Financial reform meltdown
Democrats are reopening the House-Senate conference committee to deal with GOP opposition to the $19 billion tax to pay for the bill. This likely means that Dems not only didn’t have Scott Brown’s vote, but either Susan Collins, Olympia Snowe or Chuck Grassley went from “yes” to “no.” Maybe all of them.
And maybe they will get the money from TARP or the FDIC. But banks had better hope U.S. Democrats have a Plan B. Yes, big lending and trading institutions face hard changes from the passage of U.S. financial reform. But legislative failure — suddenly less far-fetched than it seemed — might be worse. If they fail, the uncertainty, haggling and headlines could drag on into 2011. A few thoughts:
1) Lobbyists who started the July 4 holiday early following last week’s congressional compromise are probably regretting it.
2) Scuttling a major piece of legislation over such a trivial sum may seem unlikely in an era of trillion-dollar budget deficits. Then again, a similar fiscal debate is preventing the Senate from approving a new jobs bill despite high unemployment.
3) If reaching 60 proves impossible, the calculus will change. There’s an existing Republican counter-plan, and the party is apt to increase its ranks in the next Congress. The GOP reform plan isn’t all that different from what Democrats have put forward, but the banks consider the changes less onerous.
4) But 2011 Republicans, infused with Tea Party populism, might be a more combative lot. The House-Senate conference committee offered a preview. Conservatives tried to force banks to pay for the wind-down of $140 billion bailout recipients Fannie Mae and Freddie Mac. Incoming Republicans might also be more amenable to shrinking the banks as the only way to prevent the problem of “too big to fail.”
5) At the very least, the messy process would generate vast, new uncertainly for industry executives and investors. No wonder banks’ shares rose on news of the compromise agreement, despite its potentially heavy costs.