Does Meaningful Financial Reform Have Any Chance?

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.

37 thoughts on “Does Meaningful Financial Reform Have Any Chance?

  1. How is that President Obama wants to keep his campaign promise of bipartisanship to the “bitter end” yet folds like a spineless jellyfish on his other “promises” that have more significant and substantive implications (the death knell of the Public Option, soon to be followed by the probable disposition of the Consumer Financial Protection Agency or at least, positioning the newly created Agency, in the smallest room at the Federal Reserve.). The momentum may be lost or waning but I will be emailing my local Congressman by the end of this week, sending him copies of making Markets Markets reports; although I think Congressperson Sherman is already on our side of the political ledger when it comes to financial reform but the Party politics is not only standing in the way but it’s having an adverse effect on a Finance bill, the way legislation is being conducted, etc. etc. A sad statement of our current times but giving up would the Republicans’ dream come true and the juggernaut that is Wall Street, continue its bankrupting pursuits. Mr. Krugman said it nicely and I know Simon, you too, agree:

  2. I doubt any meaningful legislation will pass. Any attempt to put real regulation in place will bring out the cries of “socialism” and lead to lobbying groups like the U.S. Chamber of Commerce spending millions of dollars to fight it.

  3. To paraphrase a moment from the Titanic after hitting the iceberg: go get me some of that ice for my whiskey.

  4. Thanks for the tip. I just wrote to Sen. Brown, and asked him to support the creation of a strong and independent CFPA, separation of FDIC-protected banks and “investment” firms, and a crackdown on derivatives, CDOs and other shady deals on Wall St.


    “Whatever you do will be insignificant, but it is very important that you do it. ”
    Mahatma Gandhi

  5. The hidden defect in this proposed legislation is that it prevents states from regulating banking activity. In an almost shocking defection, Anton Scalia broke with his conservative colleagues last year and cast the deciding vote which gave the states the authority to hold national banks so accountable. This bill is a smokescreen to cover the proposed reversal of that landmark decision. Dodd is a cheep whore. I used to respect him. Now I disrespect myself for having respected him.

  6. Mr. Johnson wrote;

    “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. ”

    Aug. 7,2009 (Bloomberg) — “The Senate Ethics Committee said Senate Banking Committee Chairman Chris Dodd of Connecticut and fellow Democrat Kent Conrad of North Dakota didn’t violate ethics rules in refinancing their home mortgages with Countrywide Financial Corp. The panel said today it found “no substantial credible evidence” that the mortgages violated Senate ethics rules.

    Even so, the committee, which includes equal numbers of Democrats and Republicans, said both senators should have “exercised more vigilance” to “avoid the appearance” of preferential treatment… Both senators were put into Countrywide’s VIP program and were designated by the company as “friends” of former chief executive officer Angelo Mozilo…”

  7. When Congressmen are so easily bribed by lobbyists, what hope is there? It seems if enough money is spent, then it is guaranteed to be effective in getting votes. Are there no Congressmen who are willing to do the right thing even if it means they are only there for one term? There are lots of situations in life where you have to be prepared to walk away if pressured to do immoral or unprincipled things. Evidently no Congressmen are prepared to walk away.

  8. The financial great powers of this country prefer to stay behind the scenes so that the extent of their wealth and power and criminality are not publicly known. It a sense, they won the ‘class war’ when Glass-Steagal was repealed. But as the writer says, strategy would dictate that although the people may be unable to win this battle, it will force open the curtain which has hidden the truth of our enslavement to the big banks. Those who attempt to throw light on the details and mechanics of banking corruption will no longer be considered ‘conspiracy nuts’.

  9. Dodd may not have any use for further financial industry contributions for his re-election, but, GUARANTEED he has some sweetheart deals lined up for he and his financial industry corporate board member wife. Lest we forget what Dodd is all about, check his background with:
    Fannie Mae
    Freddie Mac
    Former Bear Stearns CEO/prison inmate
    Irish Real Estate

    He is part of the problem, not the solution. Talk about a fox in the henhouse…

  10. George Carlin said:

    “Honesty may be the best policy, but it’s important to remember that apparently, by elimination, dishonesty is the second-best policy.”

    (1937 – 2008)

  11. What’s been underreported since the day Obama walked into the White House, how divided the Democrats are on ideaology, policy and politics:

    “There’s nothing liberal about the bailouts. There’s nothing liberal about standing by and watching banks use public money to get their executive bonuses. There’s nothing liberal about giving insurance companies carte blanche to charge anything they want for health care… Since when did that become liberal?”

    “There’s nothing liberal about letting coal and oil write climate change legislation,” he added. “Are you kidding me?”

    “The minute the president appointed Tim Geithner and Larry Summers to key policy positions, and the minute that [Ben] Bernanke was named to head the Fed again, we’re looking at people who participated in the decline of the economy,” he said. “This group has done us a disservice.”

    “Every area of the economy is still about taking wealth from the great mass of people and putting it into the hands of a few. If you don’t have a economic democracy, you don’t have a political democracy.”

    “We have to be more defined as being on the side of the people and not on the side of interest groups that are so entrenched,” said (Dennis) Kucinich, who is widely regarded as a champion on progressive issues.”

  12. NoDogma wrote:

    ” he has some sweetheart deals lined up for he and his financial industry corporate board member wife ”

    Jackie Clegg Dodd is already doing ok.

    June 13, 2009 – – excerpt

    “Jackie Dodd currently sits on 4 healthcare company boards and was one of the highest compensated non-employee members of the Javelin Pharmaceuticals Inc. board.”

  13. So where is Sen. Dodd’s SVU? Like the insurance industry pervs, again, with the help of Congress, we let these Wall Street pimps continue their rape and pillage along Main Street. Afterall, these Main Street taxpayer victims are nothing to them but whores who deserve it. They never put up a fight, so they like it. And so the good times keep rolling for the weathlty whoremasters

  14. Beth wrote:

    “Every area of the economy is still about taking wealth from the great mass of people and putting it into the hands of a few. If you don’t have a economic democracy, you don’t have a political democracy.”

    Citgroup strategist Mr. Kapur wrote:

    In a “plutonomy”, according to Citigroup global strategist Ajay Kapur, economic growth is powered by and largely consumed by the wealthy few.

  15. Whenever I hear about how the Democrats can’t get anything done, I’m reminded of the humorist Will Rogers saying: “I’m not a member of any organized party, I’m a Democrat!”

  16. Now let’s be fair here…assuming the published reports are correct, this does seem like a fairly bipartisan screwing of the American people.

    I will be fascinated to hear Elizabeth Warren’s reaction.

  17. Dodd said earlier that reining in the banksters would be difficult because of the lobbyists.

    Hey Chris, the lobbyists don’t vote, the senators do. is it beyond your comprehension to ignore them?

  18. I can’t even imagine what it’s supposed to mean to say “Democrats” need to do this or that, if that refers to anything other than doing Wall Street’s bidding.

    Even hack number one Krugman says kill this thing.

  19. Of course, to teh baseline fringies, no reform will be satisfactory inless it includes (a) guillotines, (b) pitchforks, and (c) a complete collapse of any recovery.

    Recovery be damned….revenge is what the unthinking sheeple want!!

  20. In the United Corporation of America, lobbyists vote through their financial designated surrogates. :-)

  21. First, third, or last rule of doctors is ‘don’t make it worse’. Am assuming that a complete sell out to monopolies is your catch-phrase.

  22. Not revenge… Just a way to delay the next collapse created by the combination of gambling and banking. I consider myself a thinking sheeple.

  23. Mr. Johnson wrote:

    “Does Meaningful Financial Reform Have Any Chance?”

    Short sale tax shortchanges ex-homeowners.

    March 15, 2010 – SF Gate – excerpts

    “Afternoon Reading: Taxes on Short Sales, More Delinquencies, TARP Fraud”

    Tara Blackwell and her husband sold their Fairfield house in December for about half of its original $825,000 price as a short sale, in which the bank agrees to accept less than is owed on the mortgage.

    The couple and their two children moved in with Blackwell’s parents and thought the situation was behind them. Then it came time to pay their 2009 taxes.

    To their dismay, they discovered that California would count the $412,000 difference between their original price and the sale price as part of their income, resulting in a hefty state income tax bill.

    “We lost our down payment of $70,000, we lost our home and now California wants $38,000 (in extra taxes) from us,” Tara Blackwell said. “It’s like kicking you when you’re down.”

    California legislators last week passed a bill that would fix the situation. It mirrors a federal law that excludes “forgiven debt” on a principal residence from being considered taxable income. It covers short sales, foreclosures, deeds in lieu of foreclosure and loan modifications that reduce the principal due.

    However, Gov. Arnold Schwarzenegger, who has until March 23 to sign the bill, indicated that he is likely to veto it based on an unrelated provision regarding tax fraud.

    “It was a shock to me to discover that California tax rules (for foreclosures and short sales) did not conform to what the federal government has done,” said state Sen. Lois Wolk, D-Davis, who sponsored the legislation. “These people have suffered enough. To consider the decline in the value of their loans as income, that’s unacceptable.”

  24. Mr. Johnson wrote: “Does Meaningful Financial Reform Have Any Chance?”

    For the time being, of course not! The most meaningful part of any financial reform, namely prohibiting the regulators to introduce biases in favor or against any particular type of investments, is not even on the table.

  25. Financial reform at this juncture is a fallacy of dilemma. As with the give away process of banking bankruptcies where “the lesser of two evils” or the more moderately phrased idea that it is “the cheapest cost in the long run” the tendency to create choices that are compliments of each other has been a political ploy and economic slight of hand for the benefactors. In this case it is a lose / lose situation because even a strict set of regulatory restraints are only relative to the currency of evil that exists. Reform is not what is needed. What is needed is retribution and a total reversal of policy and intention. The democrats should seek public support and go after indictments for transgressions. Reform goes a lot easier after a few people are held accountable and are facing some real (skin) jail time.

    This is also the opportune time to introduce infrastructure funding. I propose that unilateral stimulus for infrastructure could be applied through energy and fuel support to production and transportation that facilitate market velocity and a more equitable and distributed price structure. For example:
    Trucking should demand fuel cost relief from Obama. Fuel costs would go to easing up costs which get passed on to the general economy of production costs and consumer pricing. It would create an immediate relief on capital investment and establish incentives to maximize opportunity in real time. The cost of trucking impacts every aspect of the economy and is the best place to apply a stimulus to the real economy. Jobs and labor would be eased rather than fiat monetary which is only subsequently targeted for exploitation. This is the perfect time, I would argue to get very aggressive about alternatives …not versions of the same finance fiasco (which is truthfully only being divided between micro and macro elements of discernable finance.

    It is time to change the dancer…not the song!

  26. BRUCE E. WOYCH wrote:

    “Reform is not what is needed.”

    Woody Allen wrote:

    “More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly.”

    (1935 – ) My Speech to the Graduates

  27. Good idea – and to make it easy for anyone else to:


    Text idea:

    Senator Brown,

    The American people have been waiting for too long for accountability of those on Wall St. that causes a meltdown of our financial system costing us trillions in bailouts, and way too long for financial reform to prevent them from doing it again.

    Please be a strong voice in support the creation of a strong and independent CFPA, separation of FDIC-protected banks and “investment” firms, and regulation of the derivitives market.

    Dodds bill needs to be streangthened not weekened in the coming debate – the Fed should not be given additional powers to regulate large financial firms or have any say in a CFPA. There need to be limits set on the size of banks and divestments must occur with many of the players that grew to dangerous size during 30 years of deregulation. There is no cross-border resolution authority so the “funeral plans” proposed by the bill would make little impact if banks stay too-big-too-fail. They could also be reduced in importance through competition from state-owned banks, like in ND. A $50 “bailout fund” would not be large enough and should be funded with a transaction tax to also help control high speed trading, as it increases volitality and risk while it skims profits that would have gone to regular investors otherwise.

    In the coming days all of America will watch and if you fight for us, will fight with you.

  28. Mr. Johnson wrote:

    “Reasonable reform has almost no chance of passing the Senate.”

    ‘Wall Street’ sequel is an omen of U.S. collapse

    March 16, 2010 – Market

    “The collapse of capitalism? Not just a stock market crash. He’s predicting the “collapse of our society.” Worse, Stone’s predicting: “Our way of life is going to change.” Is this really a market-timing signal? Hey, it was in 1987. Will history repeat? The odds say yes.”

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