By Simon Johnson
Senator Dodd’s financial reform bill will be introduced in the Senate Banking Committee today. Unfortunately, on the major issue – too big to fail financial institutions that caused the 2008-09 crisis and that will likely trigger the next meltdown – there is nothing meaningful in the proposed legislation.
The lobbyists did their job a long time ago. Treasury sent up a weak set of proposals – Secretary Geithner apparently felt that to do otherwise would be just to seek “punishment” for past wrongdoings; there is too little concern at the top levels of this administration regarding what comes next. And Senator Dodd was pushed hard by various interests to weaken all potentially sensible proposals – including anything that would bring greater transparency and safety to the derivatives market. The Republicans have also demonstrated their mastery of delaying tactics; by emphasizing “procedural” issues, they have so far managed to conceal their fundamental opposition to real reform.
A few strong voices have emerged on the Democratic side – Senator Jeff Merkley (on the committee) stands out as someone who both understands the issues and can craft the right message. Let’s hope he has a good week – if he can bring Senator Sherrod Brown with him, there is a chance that the legislation could move in the right direction. With all 10 Republicans on the 23 member committee steadfastly opposed to anything at all, any two Democratic senators have some negotiating power – as they can potentially hold up a bill.
And there is something pro-reform forces can reasonably work for at this stage. Continue reading
The Treasury Position – On The Volcker Rule
Former Secretary of State George Shultz famously quipped about Washington: “Nothing ever gets settled in this town. You have to keep fighting, every inch of the way.” This is proving just as true for banking reform as for other aspects of American government policy.
For example, Senators Carl Levin of Michigan and Jeff Merkley of Oregon, after considerable effort, were able to place strong language in the Dodd-Frank financial-sector legislation – enacting a version of the “Volcker Rule” that would require big banks to become significantly less risky. While this idea originated with Paul Volcker, the former Fed chairman and senior adviser to President Obama, and was announced with great fanfare by the president himself in January, it was clear – from the beginning and throughout the detailed negotiations this spring – that the Treasury Department was less than fully enthusiastic about this approach.
Treasury’s position – ranging from lukewarm support to outright opposition at times – created an uphill task for Senators Levin and Merkley. And now that they have reached the top of the Dodd-Frank hill, what do they see? Another even steeper climb awaits, because the Treasury Department is digging in publicly against the drafting of detailed regulatory rules that would actually make Volcker-Levin-Merkley effective. Continue reading →
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Posted in Commentary
Tagged Senator Levin, Senator Merkley, Volcker Rule