Senate vote exposes Wall Street impotence
Wall Street’s diminished influence in Washington was made plain yesterday when the Senate voted to approve financial reform legislation by 59 votes to 39.
Industry lobbyists will point out the bill only just managed to scrape the required votes needed to end debate and forestall a filibuster. It fell far short of a lopsided bipartisan majority.
But the formal tally on HR 4173 (Wall Street Reform and Consumer Protection Act 2009) as amended by S 3217 (Restoring American Financial Stability Act 2010) conceals a much wider bigger majority of 63-37 for enacting far-reaching reforms.
In the final vote on passage, the bill was backed by 53 Democrats, 2 Independents and 4 Republicans (Maine’s Susan Collins and Olympia Snowe, Iowa’s Charles Grassley and Massachusetts’ Scott Brown).
It was opposed by 37 Republicans and 2 Democrats (Maria Cantwell of Washington and Russ Feingold of Wisconsin). Two senators were not present (Democrats Robert Byrd of West Virginia and Arlen Specter of Pennsylvania).
But the two Democrats who voted “No” did so because they thought it did not go far enough and were registering a protest in a bid to get it toughened further. The two absent members were Democrats who had voted in favor of the legislation before.
All four votes should really be added to the “Yes” column to give an effective underlying majority of 63. By any measure that is a very high tally or a major piece of legislation.
Even Democrats from conservative-leaning states chose to remain united with their colleagues on this issue. Both Democratic rebels were liberals from solidly progressive areas. Democrats from Republican-leaning states seem to have concluded voting for the bill would do them no harm, and might even be an asset, in the coming election cycle.
In the end, the bill attracted support from four centrist Republicans. Newly-elected Republican Senator Scott Brown, whose upset victory in Massachusetts in January did so much to complicate passage of healthcare, and deprived Democrats of their filibuster-proof 60-vote supermajority, seems to have concluded opposing the measure would harm his credentials as a bi-partisan moderate in solidly Democratic Massachusetts.
The rest of the Republican caucus remained united in opposition. The party has gained useful support from the financial services industry as a result of its stand. It has also sharpened differences with President Barack Obama ahead of the autumn elections, in which Republicans will make the case that the White House has over-reached with its Big Government agenda.
But there has been a strong sense the caucus has merely “gone through the motions” (quite literally) with little stomach for a fight, preferring to move onto other issues. Even conservatives instinctively hostile to expansive federal government regulation showed little enthusiasm for a fight to the death on this one.
Industry lobbyists have shown more success securing minor (but important) technical amendments to the bill’s details in “transactional” deals with individual senators, most often to protect the interests of important home-state employers and campaign contributors. In some areas controversial language which went further than the administration wanted has been watered back down. But for the most part the broad “strategic” framework remains the same as the one reported out of the Senate Banking and Agriculture Committees last month.
IN A DARKENED CONFERENCE ROOM
The amended version of HR 4173 will now be sent to a conference committee of the two chambers to resolve the differences between the House and Senate versions.
Conferees are typically appointed from the senior members of the relevant committees of each chamber. That will give considerable power to shape the final compromise to Senate Banking Committee Chairman Christopher Dodd and House Financial Services Committee Chairman Barney Frank.
One early sign of whether the final legislation will be more populist or cautious will be whether Senate Agriculture Committee Chairman Blanche Lincoln, who pushed an amendment on derivatives the industry strongly opposes, and is locked in a tough primary re-election battle in her home state of Arkansas, is named among the conferees, and how many allies she can count on.
The committee is meant to confine itself to resolving differences between the Senate and House-passed measures, not insert new provisions. The Senate and House language define the scope for the eventual compromise.
In practice, conferees could still make significant changes. Far away from public eyes, conferences are where much of the real lawmaking and last-minute lobbying by both the industry and the administration will take place. So the list of conferees will provide clues about the legislation’s final form.
Any changes not encompassed by one or other of the current Senate and House-passed measures would be vulnerable to objections from the floor when they are voted on again in both chambers. Such last-minute alterations have been strongly criticized in the past for by-passing the normal legislative process. But it would be difficult for objectors to prevail at this late stage, so any last minute changes would probably get through.
It is difficult to underestimate the importance of the (hidden) conference process. Lobbying pressure on conference members will be formidable.
WALL STREET ISOLATED
Even before the committee has finalized the bill, however, it is possible to start drawing some conclusions:
(1) Major investment banks remain dangerously isolated in both Washington and among voters. What regulators term “large complex financial institutions” (LCFIs), the industry prefers to call major diversified financial service companies, and the media and public think of as “Wall Street”, found it had few friends on Capitol Hill in either party, despite an unprecedentedly large lobbying effort.
(2) The industry’s lobbying strategy of resisting almost all new regulation and insisting on the status quo with minor modifications was counterproductive. Most observers and lawmakers concluded the industry was not serious about reform and instead wanted to revert to the highly profitable but unstable system that performed so disastrously when the credit crisis intensified in 2008. Even when the industry proposed technical improvements to the legislation, many have been viewed with deep skepticism, if not cynicism.
(3) The industry will remain very vulnerable to further, populist changes unless it can reconnect with ordinary voters on “Main Street”. Recent lobbying efforts have focused on watering down hard directives set in statute and replacing them with discretionary powers to be wielded by the Federal Reserve, Treasury and other agencies. The hope is that regulators will take a more nuanced approach than pitchfork-wielding legislators.
But this only works if the industry can avoid further scandals and instability. The wild stock market gyrations on May 6 show how fragile many markets, systems and institutions remain. If there is another blow-up, the pressure for even tougher regulation is likely to become irresistible.
Large financial services firms find their fate increasingly in the hands of the Treasury and other federal government agencies, with whom relations have become strained over the last two years. On the one hand the industry has strongly criticized regulators such as the CFTC, the Treasury, the SEC and FDIC for over-reaching. On the other, it hopes the same regulators will shield it from even tougher rules written by Congress.
There will be one last brutal round of lobbying in the next few weeks as the industry strives to reshape the bill in conference committee. If they can prioritize and find room for compromise, lobbyists for the financial services industry should still be able to secure some important, favorable, changes.
But afterwards, the industry badly needs to reduce the political temperature, reach out to alienated lawmakers and regulators, and re-connect with the public. It also needs to end the perception that this is a Republican versus Democrat issue. If it can’t do that quickly, this bill is likely to be only the start, and further adverse changes will follow.