price they’d pay would be among (part of) the Tea Party crew. Something tells me the Dems aren’t going to win those votes anyway.
Republicans do not support better consumer protections, nor do they support ending too-big-to-fail. They support anything that makes lots of money for their backers on Wall Street (this is true for some Democrats, as well). In last week’s interview with Ezra Klein, Corker does indeed come across as a reasonable person. He’s basically right about uncertainties in the technocratic minutia surrounding the resolution authority. And Ezra does a nice job showing how Corker’s core differences with Democrats on this topic are not philosophical, but technical.
But technicalities were not the source of all the trouble when Corker was negotiating with Sen. Chris Dodd (D-CT) on the Senate Banking Committee, which is why Corker refused to even state his 14 objections to the Dodd bill to Ezra. During February and March negotiations, Corker tried to gut proposals to strengthen consumer protection and hampered efforts to the rein in the derivatives market (a.k.a. the crazy casino that brought down AIG). Corker was instrumental in pushing to give the existing slate of regulators—who utterly failed to regulate consumer protection leading up to the crisis—veto power over any rules devised by a new Consumer Financial Protection Agency. He also convinced Dodd to place that regulator under the jurisdiction of the secretive consumer scourges at the Federal Reserve. There is no good, principled argument for such an arrangement. The Fed and other existing regulators have repeatedly proven themselves either totally incompetent with regard to consumer protection, or totally uninterested in its enforcement. For a list of their failures, see this article I wrote for The Nation in March.
Moreover, the resolution authority that Corker discusses with Klein cannot and will not end too-big-to-fail, however it is tweaked. Too-big-to-fail is fundamentally a political problem, not an economic problem. If the banking behemoths remain tremendous, their political connections will endure. When the next crisis comes, they will find a way to secure their bailouts—regardless of whatever laws we put on the books now. It’s not obvious that the Federal Reserve’s bailout operations during this crisis were legal, and it will not be obvious the next time they are invoked. The only way to break the bailout cycle is to break the banks’ political power, and doing that requires breaking them up. It is not an accident that a new resolution authority is the policy supported by Too-Big-To-Fail-Captain Jamie Dimon of the Lobbying Battleship J.P. Morgan Chase.
Corker is a freshman Senator eager to make a name for himself on Capitol Hill, and if he emerges from the haggling over Wall Street as a moderate who can cut deals with Democrats, his stature within the Republican Party will increase significantly. But there’s only one way for him to accomplish that goal: he must vote for the reform package the Democrats put forward. So what Democrats need to do is move on a bill that actually breaks up the banks that brought down our economy, and force Corker’s hand. If he, like nearly all other members of his party, decides that the price of losing Wall Street’s campaign contributions is too high, then so be it: Voters will see which party stands for reform, and which party stands with Wall Street. But if Democrats give still more ground on their already weak bill in hopes of winning over coy Republicans, they’ll simply be repeating the health care mistakes of 2009.
Democrats need to move forward with a strong bill as soon as possible. “Delay!” is the rallying cry of the status quo, one that has been quite effective in the debate over Wall Street reform. The financial crisis hit in full force during the summer of 2007. By the fall of 2008, Wall Street had nearly destroyed itself. President Obama put forth a reform proposal in June of 2009. It is now the spring of 2010. The time for action is long overdue.