By Simon Johnson
The financial reform legislation currently heading into a June Senate-House conference will, at best, do little to affect the incentives and beliefs at the heart of the largest banks on Wall Street. Serious attempts to strengthen the bill through amendment – such as Brown-Kaufman and Merkley-Levin – were either shot down on the floor of the Senate or, when their prospects seemed stronger, not allowed to come to a vote.
Senator Blanche Lincoln is holding the Alamo with regard to reining in the big broker-dealers in derivatives. But these same people are bringing to bear one of the most intensely focused lobbying campaigns of recent years, bent on killing her provisions (or weakening them beyond recognition). All the early indications are that the lobbyists, once again, will prevail.
At one level, Robert Kaiser nailed this topic in his recent book, “So Damn Much Money: The Triumph of Lobbying and the Corrosion of American Government.” Elections have become more expensive, with most of the funding provided by special interests. You can argue about which is the chicken and which is the egg, but the basic facts are inescapable.
“In 1974, the average winning campaign for the Senate cost $437,000; by 2006, that number had grown to $7.92 million. The cost of winning House campaigns grew comparably: $56,500 in 1974, $1.3 million in 2006.”
Or look at the lifetime contributions by the financial sector to (some) senators who voted for and against the Brown-Kaufman amendment, which would have imposed a hard size cap and a hard leverage cap on the biggest banks – over $2 million per senator by this one partial count.
But wait. This is actually very little money considering what is at stake. For an individual large firm actively engaged in derivatives trading, the stakes could easily be in the billions of dollars. For the big banks as a whole, the amount they will be allowed to earn (and pay themselves) as a result of the failure of these financial reforms is – conservatively speaking – in the tens of billions of dollars.
In terms of modern Wall Street – for top bankers and also for hedge funds – the political contributions needed to make a difference are chump change.
And even if opponents of today’s biggest players on Wall Street were to become organized and raise money, presumably the big financial players could see that money and raise you some tens of millions of dollars without breaking a sweat (particularly after the Citizens United decision by the Supreme Court).
What can you possibly propose that would make a difference in the face of such resources – for example, as they will be deployed in and around the upcoming House-Senate conference to make sure that anything at all objectionable to Wall Street is further diluted?
Here’s the one idea (not mine, but the source prefers to remain anonymous): counter the money of Wall Street by bringing much more transparency to the conference.
Televising the conference meetings could help, but realistically this is also likely to push the substantive decision-making and discussion off-line. Therefore, in addition, congressional leaders should be pressed agree to three non-waiveable rules for the conference and the conference report on the Wall Street reform bills:
- Any amendments need to be posted on-line not less than three business days before any relevant conference meeting. Second degree amendments (i.e., those filed as amendments to amendments) need at least 2 days notice on the same basis.
- The House and the Senate will not discuss any conference report until the report as amended by the conference has been posted on-line in its entirety for at least 5 business days.
- A red lined version of the conference report as amended – to show all changes – must also be posted on-line for not less than 5 business days before any vote on that conference report.
Without such provisions – which, by the way, are unlikely to be adopted – no one excluded from the backrooms will have the opportunity to learn what the amendments do or what is in the bill itself.
The point is not that this would necessarily stop the final and nearly complete victory of special interests. But at least we will learn which members of Congress exactly sided with them, on why, and even why. And this will help a great deal as we think about how best to move forward.
An edited version of this post appeared this morning on the NYT.com’s Economix; it is used here with permission. If you would like to reproduce the entire post, please contact the New York Times.