Bit by bit, bipartisan negotiations in the Senate over financial regulatory reform have broken down. Richard Shelby, the ranking Republican on the Banking Committee split with the Democratic Chairman, Chris Dodd in February. Bob Corker filled the gap, stepping in to try to hammer out a compromise on an issue in which both parties see the potential for good policy and good politics. But wary of delays after a bitter health care fight, Democrats voted the bill out of committee in March with no Republican support, and now are looking to open up the legislation to amendments and debate on the Senate floor. As recently as last month, Republican leadership was open to a deal.
In a floor speech this morning, Senate Minority Leader Mitch McConnell threw cold water on the prospects of detente, establishing a hard line of attack against the Dodd bill, and indelibly marking the party line: "We must not pass the financial reform bill that's about to hit the floor."
The crux of his criticism is that the bill "institutionalizes... taxpayer-funded bailouts of Wall Street banks." He knocked the expansion of power at the Fed and Treasury, while sounding the alarm on Wall Street accountability. If the outline of his speech sounds familiar, it's because it is the exact argument pollster Frank Luntz urged Republicans to make earlier this year in a widely publicized memo.
Now, there's really nothing wrong with McConnell's, errrr, Luntz complaints: there probably ought to come a point in bailing out financial institutions where we say "enough is enough" and let the chips fall. Surely, we came awful close in 2008/2009.
But what this list of talking points ignores is the bill contains mechanisms that will circumvent all but the worst scenarios by forcing banks to pony up and self-insure their operations by levying a financial tax on transactions.
And there, my friends, is the rub: for every stock sale, a piece of the money moving about will go to the Federal Reserve. For every derivative traded on the market, a bit will go to the Feds. For every wacky and hardly-understood transaction some quant analyst dreams up to further drape a veil over the investors' eyes, well, the financial institution will have to stand by the research with a bit of its own money.
Put up or shut up, as they say. And in truth, this is what Luntz and McConnell object to. A tax. On people who would gladly take taxpayer money. Seems a pretty stupid stance to take.
Too, the bill has other, even better and more effective requirements, like forcing every bank to present a plan to wind down their businesses, should the worst happen (which it will and for which every bank ought to have been prepared all along, since these crises happen every twenty years or so anyway). And a liquidation plan that lifts the burden and responsibility (and the potential for politicizing monetary tragedy) from the FDIC and puts it squarely on two other pillars: The Treasury/Fed and three bankruptcy judges.
All of this, included in the Dodd bill, makes for a fairly comprehensive step towards financial reform that will protect the average American (but not the ubergreedy rich) from having to bail out banks at a rate unheard of in world history.
McConnell, not surprisingly, is on the wrong side of history.
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