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.
If the bill that comes to the floor of the Senate actually contains some tough provisions – such as size limits (of any kind) on our largest banks, i.e., any version of the Volcker Rule, or a plausible consumer protection agency for financial products – then there is a broader fight worth having.
The key for Democrats is not just to have a fight, but rather to have a fight on clear principles that make sense to people outside of Capitol Hill. The Republicans want to fight on process – pursuing “biapartisanship” on this issue is a trap of the administration’s own design – and, failing that, they want to paint the Democrats as captives of the financial services industry.
What the Democrats need is something that will compel big banks to come out in force against them – to show their teeth and to pick off votes in an explicit manner.
These powerful forces, once mobilized and out in the open, will almost certainly stop anything from passing the Senate. But the debate will grab people’s attention – and the ads, the lobbying, and the outrageous vote buying of Big Finance will help get across the bigger point: Big banks became only more powerful as a result of our most recent boom-bust-bailout sequence.
Reasonable reform has almost no chance of passing the Senate. But a well-crafted debate, drawn up on the right terms – and with the support of the president (although don’t hold your breath on that) – could really help shift popular understanding of the issues.
This legislative cycle is almost lost already. But the broader process of moving the mainstream consensus around banking and its dangers has only just begun.