Executive News: Done deal or no?
The experts tell me that financial reform is a “done deal.” Sit down, shut up and take your licking like a man, Beverage.
But as I continue to wade through the two versions of “reform,” I keep asking myself: is that really true? I mean, based on what these two bills will ultimately do to traditional community banks over time, will Congress really pull the pin on this grenade and send it to the president?
The Senate's big hurdle was getting to cloture – 60 votes is what they needed; 60 votes is what they got. Pinpoint bidding, and not a point (or vote) to spare. Thank you very much Sen. Scott Brown (R-Mass.).
Passing the Senate version of “reform” was the easy part, once the body got past the cloture vote. And there's not much doubt in my mind that the Senate has 51 votes to approve whatever may come out of conference. After all, Democrats outnumber Republicans 59-41, and the conference report cannot be subject to a filibuster. There may be one or two Democrats that fall away, but I don't think there are enough to cause the bill to be defeated.
But the House may – just may – be a different story. Here's what I mean:
The House version of financial reform passed last December with a five-vote margin. Two hundred-eighteen votes were needed, and 223 were acquired. But since that vote was taken things have changed a bit. A Hawaii Democrat who voted “Aye” last December (Abercrombie) resigned and was replaced by a Republican. Assuming all Republicans in the House continue to vote against the bill, that would mean one less vote on passage of the conference report.
Two more “aye” votes are no longer in the House: John Murtha (D-Pa.) died and Robert Wexler (D-Fla.) resigned. Both men were replaced with Democrats, but their replacements basically ran against the Administration and its activities on a number of issues. At a minimum, there is no guarantee these two newly-elected Democrats will vote the same way as their predecessors on financial reform.
And there were 27 Democrats who voted “nay” in December. Unless things change fairly dramatically, I doubt these votes are going to change very much.
In addition to the 27 who voted “nay,” seven Democrats did not vote at all. I have no idea what they would do if push comes to shove on the conference report. If all seven vote this time and vote for the bill then it passes with an even wider margin than it had in December. But that probably assumes many of the Senate provisions will be dropped – something that's not so certain.
If there was a tactical mistake in the House last December, it was not fighting hard enough against the bill's passage at that point. Many of my colleagues believe – as I do – that with a bit more effort we might have turned some or all of those five votes. But that's water under the bridge; we didn't, and now we're confronted with the conference report, however it comes out.
Where are the points of conflict?
Interchange is one area for a potential fight. These restrictions were not contained in the House bill, and there are large numbers of traditional community banks and credit unions marching in Washington to oppose this language. I doubt it will come out completely, but it may be watered down.
A fight is also likely over the derivatives provision added by Sen. Blanche Lincoln (D-Ark.). The provision will really hammer earnings for larger Wall Street banks and if it remains in the final bill, it may not have the necessary votes in the House to support it. Conference Chairman Barney Frank (D-Mass.) thinks it goes too far. Lincoln said she'll defend it to the death. Since she's not on the Conference Committee, my money is on Frank.
What about “too-big-to-fail?” Neither version really drives a stake through the heart of this policy, but the pre-funded resolution fund language was removed from the Senate version. It's still in the House version, and it may be a deal-breaker. I just don't know.
And Sen. Russ Feingold (D-Wisc.) voted against the Senate's final version of reform because he didn't think the language went far enough to end TBTF. If the language is further weakened in conference it's possible that some votes in the House might also change.
Then there's the dreaded consumer agency. Should it be a free-standing entity or housed as a separate bureau within the Fed? If I'm a betting man, I'm betting on the latter because it will enable the new agency to avoid the appropriations process.
How about audits of the Federal Reserve? The House version provides for much broader auditing authority, but the Senate debate indicates there's very little stomach for such expanded authority (the Bernie Sanders amendment was soundly defeated during debate on this point). If the broader House provision – courtesy of Rep. Ron Paul (R-Texas) – is left intact, then the Senate may not be a “lock” when it comes to final passage.
Preemption is another potential land-mine. Many in the House want a very strong statement against preemption. The Senate version is more reasonable and, thus, is more vulnerable to the political climate that currently exists. What does that do to the bill's chance of being passed?
Even though “reforming Wall Street” has been the mantra of many on Capitol Hill, the derivatives language added in the Senate is about the only thing that really hammers the Street entities. And since securities firms and mortgage brokers are not subject to the reach of the consumer agency, it's hard to say that imposing more paperwork on community banks is going to fix any of the problems that led up to September 2008. Once that concept is understood by the general public, it makes it even more difficult for Members to vote in favor of something that won't fix the problems that led us to the edge of the economic abyss.
Most Americans believe “financial reform” in general is needed. So do most bankers. But no poll has shown that the general public wants to “kick down the door and scream loud” in support of either the House or the Senate version. It could be that people just don't care enough to register their opinion directly about “financial reform,” but if they understand this effort will increase the cost of financial services across the board – which it will – then my guess is that card can be played effectively even though the matter is in conference.
Members are tired of fighting the media and each other. The question in their mind is, how critical is it to give their all and go to the mat for the president one more time, just to get “something,” before the November election and risk losing the support of the financial community back home? Financial reform might not be a cause they feel like fighting or dying for politically.
Translated: that means it's more likely than not that the ultimate language could be “safe” and with fewer controversial provisions. Regrettably, I just don't know what those would be at this point since the whole thing is repulsive to me.
Stay tuned. I will keep you informed about developments as they occur.
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