Indisciplined Democrats vs regulatory reform

By Felix Salmon
January 25, 2010

Barack Obama ran what was arguably the most disciplined and on-message presidential campaign in history. But all that the Republicans need to do right now to ensure that financial regulatory reform never happens is sit back and watch the Democrats fight each other to a bloody stalemate. It’s inconceivable that the GOP would ever allow itself to get into a mess like this.

I don’t think anybody anticipated this turn of events back in June, when we saw the first relatively detailed Treasury proposal on the subject. Sure, there were a lot of problems with it, but it was necessary, the Democrats had control of both houses of Congress, and at least it was something. What’s more, insofar as there were weaknesses in the proposal, they were generally a direct consequence of the fact that Treasury had been careful to put together a proposal which could pass political muster.

Except, Treasury’s finely-honed political calculations turned out to be somewhat awry: it wasn’t long before Barney Frank was tearing into one of the key legs of the proposal, removing both community banks and the vanilla option from the Consumer Financial Protection Agency.

And then Chris Dodd came along, with his own set of entirely idiosyncratic ideas: where Treasury put the Fed at the center of the regulatory nexus, for instance, Dodd wanted to remove it from that role entirely. And where Treasury soft-pedaled on regulatory consolidation, for fear of angering powerful constituencies, Dodd went much further, combining not only the Office of the Comptroller of the Currency with the Office of Thrift Savings, but throwing in the Federal Deposit Insurance Corporation for good measure.

At this point, all semblance of party discipline had clearly broken down. Did the Republican leadership in the Senate ever put forward versions of White House proposals which were fundamentally at odds with what George W Bush’s White House wanted? There’s a time and a place for negotiating these things, but Dodd seemed to have slept through that entire time period, releasing his list of bright ideas a good five months after the release of the Treasury plan should have put an end to the discussions.

And then, of course, Scott Brown won in Massachusetts, and the White House, in something of a panicked move, decided to marginalize its key economic advisors — Tim Geithner and Larry Summers — in favor of the more radical, if much less thought-through, ideas of Paul Volcker. Again, there’s a lot to like in those ideas. But we’re now up to four competing conceptions of financial regulatory reform: Treasury’s, Frank’s, Dodd’s, and Volcker’s. And that’s just within the Democratic party; the Republicans, of course, rejuvenated by the result in Massachusetts, have their own ideas. And if you thought Big Finance was powerful before the Supreme Court decision in Citizens United vs FEC, you can imagine how wary many Democrats are now of risking the ire of the lobby with the deepest pockets of all — and how keen they are to have its support.

The upshot of the whole sorry story is that the Democrats seem to be very good at doing the divide-and-conquer work of the banking lobby all on their own; the lobbyists’ main job is to stand back, keep quiet, and watch the process get mired down in endless second-guessing and debate. After all, the one thing that everybody in government can agree on right now is that they want to crack down on bankers in some way or other. The problem is that with no end in sight to the fight between all the competing ideas currently doing battle in Washington, there’s a very good chance that none of them will win, and that we’ll end up with the worst of all possible worlds: a continuation of the status quo.

Update: Tim Fernholz responds.

21 comments

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Absolutely right!It is not only in Fnancial Reform but in Healthcare Reform too. I am a independent Democrat, I am so feed up with this f…ing undesciplined Democratic Senators. They are like spoiled kids asking for candies in order to do work.

They don’t deserve our vote come election!!

Posted by celsohilo | Report as abusive

We can’t really expect these folks to impartially regulate the banking industry at the same time that they need banking industry money to get reelected. Or if, like the article mentioned, they have to deal with the prospect of unlimited money put into attack ads against them from Wall Street firms they might rub the wrong way through new regulation. This is a campaign finance issue. You want integrity in your politicians, start talking about publicly funded elections. If we stoop to just “throwing the bums out” every election cycle to satisfy our justifiable sense of outrage, we just make the lobbyists stronger, because they’re not up for election. They’re permanent in our current system. It doesn’t have to be this way.

Posted by gr33nman | Report as abusive

There appears to be two decided camps of thought, Wall Street verses Main Street, Wall Street has the money but Main Street has the votes. This should be interesting

Posted by ohioliberal | Report as abusive

Spoiled is absolutely correct,but I would also include the Rebulicians. Where have they been with their competing Proposals to correct this crisis, after all they had Eight years to ignor this mushroon cloud as well as the Democrats, they collectively added to this deregulation Crescendo and NOW who’s paying for it? Their not losing their Job, their Home, their Retirement Savings their Healthcare their Standard of Living. They have collectively, wisely, and intentionally sheltered themselves from Harmsway. They are Gods without Penalty or atonement and we collectively put them their, and we must Now collectively take them out of their Rein. They have have ruined the middle class of this Country for the sake of their continued Wealth and Power!

Posted by masswatchddw | Report as abusive

The essential problem is that Barack Obama does not put together comprehensive legislation and get the House and Senate onside before presenting it. George Bush, for all his (many) faults, presented legislation that was set TO GO. Same could be said for Ronald Reagan and Bill Clinton as well. Mr.Obama, prior to taking the White House, had little, if any, practical experience in governing and it shows in the mess he’s made of Medicare and banking reform. The question now is whether he can learn from these mistakes in time for the November mid-terms. I’m not optimistic.

Posted by Gotthardbahn | Report as abusive

Volcker
The End.

Posted by pinball72 | Report as abusive

Why blame President Obama when he is dealing with Blue-Dog DINOs , the GOP and the Corporate States of America.

Posted by liberalone | Report as abusive

The REPUBLICANS and their big finance friends CREATED the economic crisis, UNDERMINED the middle class, PROFITED hugely from the housing bubble, DESTROYED health care! I’m starting to clearly see how the U.S. economic and political system has failed – it’s all about power, not really about policy at all. The Republicans are well situated to attack Obama’s thoughtful and intelligent initiatives, without having to offer any workable alternatives. They can block everything worthwhile coming from the White House, so that the voting public begins to see Obama as weak and ineffective. Voters are now changing sides to support the team that created the problems in the first place, and is effectively making sure that nothing can be done to reduce their power. Not only is the U.S. political system a failure, but so is the educational system, to produce these clueless voters.

Posted by SeaScapes | Report as abusive

It’s the American political dilemma. The Republicans are, by and large, the mendacious lackeys of special interests. Meanwhile, the Democrats are, by and large, a bunch of lightweights who cut their political teeth in college to get advance copies of the final exams for the economics classes they had skipped.

Posted by Bob9999 | Report as abusive

These politicians fail to accept that their first responsibility is to the citizenry. They’re too busy trying to score points and look good to each other while the citizen has to struggle with real world problems like not having any income and trying to figure out where next months rent/mortgage are going to come from.

They act like they’ve got all the time in the world while the people who put them there are suffering. I’m an independent, although I have been leaning towards the Dems lately. I can’t get behind a party who’s only conviction is to oppose any plans made by the democrats (loyal opposition). Even if the ideas brought forth are good ideas, they will get flak from the GOP just because. This is no way to legislate.

It’s like watching kindergartners bicker and is quite frankly beneath the station of our leaders to act this way. The citizenry bailed out the banks and the citizenry are the ones in need of help. And yet the citizenry is not at the center of policy making. Our leaders cast great shame on us for they way they behave. It gives China a good laugh. We bash China about freedom and yet our own politicians and courts sell us out to corporate interests.

Our elected leaders need to wake up. I’m voting independent next cycle. I’m tired of the party BS.

Posted by Benny_Acosta | Report as abusive

Don’t know how they do it in the UK but in the US it is:

Indiscipline= noun
Undisciplined= adjective

One does not say “indisciplined”(which spell check flags) democrats, it would be undisciplined democrats.

Anyways all this talk regarding the Dems and GOP is pointless. Neither party looks out for the best interests of US citizens. Both are corrupt. Its like choosing being Hitler and Mussolini.

The American dream society is collapsing, it has peaked. People will never purchase homes like they did, they will never invest like they did, they will never buy like they did. Out cities are ghettos, our manufacturing is non-existent. It will take more than hack jobs, Healthcare and financial reform bills to fix this mess. Sometimes, once something is broken it can never be repaired to the prior state. So instead of debating the past, why don’t we start discussing the future, and how people will adjust to this new reality.

Posted by LucidOne | Report as abusive

What’s remarkable is the incessant claim by R’s that this whole matter sprang from the earth in Jan. 2009. While the mess has been a bipartisan effort, the R’s bear the bulk of responsibility, after 15+ years of dereg. (decriminalizing formerly criminal acts). Lack of discipline among the D’s presents a problem; but the R position of opposing the administration on any and every point, no matter how small or innocuous, is absolutely counterproductive – if anyone is willing to sacrifice the greater good in the interest of the midterms, it is the Republicans.

Posted by max_stirner | Report as abusive

I need to start a business where I get paid to be an antagonist.

Watching Americans screech about how they are being misgoverned and claim that all you need to do is replace the bodies in Washington with a another set of bodies demonstrates a collective IQ hovering around 70. Our political system suffers from a carcinoma known over several millenia as avarice.

Posted by csodak | Report as abusive

The Democratic “party” is a conglomeration of movements that are at cross-purposes. The only way they can stay together is to have a common enemy. Unfortunately, they won the last election hands down. Without an enemy, they are now attacking each other. 0bama’s position is now untenable. Even giving voting rights to the illegal aliens can’t save him.

The leftists are preparing Hillary to run in 2014.

Posted by Timuchin | Report as abusive

Dear Felix,

I do not know that the Democrats are indisciplined as much as they mis-spent their early and substancial political capital on a holographic utopia that ignored immediate practicle legislative and administrative needs and pursued high-minded idealist policies unrelated to the national employment emergency.

That the administration failed to garner reciprocity from the banking industry and is now frustrated and punative because of its own administrative shortcomings.

Whereas other countries, like the UK are making incremental employment gains, where the US has not started.

It is interesting that certain banks are penalizing their UK divisions, while exponentially rewarding US participants. Whereas the UK is entering Net Job Creation, while the US is experiencing increasing unemployment. Those same ‘bankers’ (if it is fair to even call them that anymore) Trading Operations is probably a more accurate statement as there is NO LENDING by Certain Institutions despite their pre-bonus season 10,000 promises. (which they only suggest they will fullfill, after Bonus Season…)

Certain Quality Entrepreneurs are reduced to begging for Food, while these Bankers line their pockets and devise whatever manner they must to continue to line their pockets with the exponential yields garnered by manipulation of the properties of others to their sole trading benefit.

This dichotomy marks a clear failure in administrative policy to assure economic prosperity for the population.

Entrepreneurial Activity Generates JOBS, trading activity does not Generate JOBS.

Generate JOBS, MR. PRESIDENT

As was promised.

Posted by jimigenius | Report as abusive

Felix, you write compellingly and incisively; however, your work will benefit from an editor’s eye to groom the occasional glaring word choice, such as LucidOne mentions above. Such warts distract from your fine message.

Posted by yohimbe | Report as abusive

Another matter Felix on your comment concerning Paul Volckers “poor thought out ideas”? This man who you claim has poorly thought out ideas was pulling our country back from the edge of hyperinflation while you were still wondering why you diapers stunk up the place.

Marginalize key economic advisers like Geithner and Summers? These are but two individuals who along with Greenspan, Rubin and Levitt decided to dismiss Brooksley Bornes suggestion that derivatives should be regulated in 1998?

Key economic advisors? More like bumbling jackals.

Perhaps I am unfair Felix in that you are simply so caught up in current history that you haven’t time to bother yourself with events of ancient history dating back 10 to 30 years ago.

Posted by csodak | Report as abusive

“Our political system suffers from a carcinoma known over several millenia as avarice.” Make that avatar.

From the outside it looks like campaign money is tainted. The US needs a third opposing party,the status quo is obviously not working out and is weakening the country.

Meet the Volckers, broaden your mind.

Posted by Ghandiolfini | Report as abusive

well, it was to be expected! When State citizens elect House and Senate members they do so on the promise of benefits to the State not the Federal Government. Support for Bills get’s bought instead of being passed on general merit alone. Our House Representatives and Senators are essentially lobbyists themselves.
Until the system changes nothing or use will happen until too late for most. After 8 years you’d have thought that the Democrats would have learned a valuable lesson. That they have not means that we need either a THIRD viable party or a complete change in the electoral system.
As it is, it’s broken! I, for one, have no faith in it as it stands and the Presidential office is no more consequential as the Queen of England is in British politics!

Posted by laeticus | Report as abusive

I think most of Congress Democrat or Republican, most of the Administration Democrat or Republican, are completely bought and paid for by the (FIRE) sector and other powerful lobbies . Anything that the House Committee on Financial Services, the Senate Committee on Banking, Housing, & Urban Affairs, introduce and pass that Obama doesn’t veto has already been approved by the special interests. That the Financial Sector Banks and Wall Street object strongly to proposed legislation is camouflage to make it seem like the politicians are actually doing their job for the American People. They are actually doing their higher paid job for the FIRE sector lobbies. I think both parties are conning us worse than Madoff conned his victims. From now on I’m an Independent. The Democlans and the Republicrats are feeding the middle class to the sharks on Wall Street.

Posted by Sagebrush | Report as abusive

At this late stage of decay, the only thing that can save the Democratic agenda would be for the president to declare that he will resign his office if he cannot bring universal health care reform to the American people. It is time for this president to place the welfare of the American people above any question of personal political ambition. “If I fail to bring universal health care reform to the American people, I will resign my office—get out of the way for someone more fitting for the job.” President Obama. He would instantly recover his credibility and we will rise in his support.

Posted by Urbanski | Report as abusive