By Simon Johnson, co-author of 13 Bankers
Senator Chris Dodd is a tactical legislative genius – keep this clearly in your mind during the days ahead. In terms of maneuvering for the outcomes he seeks, managing the votes, and controlling the floor, you have rarely seen his equal.
Senator Dodd wants some financial reform – enough to declare victory – but not so much as to seriously undermine the prevalence of megabanks on Wall Street. You can take whatever view you like on his motivation – but Senator Dodd himself is quite open about his thinking and intentions.
Given the mounting pressure from many sides – including Federal Reserve Bank presidents – to implement significantly more reform (see also David Warsh’s Sunday evening assessment), for example using some version of the Brown-Kaufman SAFE banking act, how exactly will Senator Dodd prevail?
1) He knows that the Republican leadership will mount a disinformation campaign, trying to muddy the waters by claiming that the Dodd bill “institutionalizes bailouts”. This top-down Republican line is complete and deliberate misrepresentation – designed purely to prevent real reform. Every time it is repeated, Senator Dodd’s position becomes stronger because people who really want reform need to rally to his defend his approach.
2) The Republican attacks also justify the Democratic leadership and various pro-reform groups telling people: Don’t confuse the message. Everyone in the center and on the left is lobbied to emphasize that Senator Dodd’s bill will completely “end too big to fail” – if you deviate from this line, you will be accused of falling in with Mitch McConnell’s dangerous views. Expect this pressure to intensify in coming days – requests for responsible and transparent debate on policy options will be drowned out and pushed aside by the pressure for conformity (underpinned by the desire not to undermine Wall Street campaign contributions too much).
3) As the White House pushes back against the Republicans, this will further strengthen Senator Dodd – he is the congressional standard bearer, after all. And everyone knows that he needs 60 senators on his side in order to prevail, so some weakening of the bill is presumed inevitable and must be accepted in the reasonable name of making some progress.
But this is where the pure genius of Senator Dodd enters the equation – with an audacity that makes you whistle with appreciation for the art (although not the substance).
The presumption is that Senator Dodd is negotiating with one or more Republicans who are the easiest to bring on board. This would make sense if Senator Dodd wanted the strongest bill possible.
Senator Chuck Grassley voted for strong derivatives reform in the Agriculture Committee; Senator Olympia Snowe also seems on board with that agenda. Senators John Thune and Bob Corker are saying in public that Republicans want to vote for reform (although it’s a good question what this means exactly). Senator Jim Bunning voted with Senator Bernie Sanders in the Budget committee – on what is being seen as a test vote on breaking up banks (Sanders’s press release; Huffington Post coverage). Senator Scott Brown is wavering in broad daylight. Senator George Voinovich is retiring and rumored to be flexible on financial reform issues.
But Senator Dodd is closeted in negotiations with Senator Richard Shelby – who stands for the most pro-Wall Street bill possible.
The goal is apparently not to give up as little as possible and still get a bill. The goal is to bring as many supporters of Wall Street as possible on board with the legislation, at the same time as framing the issues so the pro-reform camp looks bad when it presses for more.
As we head into what is likely to be the decisive week, Senator Dodd controls the clock, can determine what is debated on the Senate floor, and – whenever he feels hard pressed – remind everyone to toe his line or fear the extreme Republicans. At this point, only the White House can bring sufficient pressure for the Brown-Kaufman bill to get an up-or-down vote; the odds are against this being what the White House really wants to do. But keep calling the White House and the Senate Democratic leadership.