So it looks like financial reform is going to be Dodd-Dodd rather than Dodd-Corker. The consumer finance regulator is like the new public option, a real deal killer. Also not helping is the wider, harsher version of the Volcker Rule that a group of Dems have proposed. I call it the Goldman Sachs Rule since it is targeted at the supposed conflicts of interest GS has. Throwing GS into the mix further politicizes the process and makes compromise tougher. A real poison pill. But that might be the idea all along. Push a weak, Democrat-only bill vulnerable to a host of anti-bank amendments on the floor of the Senate. Then force Republicans to vote against them with the midterm elections looming. With the economy weak and healthcare unpopular, financial populist may be the only card Dems have to play.
President Obama is continuing to push the Volcker Rule to ban prop trading by banks. My sources give me no indication this has a realistic chance of happening. Certainly none of the key members — Dodd, Shelby, Corker, Warner — have warmed to it. So why is Obama pushing it, then? Hey, it is about the only part of his agenda with any popular support. Certainly not healthcare or cap-and-trade or the stimulus. Anti-Wall Street populism works, so more anti-Wall Street populism we will get. This is also why the GOP wants to pass a financial reform bill. It deprives Dems of a political weapon that plays on the stereotype of Republicans as the Party of the Rich.
Rightly or wrongly, Wall Street is given blame for the Great Financial Meltdown — at least far more so than the Fed, US housing policy and government Too Big To Fail policy. So looking at how financial reform is coalescing in Congress, the big banks have to feel relieved. No one is being broken up, no return of Glass Steagall, the new consumer protection regulator is being continually whittled down, no super regulator. Things may have gone much differently had financial reform been more of a priority than healthcare. Wall Street’s execs may not deserve bonuses, but its lobbyists sure do.
A few points:
1) The much-hyped Volcker Rule proposal is failing fast in the U.S. Congress. But Paul Volcker himself probably isn’t that surprised. The former Federal Reserve chairman joked he was “just a photo op” even after President Barack Obama’s public embrace of his proposal to limit bank proprietary trading. More evidence that the moment for sweeping reform has probably passed.
With healthcare on ice, financial reform is the hottest game in town. Now Dodd is trying to bypass Shelby to somehow gin up a bipartisan bill with Corker – who takes the issue extremely seriously. A few thoughts:
She emails me on the Obama plan to limit bank activities:
1) I think that they are now panicking and veering from solution to solution. They will roil the markets and just make themselves panic more. Politically, i’m not sure. It will be hard for republicans to be against this, just like it is hard for them to fight the bank tax. Although if markets fall by hundreds of points, it gives the GOP an opening to say that Obama doesn’t know what he’s doing.
Obama’s plan to limit risky activities at big banks is more about forcing Republicans to take tough votes than preventing another credit meltdown.The Volcker Plan was already rejected by the WH econ team (Summers, Geithner) and this is being pushed by the political team (Rahmbo, Axelrod) in the wake of the Massachusetts Meltdown. (In fact, this may help tamp down pressure from congressional Dems to dump the econ team.)