Whither financial reform?

March 11, 2010
Reuters headline says that talks have failed, and that Dodd is going solo, but in fact it's not quite as bleak as that.

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Many thanks to Tim Fernholz, of The American Prospect, and Taylor Griffin, of Hamilton Place Strategies, for helping me out via IM this afternoon to explain to me what on earth is going on with Chris Dodd and the financial regulatory reform bill. The Reuters headline says that talks have failed, and that Dodd is going solo, but in fact it’s not quite as bleak as that.

The important context to bear in mind here is that Dodd, in Griffin’s words, “is staring down the barrel of a April recess and knows he needs to get something moving”. Or, as Simon Johnson puts it, “a week or two lost now can derail completely opportunity for reform along any dimension”. It’s all well and good for Dodd to negotiate with Corker in good faith, but if the talks are dragging out far too long, it makes sense for Dodd to put some deadlines on negotiations with the Republicans. And the way that he’s doing that is by taking a bill to the full committee, and allowing just one week for it to sit there in markup.

“I think the most important thing about the story is that putting a deadline on these talks could sharpen everyone involved’s focus on getting a workable bill,” says Fernholz, “because there are plenty of Democrats who fear that Republicans are just trying to drag out negotiations”.

The worst-case scenario at that point is that not a single Republican votes for the bill in committee, the Dodd bill passes the committee on a party-line majority vote, and then Dodd hopes that someone, somewhere (Olympia Snowe? Susan Collins? Scott Brown? George Voinovich?) will break ranks with the Republicans and provide the 60th vote necessary to get the bill through the full Senate.

But that’s a long shot: Griffin says that the Republicans will stay unified on this, especially now that they’re angry at the Democrats over the reconciliation of the healthcare bill. “I don’t see it passing with one Republican,” he says: either it has some important measure of Republican support, or it fails.

Fernholz points out that Democrats, too, want decent Republican support, saying that “moderate Democrats on the committee are leery of portions of the bill and would prefer to have Republican cover”: his datapoint here is that of the 13 Democrats on the committee, only 7 have gone on the record saying they’d support an independent CFPA.

So Dodd’s going to design his bill to have the best possible chance of getting Republican support once it comes out of markup, while still being acceptable to the left wing of the Democratic party. It’s a hard line to walk, to be sure. Will the Republicans play along? Griffin says that “some people on the Hill that I’ve talked with think that a bipartisan compromise might have been reached by Monday”; he also thinks that derivatives reform will probably turn out to be a bigger sticking point than the CFPA, where Dodd and Corker were very close.

What this move by Dodd certainly does is move the focus of attention on the Republican side away from Corker and back onto Shelby, who’s being very quiet right now and who holds a lot of cards. If he really wants the bill to die, it will probably die, although Corker could still end up supporting the bill, providing the crucial 60th vote, and bringing a few other Senators along with him.

In any case, financial reform is not dead yet: we’ll have a much better idea at the end of next week what its real chances are.

And while I’m on the subject, one idea: there seems to be a lot of debate about who should be regulated by the CFPA and who shouldn’t; at the moment it seems that payday lenders, auto lenders, and others might well get carved out. But might they not have the ability to voluntarily submit to CFPA oversight? Of course it’s not as good a solution as forcing them into compliance. But some might do it, and an official CFPA-compliant badge might well be a competitive advantage in the market. Anyway, just an idea.


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