Financial Regulatory Forum

Reid wages war of attrition on financial reform bill: John Kemp

April 28, 2010

Senate Majority Leader Harry Reid has scheduled another vote on financial reform later today, the fourth such vote in three days, as he tries to grind down opposition from Senate Republicans, writes Reuters columnist John Kemp.
Reid is making good on his threat to keep the financial reform bill (S 3217) on the floor of the Senate, and at the forefront of media attention, for as long as it takes to get movement on the bill. He is daring the Republicans to continue obstructing it and risk being tied in the public mind to a deeply unpopular Wall Street ahead of mid-term congressional elections in November [ID:nLDE63J0XH].
Whether the gamble by the senator from Nevada is worth taking depends on how the issue plays out in the media and opinion surveys. No one in the Senate wants the chamber to be permanently gridlocked discussing financial reform, unable to move on to other business.
The Democratic leader is betting that Republicans will not, in the end, risk being blamed for the bill’s failure and supporting an unpopular status quo. Polls published by the Washington Post newspaper earlier this week showed voters support financial reform by a margin of 2:1.
But there is less agreement on exactly what form the overhaul should take. On derivatives, which is a high priority for Wall Street, the public is split, and shows relatively little interest. In other areas, the public seems keen on ensuring banks are never ever bailed out again, a tough position not even the administration supports.

INVOKING MAIN STREET
Republican leaders and Wall Street’s retained lobbyists are busy trying to broaden the debate to bring in Main Street as an ally of Wall Street, while hoping to blame the Democrats for intransigence by refusing to negotiate a fresh, bipartisan measure.
In recent weeks, Senate Republican Leader Mitch McConnell and Senator Richard Shelby (R, Alabama), the senior Republican on the Banking Committee, had focused opposition on the question of a $50 billion bank bailout fund. But the criticism is now being broadened out again to encompass a much wider list of issues.
Senate Republicans have renewed their attack on the consumer protection agency for threatening to restrict credit, and on the refusal to exempt end-users from requirements to post collateral for their derivatives.
Lobbyists have lined up an impressive range of groups from outside Wall Street to oppose the bill and demand significant changes, including local community bankers, small businesses, the U.S. Chamber of Commerce. The strategy is to show that financial overhaul is not targeted at Wall Street, but will affect consumers and businesses on Main Street too.
Yesterday car dealers were brought to Washington by the National Automobile Dealers Association (NADA) to protest against the bill’s “unintended consequences” and lobby in favour of an amendment proposed by Senator Sam Brownback (R, Kansas) exempting them from the proposed consumer protection rules.
Dealers are “making it clear that they aren’t banks” and “had nothing to do with the problems caused by Wall Street”, according to NADA.

UNUSUAL CLOTURE FIGHT
Cloture votes have been increasing steadily. Before 1970, cloture motions were generally filed fewer than 10 times in each two-year Congress, and even more rarely approved. The number filed has increased to 71 in 1999-2000 and 139 in 2007-2008, and the number passed to 28 and 61 respectively.
Some of this reflects increased resort to the threat of a filibuster by the minority party (Democrats and Republicans alike) to block legislation favoured by the majority. Some of it is simply an increased use of cloture and motions to proceed to manage the parliamentary timetable.
But cloture fights like the current one, where the majority leader repeatedly requests permission to cut off debate, remain relatively rare. Reid must be confident he can eventually force the Republicans to allow the bill to move forward largely on his terms, or that the Democrats positioning on the issue will be an asset in November even if they ultimately fail to carry the bill.

CORNHUSKER DERIVATIVES
The first cloture vote (Roll Call 124) failed by 57 votes to 41, three short of the 60 needed to invoke cloture and limit further debate to 30 hours.
It attracted from 55 Democrats and both independents who normally caucus with the party. It was opposed by 39 Republicans, Democratic Senator Ben Nelson (Nebraska), and the majority leader himself (in a technical move that would allow him to continue bringing the measure up).
Two other Republicans were not present (Senator Kit Bond of Missouri and Senator Robert Bennett of Utah). But both are on record opposing the legislation for the moment. The “real” margin on the bill was therefore 58-42. Reid needs two additional votes to move forward.
It should be possible to reverse Nelson’s rebellion. The Nebraskan represents a conservative-leaning state that voted for John McCain by a margin of 18 points in 2008. He has expressed concerns about the bill’s provisions on derivatives, especially whether existing contracts rather just new ones should be subject to margining requirements.
Warren Buffett’s Berkshire Hathaway, a major derivatives user, is headquartered in Nebraska. The senator’s aides claim his concern “isn’t about Berkshire Hathaway” and relates to the impact on small businesses such as dentists. Banking Committee Chairman Chris Dodd pointedly noted “dentists and auto-dealers did not come up” when he huddled with Nelson and Reid on the Senate floor earlier in the week.
If Nelson is holding out for existing contracts to be grandfathered that concession should be easy to grant. So far the administration and Dodd have resisted. But their refusal is probably tactical. It is not worth buying Nelson’s vote until they have lined up the 60th (Republican) vote for fear of encouraging other Democrats and Republicans to demand their own, individualised, concessions.
If and when a 60th, Republican vote is lined up, it would be easy to strike a compromise with Nelson. No great point of principle is involved. The old derivatives will become less of an issue over time, anyway, as they expire.

THE 60TH VOTE
Commentators have focused on cutting deals with various Republicans to win the vital 60th vote. Perennially mentioned moderate Senators Olympia Snowe and Susan Collins (both Maine) have been brought up. But for all their noted moderation, neither usually breaks ranks with the rest of the caucus to end filibusters.
George Voinovich (Ohio) is another potential defector. He told the Wall Street Journal he would probably stick with the party for a third vote, but suggested he might eventually defect if bipartisan talks fail. “I have an idea of how much time it takes to cut a deal”. Ohio was one of the worst-affected states by the subprime mortgage crisis. Charles Grassley (Iowa) is another possibility. He voted for the (tough) derivatives bill reported out of the Agriculture Committee.
In reality, the focus on the 60th vote misses the bigger picture. When the bill finally clears for floor action, the margin is likely to be more lopsided than 60-40. It will only move forward if and when a significant part of the Republican caucus calculates there is no longer an advantage holding it up further.
Lead-negotiator Shelby hinted as much when he told reporters “We’ll go to the floor, sooner or later, either way”. Some of this is positioning. Shelby and other senior Republicans need to maintain a reputation for constructive engagement, talking up the prospects for compromise even as they remain uncompromising in demanding changes.
But some may simply be a negotiating tactic. Talking tough to secure concessions, either before the motion to proceed is granted, or at least the right to offer substantial amendments once the bill is on the floor itself.
The real question is where Shelby’s bottom line lies. Meanwhile Reid continues to grind out the cloture votes every day.
((john.kemp@thomsonreuters.com; reuters messaging: john.kemp.reuters.com@reuters.net; +44 207 542 9726))

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