Senate vote exposes Wall Street impotence

May 21, 2010

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.

7 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Profits must come from productive activities. “Profits” from especulation are just money pumped out of the productive system to an industry that does not contribute to our capacity to generate products and services. Traders “working” looking all day to their screens and finding ways to pump more money out is a despicable, boring and unhealthy thing. People working on this are dumbs that made their way into something that seems smart and important. At the end the only thing they gain is an economic disaster and big fat asses.

Posted by axiom321 | Report as abusive

Everyone knows that Amercia’s financial services industry is run by gangsters…

Posted by mckibbinusa | Report as abusive

This is part of the larger phenomenon of modern American political life — what might be called the “death of politics.” Remembering that politics is “the art of the possible,” public discourse in American today has increasingly less politics in it. What we have today is ideology. Wall Street was closely involved in writing the financial legislation of the 1930s, because it was obvious that something was going to happen and Wall Streeters knew that it was in their political interest to be on the inside rather than the outside of the process. Fast forward to 2010, and Wall Streeters stand on the sidelines saying “no,” while financial legislation passes without their active participation. This may be more a fault of Wall Street’s proxy in the legislature, the Republican Party, rather than Wall Street itself. The Republican Party has become so addicted to ideological fantasy over practical solution that it has effectively lost the ability to be an actor in politics. If the mid-term primaries are any indicator, it looks like we may be looking at even more ideologically motivated gridlock-for-the-sake-of-gridlock in the future than we have seen over the past two years.

Posted by Bob9999 | Report as abusive

I notice on the list of things the industry badly needs to do you put connecting with the public in last place, almost as an afterthought.

This might be the reason, with the chips down and after all the massive doses of publicly funded bailout viagra, Wall Street as a whole really is impotent.

Posted by HBC | Report as abusive

If it can’t do that quickly, this bill is likely to be only the start, and further adverse changes will follow

“Adverse” to whom, the citizens or the robber barons you once associated with.. “Adverse” as the latter seems to have had to bail out the former!

For now the money is committing same crimes as in Great Depression, holding on to money and not lending to benefit the common folks, rather shuffling funds back and forth and doing quite well leeching off fees.

Posted by chuck2 | Report as abusive

There is no pitchfork mob like mentality here, just a desire of the American people to have the financial services industry benefit society instead of limiting and damaging the economy with their wild and hair brains scheme to make billions.

It is like Wall Street is being run by DR. Evil clones, coming up with one phony deal after another to generate fees and then risk free profits.

Ever since it became clear that the Republican party wanted to steal the wealth created by a half century of cooperation the middle class has stagnated, wealth distribution has become skewed towards the elites and social mobility is as low as it has been in a century.

Posted by jstaf | Report as abusive

“adverse” struck me,too. populist = equalitarian, not stupid masses. so many terms get rendered toxic in the “spin,” what’s needed is a reassertion of the “all [persons] are created equal . . . endowed with . . . rights to life, liberty and the pursuit of happiness” understanding of what it means to be a citizen. it isn’t “adverse” to reduce the size and impact of an exploitive paracitic oligarcy, is it?

Posted by shastakath | Report as abusive