U.S. financial reform no longer a done deal

June 28, 2010

The political calculus for U.S. financial reform is suddenly more complicated. Last Friday’s 5 a.m. Capitol Hill compromise was meant to be the culmination of months of hard-fought wrangling. But Republican Scott Brown’s wavering and Democrat Robert Byrd’s death put the proposal back in jeopardy.

The legislation hammered out by congressional negotiators last week still needs to pass both chambers in Congress. In the Senate, it had been expected to get 60 votes, the exact number needed to defeat any Republican attempt to kill it. But few thought the bill would contain a $19 billion assessment over four years on financial firms, designed to pay for the new rules.

For Brown, the junior senator from Massachusetts who consented to an earlier version of the bill, the surprise addendum might be a poison pill. First, he has ruled out voting for any new taxes. Second, the fee might be interpreted as hitting mutual fund firms such as Boston-based Fidelity Investments.

If Brown defects, then Democrats would need to turn one of the two members of their party who voted against the earlier Senate version of the bill — Wisconsin’s Russ Feingold and Washington’s Maria Cantwell. The White House would try to argue that the bill had become tougher in the House-Senate conference committee. But if only one of them switched positions, the bill would still be temporarily a vote short of 60 thanks to the passing of West Virginia’s Byrd.

Here’s where it gets tricky. If that state’s Democratic governor immediately appoints a replacement for Byrd so that his or her vote can count in the Senate this week, there might have to be a special election this year to pick a successor to fill the remainder of the term. If he waits until July 3 or later to appoint a successor to Byrd — potentially missing the vote — no election would have to take place until 2012, a safer political option for Democrats.

With the Senate about to go on a week-long holiday, the second option would risk delaying final passage of the bill and its signing into law by President Barack Obama. That interregnum might give Republican leaders enough time to change a few minds their way. With votes unexpectedly scarce, Obama has more work to do if he wants a bill ready for his signature.


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Given the lack of consensus by the Congress, our nation may very well be better leaving the banks to the “invisible hand” of market — the worst that can happen would be depression, anarchy, and gangster-capitalism…

Posted by mckibbinusa | Report as abusive

[…] […]

Posted by A great man is dead: Robert Byrd 1917-June 28,2010 – Benzworld.org – Mercedes-Benz Discussion Forum | Report as abusive

“With the Senate about to go on a week-long holiday” – I’m sure the unemployed millions appreciate their concerns.

Posted by blueplanetbudda | Report as abusive

June 27, 2010 – Sunday

Financial reform bill losing steam.
Forbes version: http://blogs.forbes.com/greatspeculation s/2010/06/28/senators-still-have-a-chanc e-for-real-financial-reform/

The Senate’s latest financial reform bill might not survive.

Update late Monday afternoon June 28: Sen. Russ Feingold (D-Wis.) announced he will vote no on Fin Reg, remaining consistent with his last no vote. Sen. Feingold was joined by only one other Democratic, Sen. Maria Cantwell of Washington in voting against Fin Reg on the last round in May.

Vote count update: Will the full-vote on Fin Reg be delayed in the Senate – but not the House – past the July 4th recess, to wait for a replacement for Sen. Byrd? The Democrats probably need that vote, as it seems very close on the vote count. Is Sen. Feingold laying out a marker not to water-down this bill further to curry votes from “gettable” Republicans (Brown, Collins and Snowe)? Brown said no new bank taxes and that would have to be removed. Will any or all of these three Republicans vote no, where they voted yes on the last round? What will Sen. Cantwell do? Could some other Democrats and Independents defect, like Sen. Nelson (D-Neb.) and Sen. Lieberman (I-Conn.)? Hopefully, we will hear from these swing voters soon.

Does Fin Reg need to be filibuster-proof with 60 votes in the Senate? Or, is 60-votes only for closure votes and may Fin Reg be passable with a simple majority of 51 votes? There seems to be some confusion on this issue.

It’s time for Republicans to seize the moment now that momentum has shifted, and they can start with the Senate’s financial regulatory reform package. In its current form, it’s an abomination of more failed-big-government-central-planning dictum, and contains disturbing winner-pays-for-loser elements.

The package’s details have been agreed in conference and the vote for final passage will occur in the Senate and House this week. The balance of power and logic have changed just enough to vote this bill down. Instead of “gettable” Republicans joining Democrats, some moderate Democrats may join unanimous Republicans so they will be short the 60 votes required for passage. The same dynamic happened with the failed tax extenders bill, as explained in my prior blogs.

On Saturday, Reuters indicated that some prior key “yes” voters may vote against its passage, including Republicans Sen. Scott Brown (R-Mass.), Sen. Olympia Snowe (R-Maine) and Sen. Susan Collins (R-Maine).

“I was surprised and extremely disappointed to hear that $18 billion in new assessments and fees (taxes on banks and hedge funds) were added in the wee hours of the morning by the conference committee,” Brown said. “While I’m still reviewing the bill’s details, these provisions were not in the Senate version of the bill which I previously supported … I’ve said repeatedly that I cannot support any bill that raises tax.”

Sen. Robert Byrd (D-W.Va.) is in serious condition in a Washington-area hospital, according to his aides. If he is unable to vote and Brown votes against it, the bill will likely be one vote shy of the 60 needed. Update on Monday. We are very sorry to hear that Sen. Byrd passed away today and are grateful for his lifetime of excellent service to our country.

Sen. Charles Grassley (R-Iowa) voted in favor last round, but and I hope he closes ranks with Republicans to vote no on the final bill. Central planning on finance is not good for his farm belt and it’s not good for Wall Street either. Without hedging, derivatives and trading, farm prices can become whipsawed. New rules for derivatives trading in this legislation may tie up farmer’s cash flow for new margin requirements, rather than allowing farmers to spend that money on planting crops. Some farm Senators have wanted big government to set minimum prices — a dangerous practice. Converting our food supply to energy with government central planning isn’t a good idea either.

Hopefully, some Democrats will vote against this bill, including Senators Ben Nelson (D-Neb.) and Joe Lieberman (I-Conn.). Sen. Nelson is winning back stripes after his outrageous Cornhusker-kickback health care special deal. Sen. Nelson did not approve of big-government central planning in health care, but that deal won his vote. I applaud the Senator for learning from that experience and not selling out on the recent tax extenders bill. Sen. Lieberman represents the hedge-fund capital of the world and he should not sell them down the river either. Sen. Chris Dodd (D-Conn.) is retiring and trying to make amends for his years of enabling Fannie Mae, Countrywide and more. But this is not the right way to do it.

The Senate should vote this legislation down
In the “wind down” procedure in this bill, big-banks and large hedge funds will have to pay for banks that fail, as dictated by a government czar or council. The Treasury will initially fund the wind-down procedure and eventually pass the entire loss onto the remaining big banks and hedge funds. In essence, winners must pay for losers. Plus, government will create more losers with restrictive policies on bank profits, prop trading and fewer alternative investments and derivatives.

It’s a similar concept to President Obama’s current proposal for a $90 billion big-bank “responsibility fee” — i.e., a tax on bank liabilities — to pay for perceived losses from TARP bailouts. Big banks repaid TARP bailouts to the Treasury. The White House later bailed out the auto companies using TARP funds which were not voted on by Congress. Auto companies and smaller banks have not fully repaid TARP, so it seems to me charging big banks for remaining TARP losses is like using Wall Street banks as a government slush fund. The unions keep pressing the President to “Make Wall Street Pay for Main Street” — the title of the failed financial-transaction tax/jobs bill. Are unions going to help rule Wall Street with this bill too?

What’s most disturbing about this wind down procedure is the government trying to force the banks to pay for their errors with Fannie and Freddie. During the harried moments of the conference reconciliation last week, conferees tried to “pencil in” another even more disturbing last-minute bombshell: They wanted big banks to pay for Fannie Mae and Freddie Mac (government GSEs). Thankfully, lobbyists saw this injustice and cried foul, and it was removed.

Just like the home buying binge crash in 2008, the government spending binge will probably crash in the coming years too. How is our government proposing to fix this problem? It is casting the entire blame on Wall Street and making banks pay for its share of the errors, rather than taking responsibility for its part in the housing market crisis.

What else in this bill disturbs me?
More regulators, more government jobs, more councils, more czars, more rules, and less bank profits. Again, when in doubt, just grow government jobs and power. The last crew failed to see Madoff, failed to rein in banks with existing rules on the books, failed to raise interest rates and failed to reform Fannie Mae and Freddie Mac. The GSEs are not reformed in this bill. Again, we are rewarding the losers with retribution and redistribution policies — the hallmark of this Democratic-controlled Congress and White House. Those policies don’t lead to economic recovery.

This reform bill carves prop trading and some derivatives and hedge-fund business out of “too-big-to-fail” commercial banks (a mirage of an idea). Congress and the administration are trying to force banks to focus on lending, since banks are scared again to lend in this teetering economy. Forcing loans is not a recipe for success — isn’t that the lesson from the housing crisis?

Bottom line
This legislation deflects our government’s portion of the blame for this economic crisis and is focused on closing the barn door after the animals ran out from the firestorm. Rather than focus entirely on the industry barn door, why not also close the government-spending, central-planning and GSE barn door before that firestorm hits soon too? Let’s free up our markets without government force-feeding bad banking.

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